Sydney ferry and city skyline
Traditional investment paradigm
I know of many investors who steadfastly insist that properties within a certain radius of an Australian metropolitan CBD will outgrow those located more than say 20km or so in the outer fringes of a capital city. This view is certainly true in the past and is rightfully founded upon traditional patterns of property growth fuelled by our obsession of living in and around Australian capital cities.
Lets face it, no matter how much Sydneysiders whinge about the state of Sydney’s trains, traffic congestion, higher cost of living and noise levels, being a harbour city, Sydney is still a pretty darn beautiful place to live in. Its lifestyle compared to many close Asian rivals are miles ahead and I believe many would-be migrants would kill for a piece of this action. Sydney is spoilt for choice – a world-class cuisine, laid-back and outdoorsy attitude as a result of the sunny and temperate climate which is taken for granted. Melbourne is elegant, perhaps the most elegant of all Australian capital cities with its cafe and emerging food culture, art and fashion and hey, the Australian Grand Prix and Australian Open tennis won’t hurt the local state economy. I love Perth for its vast open spaces, minimal fuss with traffic and its friendly locals. The presence of water views in most capital cities have an added dimension of natural beauty of its seascapes and coastal land.
Earlier migrants and established suburbs
In recent years, the global economy has dramatically changed. Technology has made the world smaller, we had a resources boom which brought many residential areas in Queensland and Western Australia to the forefront in property values. Lastly, the emergence of China and India as Asian powerhouses cannot be ignored. Migration numbers into Australia have ballooned over recent years and this has increased the demand for new housing. It may be true that migrants also prefer to stay within close range of metropolitan CBDs due to better job opportunities. However, the demographics of our capital cities are changing so rapidly that certain outer suburbs are proving to be just as attractive with good public amenities but are considerably more affordable in terms of housing. Take Sydney for example, Chinatown in the heart of the city used to be the melting pot for Chinese and Asian food in general in the early 1980s.
Today, Chatswood has become a residential, commercial and retail metropolis within the lower north shore where property values have escalated beyond imagination. Suburbs further from the CBD like Flemington, Hurstville and Cabramatta (respectively 15km, 22km and 33km from the CBD) have a mixture of predominantly Chinese, Indian and Vietnamese migrants. Sydney Markets at Flemington is a wholesale market that provides fresh vegetables, meats, seafood, dry groceries and many other fresh produce to retailers, food businesses and the public alike at wholesale prices which give household budgets a big savings boost. These suburbs, among many others in capital cities of Australia have provided earlier migrants with literally a “new lease of life”. That is, the reality of an affordable brand new home in a country that promises the rule of law, equal opportunities and political stability. This is a potent cocktail of hope for any new arrival seeking a better future in a foreign land. In most cases, the cost of living is relatively lower compared to areas closer to the city. Public amenities such as schools and hospitals are sometimes easier to access than in the city and there is never a shortage of parklands and open public spaces.
The rise of “newer” suburbs and gentrification of the “old”
Rhodes is approximately 16km north west of Sydney CBD. Most apartments in this suburb are relatively new as a result of development over the last 5 years by Mirvac, Meriton, Billbergia and Walker Corporation. The convenience of the Rhodes Shopping Centre and train station cannot be underestimated. Investors who are buying the new apartments in Rhodes are predominantly new and young migrants from China. There is also anecdotes of auctions being dominated by Chinese bidders in recent times. In general, these migrants prefer new dwellings, the convenience of shopping and good access to the city. The table below shows that absolute price growth in dollar terms for Rhodes and Abbotsford have overtaken established suburbs like Mosman and Pyrmont which is literally in the city.
Dee Why in the northern beaches have long been the “poorer cousin” of its neighbouring Manly. However, things are about to change with the imminent Dee Why Grand, an integrated residential, retail and commercial development comprising 166 luxury apartments with all the modern conveniences. With Coles and Harris Farm taking up tenancy in this complex, Dee Why Grand is expected to transform the Pittwater road / Pacific Parade junction the same way that Pacific Square Shopping Centre has transformed Maroubra junction.
Redfern and Pyrmont have enjoyed solid growth due to gentrification, new developments around Blackwattle Bay, close proximity to TAFE and the city in general. These emerging trends have attracted young professionals who enjoy city living and all it has to offer. Renovation and upgrade of old terraces around Redfern has increased property values and brought in the hip factor in city living. On the other hand, established lower north shore suburbs like Cremorne and Neutral Bay have experienced more modest growth rates over the last 5 years. Rental yields are generally higher for CBD suburbs due to higher demand. The median price of $500,000 for Sydney city tells us something about the supply of units within the CBD and its relative potential for capital growth.
|
Suburb
|
Km from Sydney CBD
|
Median unit price $
|
5-year growth %
|
Weekly median rent $
|
Median Yield %
|
|
Dee Why
|
18
|
425,000
|
11
|
400
|
5.29
|
|
Rhodes
|
16
|
579,000
|
14
|
550
|
4.94
|
|
Abbotsford
|
11
|
600,000
|
13
|
465
|
4.03
|
|
Chatswood
|
11
|
500,664
|
13
|
500
|
5.19
|
|
Artarmon
|
9
|
513,750
|
14
|
450
|
4.55
|
|
Mosman
|
8
|
550,000
|
9
|
470
|
4.44
|
|
Cremorne
|
6
|
545,188
|
9
|
495
|
4.72
|
|
Neutral Bay
|
5
|
515,000
|
5
|
480
|
4.85
|
|
Erskineville
|
4
|
469,000
|
12
|
495
|
5.49
|
|
Redfern
|
3
|
445,000
|
20
|
450
|
5.26
|
|
Pyrmont
|
2
|
560,400
|
40
|
568
|
5.27
|
|
Sydney city
|
0
|
500,000
|
18
|
580
|
6.03
|
Source: RP Data, Your Investment Property, Issue No. 32, March 2010
Changing trends and attitudes
The argument about standard of living can be subjective. Advancement of technology has made it easier for many to work from home and there is some justification for so many city dwellers seeking a “sea change” or “tree change”. Australia has the ability to provide an alternative lifestyle in less populated coastal towns with similar oceans views at a fraction of the price which is proving to be an irresistible lure to getaway from hectic city life. Gerringong, Gerroa and Mollymook are just a few of so many coastal towns in the south coast of New South Wales which offer breath-taking ocean views without the Sydney price tag and traffic congestion. As a result, some inland and coastal suburbs which offer a more balanced work – leisure lifestyle are beginning to experience solid growth based on sustainable foundations rather than more speculative hearsay which are infamous with many CBDs developments. Dural in the north of Sydney may be one such suburb.
Flowers at Sydney Markets, Flemington
Economics
Statistics like those above have proven that some so-called iconic or “high-end” suburbs have experienced at best lacklustre growth rates over the past 10 years whilst suburbs in the outer fringes are powering ahead with double-digit growth rates. Why is this so? The reason may come down to be purely economics. As Australia grows in population (currently 22 million and is tipped to reach 35 million by 2050), properties in the outer fringes are more affordable compared to the CBD and usually demonstrate better cashflow. Being more affordable, these properties are in higher demand and when interest rates are low, more first home buyers will enter the property market via these outer fringe suburbs. When interest rates increase, demand for these properties decrease due to lower affordability which in turn, increases the number of renters who provide a strong support to yields for these properties. In short, outer-fringers are relatively more recession-proof than their CBD counterparts.
On the other hand, properties in the CBD and “trendy and high end” suburbs with higher values will be the first to suffer in the event of a property downturn. Rising interest rates cripple affordability and prices of these properties and their higher values also return poor yields and discourage would-be investors to enter these markets.
Therefore, the traditional either-or choice of buying a CBD or outer fringe property is blurred by changing times and factors affecting a host of investment criteria. It is no longer a straight-forward choice because different suburbs within each precinct have different attributes depending on the investor’s goal and aspirations. It depends on the type of property you buy in a “strategic location” with a point of difference. Location is still important but scarcity and a unique point of difference which people are looking for is the key to a sound investment in the long term.
Investment strategy
From a strategy point of view, one should continue to consider investing in CBD suburbs provided one don’t over-capitalise and properties have sufficient upside potential in capital appreciation. Such properties are increasingly difficult to find at best of times because housing affordability in the CBDs of Australia is decreasing with dampening effects on price growth. To qualify as good investments, these CBD properties must demonstrate a distinct point of difference – convenience, transport, unique floor plan, private backyards, potential to upgrade and renovate, extra car space, valuable storage space and lifestyle choices for tenants such as a walk home from work or their favourite surf beach, pubs and restaurants.
As for the outer fringes, these suburbs must be within the radar of massive infrastructure investments and upgrades, projected population growth precincts with good public amenities and better transport routes to the CBD already inked onto paper. One such suburb is Melton, located 35km northwest of Melbourne, or the town of Gladstone, 550km north of Brisbane, but that’s another story.
