Fundamental drivers of demand
Hi Wilson,
I believe it is possible to find areas that are going to experience higher than average capital growth areas, while providing good high yields to minimise your holding costs. These areas could be considered to fall into two broad group.
Safer city growth areas
Firstly areas within major cities, such as inner city (eg, 2-7km) Melbourne, Brisbane or Adelaide. Areas that in my research, reading of the available property investor magazines (eg, Your Property Investment, Australian Property Investors, Your Mortgage) and attendance of investment seminars (eg,
www.mcorp.com.au has a fantastic three day free seminar) are on the rise and in the case of Adelaide potentially the next Perth.
These areas have fundamental reasons for their rise and indeed have experienced strong growth in the last year (15%+ in some suburbs in the last quarter in Melbourne). By purchasing data from the relevant state Real Estate Institute (
www.reiv.com.au ;
www.reiq.com.au ;
www.reisa.com.au) you can get the quarterly and annual trends of top performing suburbs and start your short list from there.
I don't have the information handly to outline the reasons for each city - this is information you can and, more importantly, should source and read yourself. I agree in part with DavidMc's advice - be wary of those who claim to be able to tell you where to buy. However, the property market is not the stock market. It is NOT totally efficient. There are not hundreds of stock analysts watching the 500 or so main companies in the market when it comes to the property market. Most people don't invest more than 20km from where they live - so the market will be inefficient and you can get good buys by doing the research.
As you are pretty new and have a shorter time frame, I would recommend you use a buyers advocate - someone who will do all the work for you and recommend properties for you to buy. They are much more likely than you to pick a property that will experience above average growth.
You'll need to meet with a few of them and read their testimonials and preferrably talk to some of their clients. Once they recommend properties, do you research on the suburbs to see if you agree with their recommendations. They charge about $7k or 2% of the property's value. However, if a property goes up by say 10% a year this is money well spent.
Also, a buyers advocate will find you a property fast - probably four weeks. You could spend six months research suburbs and the market may have risen 10% - 10% you would have missed out on. A buyers advocate will save a lot of time for you and get you in the market sooner.
More speculative regional areas
Secondly, you can get good growth and high yields by investing in boom towns. Bernard Salt (demographer and partner of KPMG and regular columnist in The Australia -
www.bernardsalt.com.au) has identified the top boom towns in Australia based on population growth. Now is the best time to use this data for investing - given the last census was only last year.
Other towns are booming because of the 'once-in-a-life-time' commodities boom. These towns include Roxby Downs (SA), Gladstone (QLD), and Port Hedland (WA but very, very expensive). Global demand for coal, uranium, copper, aluminum, iron ore and other metals from China, India and other developing nations has created a sustained commodities cycle that has never been seen before (see
www.bhpbilliton.com/bb/investorsMedia/investmentPresentations.jsp and
www.riotinto.com/investors/219_publications_and_speeches.asp for presentations outlining this).
The growth in these towns over the last five years has been phenomenal and I believe will continue for the medium term. Roxby has a $5bn expansion, Gladstone a $2.2bn expansion and more than $10bn in other potential expansions plus is one of the top 10 population growth regions in Australia, Port Hedland is out to experience the Fortescue Metals Group expansion. Rents are c6% in Roxby, c5% and increasing in Gladstone, and c10% in Port Hedland.
While these are regional areas, there are fundamentally sound reasons why these areas have and will continue to boom. Again, you need to do your own research into it but I believe the evidence is clear and pursuasive. Indeed, I have myself personally flown to Roxby Downs and Gladstone, and have purchased in Roxby and signed a contract for a property in Gladstone. However, do your research and make sure I am not just 'talking my book'
Residex (
www.residex.com.au) also has a 'Best Rent' report that details the top 100 rental suburbs - this could also be a good starting point for you.
All the best!
Flynn
[email protected]