Why prestige suburbs aren’t always the best investment option

It’s surprising that despite all the evidence to the contrary, many people still believe you have to buy in prestige suburbs, close to the CBD, to get the best capital growth.

Many investors wrongly think if you can’t invest in these so-called blue chip markets it’s not really worth the effort.

They are wrong.

The same goes for those who think investors should avoid downmarket locations, outer suburbs, regional town or unit markets for that matter.

The Australian property investment landscape is continuing to change and while decades ago those sorts of locations may have shown inferior capital growth, that is no longer the case.

One of the fundamental truths about residential real estate, supported by years and years of statistical evidence, is that cheap real estate in downmarket areas can deliver excellent capital growth.

In fact, those kinds of areas – stigmatised as downmarket with social problems and high crime rates – often outperform the market overall.

Take for example Wiley Park in Sydney, which I recommend as a strong investment location.

The data shows it is one of the best-performing markets in Greater Sydney and is massively outperforming Sydney as a whole.

Prices in the New South Wales capital on average grew 2 per cent in the past 12 months but in Wiley Park the median prices are up 23 per cent for houses and 11 per cent for units. Rents for both rose 12 per cent and the vacancy rate was around 1 per cent. Prices have grown on average 12 per cent a year over the past five years.

It’s a good lesson for would-be investors to take note of.

Don’t select an investment location based on whether you would like to live there or not; select a location that meets the right fundamentals - public transport, shops, schools, playgrounds and, yes, affordable places to buy or rent.

Brisbane’s affordable hotspots

Australia abounds with examples of downmarket or stigmatised locations that have outperformed the general market.

If I were to ask a roomful of people, which market in Australia has delivered the highest, most spectacular price growth in the past 12 months, I can pretty much guarantee that no one would get it right.

The correct answer would be small units in the suburbs of Logan City in the south of Greater Brisbane.

Look at this growth in Logan unit markets in the past 12 months:

Beenleigh up 29 per cent

Logan Central up 32 per cent

Slacks Creek up 38 per cent

Woodridge up 45 per cent.

Vacancies in these markets are low, often below 1 per cent, and rents in most cases have grown 10 per cent or more in the past year.

If you bought the typical unit in Woodridge in mid-2022 you would have paid in the $200,000s– and now, two and half years later, it’s worth more than $400,000. And your rental return would be 8 or 9 per cent.

There are plenty of examples like this in other states.

One of the questions I get asked a lot about locations is: is there a high crime rate there?

I think this is one of real estate’s biggest furphies: the belief that a high crime rate means poor capital growth. And that serious crime only happens in poor areas.

There’s a crime wave in Melbourne right now – lots of burglaries, home invasions and car theft. But it’s happening in the wealthy suburbs, not the poor ones. Some of Melbourne’s most upmarket suburbs are the most heavily targeted.

If you want to succeed in real estate investment, sometimes you have to unlearn much of what you think you know and start doing some real research.

The results may surprise you.