myth inner city

Property Myth - The closer you are to the CBD the better the growth

I'm not certain of the origins of this myth but often when we ask people what their investment plans are - many say they want to buy close to the city because they believe that's where you obtain the best growth.

Our own research tells us that good growth opportunities exist in many places and if you limit your focus to inner city only then you are cutting yourself off from significant upside gains.

As an exercise we randomly extracted some historical price data on a number of properties inner and outer to see what the figures told us and it made for interested reading. We selected properties that were priced in the middle of the market. Neither at the top end nor the bottom end

The first property was at Norman Park which has now become a sought after inner city suburb. The property had sold on 17/2/10 for $605,000. Its previous sale price was $155,000 back on 19/4/1999. So in the space of 11 years the property had grown in value by $450,000. A growth rate of 290%. So a pretty good result.

But what if instead you bought the next property we looked at in Marsden, which is in Logan City. The property sold on 24/2/10 for $437,000 but back on 17/6/02 it was bought for just $82,000. That's a growth rate of 432% in just 8 years. So for almost the same money as the property in Norman Park you could have picked up 2 properties in Marsden. If you achieved the same growth on both that would have been a combined increase of $710,000.

But it gets better still. The last property we looked at was at Bahrs Scrub which is around the Beenleigh area. This property sold for $465,000 on 26/10/09 but was bought on 7/8/1998 for $57,000. That's a growth of 715% in about 12 years. So in this case you could have picked up 3 for a little bit more than the price for Norman Park. Again if you achieved the same result on all 3 you are talking net growth of $1,224,000.

As you can see, potentially significantly different results for roughly the same investment. And a good illustration of the dangers of limiting your focus based on beliefs or myths rather than examining the facts. Which would you sooner have in your bank account $450000 or $1.2 million?

But why such phenomenal growth in these areas? The most likely reason is buyers were able to get in at the ground level. They bought ahead of the infrastructure and development that eventually came as population expanded in the South East. Maximizing your upside is not just buying for what is there now but also buying for what will be there. Where are the new schools, shopping centres, and transport links going? These are the elements that wil drive future growth.