When people think about investing in blue chip property most would immediately assume they simply can’t afford to.
The idea of blue chip property often makes people think about Vaucluse, Point Piper or Bellevue Hill but the way I personally define a blue chip investment is a little different.
One key factor that I’m always searching for whenever I look at a potential investment is just how consistent the returns have been over a long period of time.
In recent years, where many regional locations have experienced mini-booms, it’s easy to get swept up in the idea of finding these ‘hotspot’ locations and making some quick money. To me, these types of locations are actually far riskier and also perform a lot worse over time.
My idea of a blue chip location is typically one that is attractive to a lot of people. That means there is strong demand, plenty of opportunities for employment, great amenities, schools and infrastructure while also having a very limited supply of new land.
A combination of these factors makes for an area that a lot of people want to live in and over time that is the key driver of steady capital growth.
In the past couple of years, we’ve seen property values soar in just about every market in the country and all around the world going up in value at a staggering rate. This has also coincided with a lot of other demand-side drivers such as an expanding money supply, a host of government incentives and of course record low interest rates. Combine that with tight supply and you have the makings of a bull market in property.
However, as property investors, we always need to take a step back and look at what has been taking place in a given market over a long period of time.
I like to see consistency and slow and steady returns. When I look at markets to invest in I want to see steady growth of around 7-10 per cent over decades. I don’t necessarily want to invest in a market that has the potential to jump 30 per cent in a year, only to lose 10 per cent per year over the next few years.
When we go chasing these types of locations, we’re simply moving into the realm of speculating and not investing for the long term as we should be.
So whether you’re buying a property in Adelaide for $500,000, Brisbane for $750,000, Melbourne for $1 million or in Sydney for $2 million the fundamentals of what makes a location a blue chip investment remain the same.
If there’s a long track record of proven performance and the right demand-side drivers to keep people wanting to live in that sort of location, then you should have the confidence that you are buying into a blue chip area.
It’s important to always think about the long term when you’re making investment decisions and equally, you should use the past as a guide to what the future might hold for a given location.