Throughout my investing journey, I’ve always put one thing above all else – quality locations.
I’ve always believed that if you buy quality, then you’re buying properties with the wind at your back and over time, you’ll see significant capital growth.
In the Sydney market, quality locations are the ones where everyone wants to live. These are your in-demand locations and areas that are close to the water, have good access to the city and all the great amenities that we expect to see from living in a city like Sydney. Think Eastern Suburbs, Northern Beaches or Inner West.
We understand that people want to live in good areas, but why is it that these locations continue to see high rates of capital growth?
A recent research paper from PEXA, titled ‘What Drives Australian House Prices Over The Long Term?’, can help shed some light on why we see these types of blue-chip locations continuing to increase in value and why it’s never likely to stop.
It all comes down to one thing – land.
When we look at a place like Sydney, we see that there is an incredibly limited supply of land. In reality, the entire city is bound by water and the mountains. When we break that down to the amount of land that is close to the beach and harbour, we get an even smaller amount that is available.
Looking at the PEXA report, the key finding was that the main reason we see house price growth in Australia is due to the huge increase in population and tight supply of quality land. The number of people coming to Australia every single year is higher than almost any other country in the world on a percentage basis.
This is also something that is not slowing down. The government is pushing hard for more and more immigration, and this year alone there will likely be more than 400,000 new arrivals to Australia, which is virtually higher than any other time in our history.
The vast majority of these people will be moving to the east coast of Australia and into our two largest cities of Sydney and Melbourne.
Irrespective of what interest rates are doing or what sentiment might be like, over the long term, demand will continue to rise and supply will always remain the same. Especially in the blue-chip locations.
The report also found that when you increase supply, through building more properties in established areas, this actually doesn’t reduce the price of property. In fact, it does the opposite. It just inflates the value of the land. Just like when a property gets rezoned to allow for more development, all that happens is the value of the land shoots up.
Some people might say that at some point, prices will become unaffordable, and people will stop buying. But the reality is there are always going to be buyers for these types of blue-chip properties. All you need to do is look at places like Manhattan where values have been increasing for hundreds of years and have been largely unaffordable to an average income earner throughout that entire period of time.
The same thing happens in a place like Bondi. Not all that long ago you could buy an apartment for $200,000. That was still unaffordable for most people at the time. Now an apartment might be $1.5 million. Again, it’s unaffordable to most, but there is still a steady stream of buyers wanting to get in.
As a property investor, your goal should simply be to focus on the most in-demand blue-chip locations where land is the most scarce. As the population continues to increase at a rapid rate, there will always be upward pressure on prices.
These high-quality locations will continue to outperform the average, so your job is to simply find the best property you can and then hold onto it.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.