Poll reveals serious misconceptions among investors

By Terry Ryder, 2nd January 2009

Australian property investors greatly under-estimate the capital gains record of outlying suburbs, judging by the results of an online poll by hotspotting.com.au.

 

At the same time, they over-estimate the performance on inner-city suburbs.

 

The poll, which attracted 650 respondents, found most investors believe that the best long-term capital gains are found in inner-city suburbs, followed by Sea Change locations.

 

The poll also found that investors have a poor estimation of the capital gains available in regional centres and outlying suburbs. It ranked mining towns as the worst option for long-term capital gains.

 

Ironically, the truth – as revealed by research evidence – is almost the complete opposite to the perceptions held by poll respondents. Mining towns have delivered spectacular capital gains over the past 10 years, while the best city performers have been the low-priced outlying suburbs.

 

The worst performers, generally speaking, have been Sea Change locations and the so-called “prime” suburbs of our capital cities.

 

Here are the results of the hotspotting.com.au poll, which asked respondents to indicate where they believed the best long-term capital gains were to be found:

 

1 Inner-city suburbs 42%

2 Sea change locations 23%

3 Regional centres 15%

4 Outer city suburbs 12%

5 Mining towns 8%

 

My analysis of the available research is that if you reversed the order you would be closer to the truth.

 

The key question is: why do so many investors have such major misconceptions on there to find the best capital growth?

 

One answer is industry propaganda. Many industry professionals, whether through ignorance or willful misinformation based on vested interests, pump out media material claiming that the best investments are always found in the upmarket “prime” suburbs. The statistical evidence contradicts them but they keep saying it.

 

Another answer is that many people base buying decisions on emotions rather than cold, hard facts. People would rather live in the glamour suburbs and the sexy Sea Change places, and carry that emotion into their investment planning – which is a dangerous habit.

 

In most cities, the cheaper suburbs more distant from the CBD have out-performed the inner-city suburbs on capital growth. In Brisbane, for example, the top three suburbs over the past five years are all Ugly Ducklings suburbs with affordable prices, well ahead of the upmarket top end suburbs.

 

Ipswich City, considered the poor relation of Brisbane City, has greatly out-performed Brisbane on capital growth – and on the Gold Coast the best achievers of capital growth in the past five years have been the budget suburbs in the Brisbane-Gold Coast corridor, well ahead of the glamour areas like Surfers Paradise and Broadbeach.

 

Mining towns have delivered spectacular long-term capital growth to investors. Moranbah in Queensland has averaged a phenomenal 31% per year over 10 years and Port Hedland in Western Australia has averaged 22% per year. These locations are high-risk because their values are dependent on the longevity of the resources boom, but the research shows that mining towns have been the biggest creators of real estate wealth this century.

 

On the other hand, Sea Change locations have been poor performers. They have sexy images but their real estate performance is poor. Many NSW coastal towns still have prices lower that the 2004 peaks. Port Macquarie, Coffs Harbour and Nelson Bay have averaged only 8% over the past 10 years.

 

The poll shows that property investors need accurate research information on which to base decisions about where to buy. Those who pay top dollar in inner-city suburbs expecting the best capital growth will be seriously disappointed.

 

ENDS