Residential real estate abounds with fallacies and misconceptions, mostly created by dishonest politicians, biased journalists and economists who don’t understand property.
One of the biggest is the one that claims that so-called prime property shows the best capital growth.
A year ago I attended a national conference for real estate professionals at which a keynote speaker expressed the view that you had to buy “prime” to get good capital growth – and indeed proclaimed that if you couldn’t buy prestige property you shouldn’t buy at all – or at least wait until you could afford something in the higher price ranges.
I had to challenge that view in question time because everything I’ve observed over four decades in real estate research absolutely contradicts this notion.
I was astounded that something presented as a real estate expert could make such an unsupportable claim and give such terribly bad advice.
It’s amazing how many people still cling to this out-dated and plainly inaccurate view of real estate, which is emphatically contradicted by all the evidence.
Many still believe that prime out-performs affordable, that the closer to the CBD the stronger the capital growth, that capital cities outdo the regions, and that the biggest cities show better growth over time that the smaller ones.
All of those opinions are fallacies. They’re just plain wrong.
Whether you examine the past quarter, the past year, the past three years, the past decade or the past 20 years, you will find compelling evidence that the regions have outperformed the capital cities, that the biggest cities have under-achieved, that affordable areas have excelled on capital growth – and that proximity to the CBD is utterly irrelevant in real estate investment.
And you can add another misconception that increasingly is being proven wrong – the one that says houses on land show better capital growth than apartments.
An example of what the research shows is provided by PropTrack which earlier this year examined how much dwelling values had grown in the four years since Covid disrupted property markets.
The leading jurisdictions for price growth were, in order, Regional Queensland, Regional SA, Adelaide, Brisbane and Perth.
The bottom ranking markets among the capital cities and state regional markets were Sydney and Melbourne.
PropTrack also looked the local markets with the highest growth over that four-year period and found that all of the Top 10 locations were regional or outer-ring areas of the smaller capital cities. The cheaper areas of Adelaide and Brisbane were most prominent for high capital growth, as well as regional areas of Queensland and South Australia.
Now, all of that is good news for most people approaching property investment who can’t afford to buy in those higher price brackets – because it means you don’t need to buy expensive homes to do well in real estate.
The typical investor I encounter wants to buy a property below $500,000 because they can’t afford to go higher.
The really good news is that buying affordable real estate in good locations is a win-win-win situation: a lower buy-in price, a higher rental yield and good prospects for capital growth.
We call this kind of real estate The Cheapies with Prospects.
Let me give you just one example of how Cheapies with Prospects locations can deliver the most spectacular capital growth.
Many times in the past few years I have made the observation that the cheapest houses in capital city Australia were located in the affordable northern suburbs of Adelaide – specifically in the local government area of Playford.
A few years ago many suburbs had median house prices in the $200,000s – and , let’s face it, this was seriously downmarket real estate.
In the past 12 months these suburbs have delivered extraordinary capital growth.
Most suburbs in the City of Playford have grown more than 20% in the past 12 months, seven suburbs which have lifted over 30% – including Elizabeth North up 33%, Eyre up 38%, Davoren Park up 41% and Elizabeth South up 55%.
In Davoren Park, the median house price three years ago was just $190,000 and now it’s $460,000. Typical houses in Elizabeth North cost $195,000 three years ago and now they’re $425,000.
There’s been similar spectacular price rises right throughout this precinct in the affordable north of Adelaide.
Keep those figures in mind next time someone tells you that you have to buy expensive houses in prestige areas to get the best capital growth.