There are three primary points of research that feed into an investment property decision. The selection of your primary market (or city), the selection of your suburb and then the selection of your entry point into that suburb (the actual investment). Of these three layers of consideration, suburb selection is the most important decision and the one that has the most impact on good or poor long-term outcomes.
The primary markets in Australia have produced similar (and spectacular) long-term returns over the over the last thirty-five to forty years. In looking at median property prices from the early 1980 you can see that Melbourne prices are fifteen times what they were in the early 1980s, while two other cities are close behind with Sydney at twelve times and Brisbane at eleven times the median price. The cities work to different clocks and different market cycles with Sydney normally leading the pack and establishing new high-water marks for prices and Melbourne and Brisbane following suit and closing the gap a few years later.
Within these incredible and unique cities there is great variance at the suburb level, which is why at Blue Wealth we believe in the primary importance of suburb selection. There are approximately 3,800 suburbs across Australia – with 658 in Sydney, 553 in Melbourne and 450 in Brisbane – and at any given time you can see a huge divergence between the best and worst performing suburbs. Over extended periods of time a similar difference exists.
We could take any year to make the point, for example, 2015 in Sydney shows the top performing suburb returning 34.8% while the worst performing suburb returned -0.9%, this in a year where the whole market grew over 11%. In that same year Melbourne’s best performing suburb returned 27.9% while the worst performing suburb returned -3.1%.
These variances also play out over time.
For the ten years to 2016 the best performing suburb in Melbourne returned 11.7% pa while the bottom suburb over that same period returned 2.5% pa. Sydney displayed a similar story, with 11.8% for the top performing suburb and 1.5% for the worst perfuming suburb.
The importance of suburb selection cannot be over-stated.