How to find suburbs with sustainable capital growth potential

One of the key pillars to smart property investment is finding suburbs likely to experience capital growth. Savvy investors have been lucky enough to invest in suburbs on the cusp of a boom and have reaped the rewards of rising property values.

When looking for suburbs with capital growth potential, it is critical to ensure that that growth will be sustainable. Some suburbs present short-term capital growth opportunities which don’t always last the test of time. It is critical to identify this from the outset to avoid any traps.

In most cases suburbs with unsustainable capital growth are artificially inflated due to industry, an influx of temporary residents or tourism. In other cases, certain events can reduce the value of a suburb such as the impacts of weather or climate.

Mining towns are a good example of suburbs which are artificially inflated as a result of industry. Prices in these suburbs shoot up as a result of an influx workers with high disposable incomes. However, with the mining boom now over, many of these towns are shrinking or disappearing. Those left with property investments in these towns are often stung by falling values.

Fishing towns like Port Lincoln have also experienced rising prices as a result of the fishing industry and tourism. However, restrictions on commercial fishing, as well as depleted fish populations are likely to impact both industry and tourism, affecting the economy and subsequently impacting property values.

Canberra experiences high property values as a result of the population having high disposable incomes. Largely populated by politicians, departmental staff and journalists, the population is transient and many will only live in Canberra for short periods before moving on. This means property values are really only sustained over time as a result of a constant stream of new workers. Should cuts to government departments take place, which is a very real possibility under the current government, the population will reduce, meaning there will be more stock and less demand. This will inevitably contribute to falling prices.

Severe weather events like drought can also affect property values. For example, several years ago prices in Goulburn and the Southern Highlands fell as result of drought. Climate change is also likely to impact the value of property prices in certain suburbs, for example waterfront properties over time are more likely to experience rising water levels and erosion.

When looking for Investment Grade Property (IGP’s), it is critical to examine the capital growth drivers closely. What is driving the growth in the area and is the growth sustainable? Chat to your trusted property advisor for expert advice or call 1300 937 277 and take the fast track to creating wealth through property.

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