I often get asked about my favourite suburbs for buying property, but I'm usually not really that keen on spouting general advice, since what is right for one person may not be right for another.
Moreover punters might merrily go off and buy a poor property in that area - such as a dwelling on a main road or with any number of sub-optimal features - and then subsequently wonder why they don't experience that elusive capital growth!
For property buyers in Brisbane, be wary about a couple of things in particular:
Ask genuine local experts with decades of experience in the Brisbane market and they will tell you that there can sometimes be problems with investing in Brisbane's sprawling outer.
That is, that there are so many blocks which can be developed in outer areas where demand is low - thousands upon thousands of them - that not ever in my lifetime will there be significant upwards pressure on land prices in some such locations.
Meanwhile the actual capital growth experienced on the like-for-like resale of individual dwellings remains stubbornly close to zilch in real terms.
There are a number of these suburbs and I've covered on this blog before which suburbs are among the highest risk of apartment oversupply.
Whatever you do, do your research before purchasing a unit, because there are a number of suburbs which will imminently experience an unprecedented glut of attached dwellings (refer below chart):
One of the factors in driving property price growth which is terribly misunderstood is that of population growth.
The meme that "population growth is good" may be true at the capital city level and it most certainly beats the alternative - yet it can also be awfully misleading at the suburb level.
Take the example of Deception Bay, which is around 32 kilometres from Brisbane Central Business District, and experienced a very strong population growth of 15 percent between 2006 and the 2011 Census. Did this very strong population growth lead directly to a boom in prices?
Well, no, median house prices have declined over the past half decade years by 4 percent and median unit prices by 11 percent - suburb median prices aren't always a reliable measure, granted, but a boom there has not been.
While there has been some talk of a market uplift in recent times, the greatest number of households remain in the $30,000 to $50,000 per annum income bracket, there is little scarcity value given the relative availability of land and therefore building plots have remained comparatively cheap.
Most pertinently, local unemployment rates are threatening to spiral out of control, rising by more than 50 percent across the five quarters to September 2014 (more detailed research suggests that the big increases in unemployment rates have now stopped, which is heartening news).
Deception Bay - Unemployment rate
September 2013 - 9.1 percent
December 2013 - 10.6 percent
March 2014 - 12.0 percent
June 2014 - 13.1 percent
September 2014 - 13.8 percent
Similar labour market challenges are facing some of Adelaide's fringe suburbs as well as many other parts of regional Australia.
Although over the very long term the price of most dwellings will eventually rise in nominal terms, you may want to see these concerning unemployment trends reverse into single digit territory before piling in to buy property which superficially appears to offer 'value'.
Don't be duped into believing that there is an effective lower bound on property prices in cheaper regions. Murphy's Law holds that we will experience a recession at some point in Australia, so think carefully about which locations you want to be owning property in when that happens.
Land scarcity drives price growth
Think about the dynamics of investment carefully.
While interest rates declining from 17 percent to 5 percent within the space of a decade was a dynamic which allowed dwelling prices almost everywhere across urban Australia to rise strongly in the 1990s, nothing similar is going to be repeated any time soon.
Even in the unlikely event that median plot prices in outer suburbs soared by, say, 50 percent, from $100,000 to $150,000, this is still only going to add $50,000 of capital value to a median priced $300,000 house, which is a paltry 16.7 percent growth in total asset value.
Are inner suburbs necessarily 'better'?
Are inner suburbs with strong population growth any better? No, not necessarily!
Take the Brisbane suburb of West End as an example, where the population roared higher by 30 percent between 2006 and the Census of 2011, or South Brisbane where similar circumstances exist.
The principal reason that the population can grow and is growing so rapidly, of course, is that industrial and commercial sites are being rezoned all over the show for new high-density apartment buildings.
Would I buy a property there? Not a new off-the-plan unit, for mine - there are hundreds and hundreds of the things being built and there will eventually be talk of a significant oversupply which will lead to steepling vacancy rates and stalling rents.
It is inarguable of course, that over discrete periods of time growth can be sluggish in suburbs such as New Farm, but over time quality assets generally do perform exceptionally well (how often do you hear someone say: "I wish I hadn't bought that well-located property near the city and held it for the long term?" - answer: never?).
New Farm robust
While I'm not one to be drawn into apotheosis, and all suburbs have their good and bad properties, right on cue in 2014 median houses prices in New Farm boomed by 24 percent leading to capital growth over the preceding years of 40.4 percent, or more than $300,000.
Unit prices in New Farm have lagged a little reflective of a lesser scarcity in some of these property types, but are still up very strongly over the past five years.
What are the reasons that New Farm house prices have been able to rise by more than 40 percent in five years whilst so many outer Brisbane suburbs have performed dismally?
Yep, proximity to the city and employment but without major roads or rail links that can undermine value growth, while "most of the best cafés, restaurants in Brisbane are located in New Farm. It has the best park, walkways and fashion shopping outside of the CBD..." and so on.
Meanwhile, those so-termed "low growth" inner Sydney suburbs aren't doing too shabbily either. My city, eastern suburbs and inner west picks in Sydney have generally put around 80 percent capital growth on the board since 2008 - which isn't too shoddy in the context of some truly desperate mining town and other regional recommendations promoted by some experts.
The role of population growth
This is the key point: the lack of population growth within the suburb reflects the lack of available land for development and an effective restriction on building approvals in New Farm, which has in turn capped significant new supply of properties.
While there will always be an element of 'frictional' unemployment and rates will never decline to zero, the unemployment rate in New Farm has declined to be below 4 percent.
Understanding demographics and suburb life cycles
Understanding the life cycle of a suburb is also paramount.
Why will prices be driven higher over time? Partly this is because today's 25-34 year old professional renters earning $130,000 to $180,000 will also be tomorrow's $180,000+ executives.
More pertinently it is because for every parsimonious chap like me who believes that it makes more sense to live across the drink where property might cost a third less, there are half a dozen spendthrifts in the mould of my better half who insist that experiencing the ultimate "lifestyle choice" of New Farm is worth paying considerably more for.
In case you were wondering, no I didn't do any salsa dancing - absolutely nothing happens on a Saturday morning before I've had a large coffee, and certainly not any Latin American "cha cha cha".
The size of New Farm is approximately 3 square kilometres and the suburb has attractive parkland covering 15 hectares, and an array of very popular shops, cafés and restaurants.
As you can see below, the Central Business District is located only two kilometres to the west making the suburb extremely convenient for financial services professionals and their ilk.