At a time when prices are rising fast almost everywhere, it feels counter-intuitive to speak of places where you just shouldn’t buy.
But even in a runaway national property boom, there are locations that should be avoided by real estate buyers.
That’s the case at any point in time and right now, more than ever, buyers need to be careful about where and what they buy, and how much they pay.
The current euphoria in the market has created the misleading impression that you could throw a dart at a map of Australia, buy wherever it lands and you’ll get capital growth.
Some investors are behaving foolishly – a quick online search and then a phone call to buy sight-unseen – without worrying too much about how much they’re paying, because it’s cheap compared to Sydney or Melbourne.
We’re seeing surprising growth in median prices in small rural towns and sleepy coastal villages that may look sexy but lack the fundamental drivers for long-term sustainable capital growth. After the frenzy is over, values in some of these places are likely to stop growing and some may decline because they’ve overshot reality.
There are undoubtedly places to be avoided. Here is a look at the types of locations that fall into what I call No Go Zones.
Places with very poor track records of capital growth and nothing on the horizon to change the area’s performance
Surfers Paradise is one of the most iconic markets in Australia but also one of the worst-performing. Its median price is virtually unchanged from 10 years ago (although it has shown some growth in the past 12 months). Developers keep building megatowers and the result is, often, oversupply.
Port Lincoln is another example. It is a decent enough town in regional South Australia, but it has shown no growth for 10 years and there’s little happening in its immediate future to change things.
Conversely, there are places that have poor track records but are good places to buy because changes are occurring in the local economy. The Sunshine Coast became such a place about three years ago, transformed by a $20 billion infrastructure spend. Tamworth in NSW is such a place right now – it has a poor growth record but is poised to do much better.
More Australians have lost money betting on a resources boom than anywhere else. Locations where the economy – and therefore the local housing market – is solely dependent on resources operations are notorious for high peaks and very deep troughs. If you get your timing wrong, you can lose a lot of money.
The Central Queensland coal mining town of Moranbah was once the darling of the daring investor, with annual growth averaging 30% per year – until the resources boom ended and the median house price plunged from $750,000 to $150,000.
Western Australian iron ore towns such as Karratha and Port Hedland experienced similar results and where current values are half their peak levels. Gladstone in Queensland still has property values well below those of a decade ago.
Some of these resources towns are currently showing price rises, but do not be tempted – they sit at the ultra-high-risk end of the investment spectrum.
Other locations where the local economy is dependent on a single sector
These include country towns where agriculture is the mainstay and coastal villages where it’s all about tourism and retirement. These places have fragile economies and vulnerable property markets.
The Whitsundays is a gorgeous part of Queensland and an iconic tourist destination, but its property market is a chronic under-achiever.
If you’re buying regional, you need to focus on places that have breadth and depth to their economies and identifiable reasons for future growth.
High-rise markets where vacancies are high and there’s scope for major new supply
Australia currently has a rental shortage crisis and vacancy rates below 1% are common – but the exceptions include the inner-city markets in our biggest cities, which have been impacted by the closure of international borders and the curtailment of universities.
Some were No Go Zones even before the pandemic impacted. In Fortitude Valley on the fringe of the Brisbane CBD, for example, the median apartment price is lower today than it was 10 years ago. The median price in Southbank just outside the Melbourne CBD is still at the same level as a decade ago.
Greenfield areas where there’s lots of land to create new subdivisions
Often such places are highlighted in the media as leading growth centres because the population is rising fast. This is simply because there’s land for new housing.
But the constant creation of new dwellings suppresses capital growth. The Coomera growth corridor between Brisbane and the Gold Coast often features in the HIA’s hotspots reports (which are based on building approvals and population growth) but suburbs like Ormeau and Pimpama have very low capital growth rates. It’s similar in new-growth areas on the western fringe of Logan City, such as Yarrabilba.
We’re in the middle of a genuine nationwide property boom, which is a rare event in Australia. It seems easy to make money fast, but it’s a time for caution.
It’s a mistake to assume you can buy anywhere and get rich on capital growth.
→ Related: What to do in a property boom
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About Terry Ryder
Terry is founder and managing director of hotspotting.com.au, which he created in 2006 to help investors find the best places to buy. Terry has been a specialist researcher and writer on Australian residential property in a career spanning four decades. During that time he has published four books.
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