Property commentator Trent Fleskens explores the Perth suburbs to invest in if leveraging the government's housing stimulus grants to build a new home.
I recently wrote about the perils of being sold the dream and building in the new land estates due to the high risk of proliferating the oversupply already existing in those areas filled with mortgage stress and negative equity.
Remember, price growth = demand growth/supply growth.
So where there is a suburb with a never-ending level of supply, you are already fighting a losing battle if you want your new build on the fringes to be worth more when it is finished than it cost.
Why? Because even if there are good factors for demand, like proximity to the beach or a good school, there will be a continual level of supply increases for a long time to come as developers roll out new estate after new estate. The economics are against you for way too long into the next cycle.
So where would I build if the government grants looked too enticing not to jump in the market and I wanted to also make a good financial decision?
The first question to ask is: ‘What do people value most about living in Perth?’ How is that preference and identity changing? If we can pinpoint this, we can identify suburbs that are either currently undervalued or will be undervalued in the future.
Historically, people have purchased property in Perth with considerations in the following order:
- Closeness to the beach or river – evidenced by the fact that the most expensive land in Perth is located in a position closest to the river AND the beach (Mosman Park, Cottesloe, Peppermint Grove, Fremantle).
- Closeness to the city – evidenced by the fact that land that is both close to the city and the river is the next most expensive suburbs (Nedlands, Applecross, South Perth) and that those between the city and ocean are also higher value (western suburbs).
- Closeness to activity centres – evidenced by the fact that land that is close to an activity centre is the next most expensive (Leederville, Mt Lawley, Victoria Park, Claremont)
- Closeness to good state schools – evidenced by the fact that land with little influence from the above factors are the next most expensive when in the catchment zone of a top state school (Willetton, Riverton, Bateman, Churchlands)
These are the four major factors that have been the foundation for prosperity for those people smart or lucky enough to have invested in property in these suburbs in the past.
However, it wasn’t always that way. Ask anyone in Mosman Park who invested in the 1960s or ’70s and they’ll tell you that the suburb was considered a workmanlike area, was populated with factories and caryards, and was just the land they could afford at the time. The beach wasn’t always such an important factor for people.
Why? Because it wasn’t always so easy to get out there as it is nowadays. There were other lifestyles people valued more, like swimming in the river, having a big backyard, going to drive-in movies, and having picnics in suburban parks.
So what will the future residents of Perth value? How will it differ from the last 50 years?
For me, I think we can already see it happening.
Proximity to local parks
People have started to value the size of their backyard exponentially less over the last 15 years. The median land size for new blocks has dropped from 600sqm to in the 300s. This means that people aren’t as bothered both from a practicality and status point of view about maintaining a yard, but it doesn’t mean children haven’t stopped needing somewhere to play.
Families will be happy to pay more for a smaller sized property as long as the house fits their needs and there is still a viable option for their children to play safely across the road.
Cosmo Living
Young people today clearly value different things to their parents. These preferences seem nearly counterintuitive to what their parents have grown up learning to value. Proximity to activity centres, cafe strips and bus routes is valued so much more now than land size. Our need to be entertained outside in the yard has subsided by the advent of indoor technology.
Proximity to shopping centres is something that has had mixed outcomes over the last generation.
This is all changing now.
For the first time in two generations, most of Perth’s major shopping centres are in the middle of an arms race to upgrade themselves from retail hubs to lifestyle destinations. We’ve already seen the affect it has had in Claremont and the way the boutique apartments created nearby sold like hotcakes.
Watch the same thing happen as Karrinyup, Innaloo, Carousel, and Garden City all start to change the lifestyle habits of local residents.
Instead of traveling to the city, Fremantle, or a notable activity centre for a nice meal and live entertainment, people are flocking to Whitfords on a Friday night now, for example. The car park is full between 6pm and 10pm.
Imagine if you could live close enough to these upgraded shopping centres to just walk. Again, Karrinyup, Carousel, Garden City.
Closeness to public transport nodes
In nearly every other developed city around the world, property is generally 20 per cent higher in value when it is within walking distance from a train or bus station.
Unfortunately, our public transport system is quite underdeveloped and inconvenient compared to most other cities. We just haven’t had the population density for the government to afford to make it functional enough.
But this is all slowly changing. We are now starting to hit a critical mass in population where the government is finally able to start justifying the spend of something like Metronet.
If you’re in it for the longer term, studying the broader Metronet plans and maps should hold you in good stead. Ask yourself, how far would I want to walk to a bus or train that actually got me to work or my friend’s house in a reasonable time period?
Keep it practical. Build there.
So what are these suburbs that will perform above average in Perth’s next upswing?
The four factors of water, city, fun, and schools are still kings. Building on the most land in a suburb with as many of these factors as possible should always do well for you.
My picks:
- Warwick – A solid family suburb with a high percentage of parkland, its own shopping centre, and its own train station. Recent zoning changing is providing new dwelling products to the market that are being snapped up at a premium.
- Morley – Great shopping centre, upgraded Bayswater train station and brand new Morley train station. Affordable price point.
- High Wycombe – A forgotten suburb with solid 1980s double-brick homes and recent rezoning, getting its own train station one stop away from the airport. Don’t be fooled, the Forrestfield train station is actually in High Wycombe.
- Mt Pleasant – Most expensive on the list. Big changes with rezoning and eventual Garden City upgrade. Applecross SHS zone. River, city, shops, school.
- Rivervale – Way undervalued for its proximity to the city. Is sitting in neutral waiting for the effects of the upgraded Great Eastern Highway, Belmont Forum, Perth Stadium, and strong zoning to push it into Victoria Park territory.
- Doubleview –Will benefit from the upgraded Scarborough Beach Development and Innaloo & Karrinyup upgrades.
- Willagee – Also way undervalued compared to the price of surrounding suburbs like Melville and Winthrop. Gentrifying suburb with rezoning to allow for newer housing options.
Trent Fleskens is the managing director of Strategic Property Group. He is also the host of podcast The Perth Property Show and appears as a property commentator on 6PR.
