What is a growth location?
Property values are driven by supply and demand, so an area that will do well is one that is going to be in demand and have limited supply.
Let’s take a look at the key characteristics that should determine a profitable investment decision:
Population Growth: People need somewhere to live. Most of us start out renting, but would like to buy a property when we can afford it. To buy in an area with strong demand, one of the key issues is population growth. This requires an understanding of demographics, which is the study of our population. It also requires an understanding of the key trends of how we want to live.
The dominant fact about our population is the fact that it is ageing and we are living longer. Today we have just under 2 million Australians aged 60 plus, although in 25 years time there will be 5 million of us aged 65 plus.
Population Characteristics: Our objectives have changed. We are planning on an active retirement, meaning things like golf, travel and eating out. Gardening, a previously popular retirement choice is low on the list of priorities with small gardens but near public transport, restaurants and recreational facilities will boom.
At the same time younger Australians are studying longer, forming relationships later, having fewer children, working harder and outside the traditional “9” to “5” job. Fewer women with or with out children will stay at home as full-time mothers. The desire to work and the financial imperatives for two incomes will mean that the traditional family will disappear into history.
This will affect property. Many will prefer not to commute long distances to work and will try to move closer to their place of work. The block of land with a big backyard is disappearing and will continue to do so. A large home may well still be necessary, but the backyard will become an option.
Job Mobility: People need jobs. And even if you are retired your kids need jobs. One of the features of this new century is job mobility. In previous decades this meant moving from the country to the city, or town-to-town. Most of our new well-paid jobs are in the financial, communications or technology areas, and the parts of Australia that offer these types of jobs are flourishing. It’s no secret that Sydney has shown strong property returns during the 1990s, and has generated large numbers of “new age” jobs.
As a result of job growth and population growth, plus a proportionally high number of high-income jobs, property values in attractive suburbs close to the city have hit very high growth levels.
Long term the demand for well located property driven by two income families and baby boomers thinking about their lifestyle after the kids leave home, will ensure that property with easy access to 21st century facilities (parks, sporting grounds, beaches, lakes, restaurants, entertainment, high-quality medical support and public transport) will over the long term, do very well. With a growing population, wealthier than ever retirees and two-income families, the right property in the right place will do well. Equally the wrong property in the wrong place (or even the right property in the wrong place) will be a disaster. There is great value of buying property in areas where people are likely to want to live in years to come.
The major benefits of owing an investment property:
It is imperative that the property you chose is one that follows the above property purchase criteria.
- It forces you to save to pay off the mortgage.
- Having an investment property gives you a clear financial target and incentive to work and save.
- The lifestyle benefits of owing a property and sense of security are very valuable.
- Owning an investment property that is negatively geared helps you to reduce your overall tax bill and apply additional income to reducing debt or building up other assets.
- You should not own a property in a low-growth area.
- Your home must not be your only asset. Even if it is paid off you need income to maintain it and to live the life you choose to live.