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Why Perth investors should ignore this golden rule

Wednesday, 5th Sep 2012

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Many property experts, especially from the Eastern states, have long championed the benefits of investing in the inner-city. Some have even gone so far to suggest that focusing exclusively on these inner-ring areas is one of the “golden rules” of property investing.

Granted, in certain cities in Australia this advice might carry some weight. However, for Perth investors, I think this advice is not only too simplistic but also very misleading, for a variety of reasons.

Why the inner-city is great

It isn’t difficult to understand why the inner-city is favoured by so many property commentators. Inner-city locations are often near major centres of employment and education and have a solid base of economic activity. They generally have excellent lifestyle attractions, with nearby restaurants and entertainment precincts, and have comprehensive transport links via both road and rail.

Inner-city areas often have a great buzz that attracts tenants, which is why they typically have low vacancy rates and good rental returns – making them very investor friendly. Plus, in most cases virtually all the available land in the inner city is fully developed, which should help promote capital growth.

Perth is about far more than just the CBD

The inner-city definitely has a lot going for it, but it’s a fallacy believing that the closer to the city you invest, the greater the capital gain you will enjoy, especially if you are investing in Perth.

Take a look at the shape of Perth’s metropolitan area, and particularly how it has expanded in recent decades, and it says a lot about where people want to live. The population sprawl has primarily happened up and down the beautiful coastline, which implies that living near the beach is important for many residents of Perth. This is understandable given our hot climate.

For families, the most common household type in Perth, local communities often provide all the facilities they need, such as major shopping centres, entertainment venues, schools and hospitals. So, for many people there is very little need to live near the city. Even those who work in the CBD seem willing to fight the peak hour traffic if they have a nice home and area to return to.

Many people don’t even need to travel to the CBD for work. Perth has a number of booming commercial and industrial areas spread out across the metropolitan area, which, as our population grows, will likely employ a greater proportion of local residents. Plus, more and more people are working from home, a trend that could increase as we get better broadband infrastructure.

Plenty of opportunities if you know where to look

I am not saying that there aren’t fantastic investment opportunities in the inner-city of Perth because there are. But there are also plenty of opportunities outside of the inner-city, particularly in established suburban areas. These areas are more likely to be within the reach of investors, especially those seeking a high proportion of land value, which is critical for long term growth.

Investors should evaluate an area based on many different factors, not just the distance to the CBD. How strong is the transport infrastructure? What amenities does the area provide to local residents? Is there a strong demand for property and, if so, why? What will make the area become more desirable over time? Are there any future development opportunities? What is the potential for new supply of land? These are just some of the questions investors should ask.

Conclusion

The key point is that some of the best prospects for investors in Perth might be up to 25km from the CBD, not necessarily within a 5km ring as some experts suggest. The inner-city is a great place to live but it doesn’t have a monopoly on Perth’s best investment opportunities. As always, when deciding on where to invest, investors need to do thorough research (or hire an expert to help) and avoid taking the easy option by relying on overly simplistic advice.