The myth of prime property
20th August 2007
The idea that blue-chip inner-city property will always show better capital growth than property in the outer suburbs is repeated so often that it's become a mantra.
But it's a myth, according to a hard-headed analysis of median growth rates published in the August edition of Australian Property Investor magazine.
Whether examined over one, five, ten or fifteen years, it's difficult to find examples of top-end locations that have led the market in terms of capital growth.
"This research should give property buyers pause to think about what they're constantly told about prime property," API editor Eynas Brodie says.
"We're not saying that blue-chip property won't show good capital growth but what this research does suggest is that homebuyers and investors shouldn't just assume that property in so-called 'prime' locations is going to outgrow property in other areas.
"In particular, the numbers published in API suggest that 'ugly duckling' suburbs that undergo gentrification and transform into 'property swans' can show better capital growth than traditionally prime areas."
API’s analysis covers the capital cities of all the mainland states. Among the findings:
Sydney
The best capital growth performers between 1995 and 2005 all averaged better than 13 per cent growth per year, according to RP Data figures.
They include humble locales in the far western and southwestern suburbs such as Holsworthy (averaging 15 per cent, with a 2006 median house price of $375,000), Bonnyrigg Heights (13.5 per cent, $386,000), Busby (13.3 per cent, $272,000), Tahmoor (13 per cent, $290,000) and Glen Alpine (14.1 per cent, $498,000).
The standout performer is extremely humble North St Marys, with a 2006 median house price of just $255,000, despite growth of 18.6 per cent a year over 10 years.
Compare that with some of the so-called prime suburbs, all with median house prices above $1 million: Artarmon 9 per cent, Bellevue Hill 5.1 per cent, Bronte 5 per cent, Coogee 11.4 per cent, Cremorne 7.2 per cent, Gordon 9.4 percent, Kensington 8.1 per cent, Mosman 5.8 per cent, Paddington 10.5 per cent, Palm Beach 7.8 per cent, Queens Park 5.4 per cent, Randwick 8.5 per cent, Rose Bay 10.6 per cent and Woollahra 11.1 per cent.
The flag-bearers for the “better” suburbs are Vaucluse and Collaroy, which both delivered 15.5 per cent capital growth over 10 years. Manly also did well, with a 13.7 per cent average.
Melbourne
Figures published late in 2006 for the highest price growth rates over the previous five years showed that the top 10 suburbs for Melbourne included the upmarket suburb of Toorak, but the other nine suburbs in the top 10 all had median prices between $175,000 and $328,000.
The top end of the Melbourne market is buoyant at present, but over the longer term the cheaper areas have outperformed. Seven of Melbourne’s top 10 for price growth over five years had median house prices below $285,000.
Lowly Frankston North, where typical houses cost $175,000, had the same growth rate as Toorak, where the average home costs close to $2 million.
Ten-year growth figures from RP Data show that over that longer timeframe, the cheaper areas again matched or mastered the prime suburbs on capital growth.
BrisbaneThe most expensive suburbs of Brisbane seldom feature when growth is analysed over one, five and ten years. It's the cheaper suburbs and the mid-range suburbs which stand out.
The elite areas include Ascot (median $806,000), Brookfield ($772,000), Mount Ommaney ($716,000), Newstead ($780,000), Pullenvale ($837,000) and Rochedale ($770,000) – but none of these suburbs appear among the leading growth areas, whether analysed by one, five or ten-year timeframes.
Prime areas that do stand out are New Farm ($835,000), Bulimba ($735,000) and Hamilton ($950,000), which have given outstanding price growth over 10 years.
Examined over a five-year timeframe, it’s the ugly duckling areas which dominate. Eight of the top 10 for price growth from 2001 to 2006 were suburbs with medians below $350,000: Rocklea; Carole Park; Darra; Inala; Acacia Ridge; Banyo; Chermside; and Oxley.
The only prime area among the top 10 over five years is inner-city New Farm ($875,000), where prices grew 146 per cent from 2001 to 2006. Hard though it may be to imagine now, it too was once an ugly duckling.
PerthPerth's top 15 suburbs for capital growth over the 10 years from 1997 to 2007 all delivered median price growth averaging between 16 and 20 per cent a year. Of these, six were suburbs with prices below the Perth average, six were mid-range suburbs and only three were prime suburbs.
The best performer was Watermans Bay (averaging 19.4 per cent); this is a prime-located suburb which gives some support to those who claim prime always out-performs.
But the next six ranked suburbs are all 'ugly duckling' or mid-priced areas, including downmarket Balga in the northern suburbs (averaging 18.4 per cent a year over the decade to reach a median price of $385,000) and the distant mid-range suburb of Bedfordale (averaging 18.8 per cent a year to reach a median of $561,000).
Other cheaper areas which have delivered outstanding long-term price growth include Westminster ($387,000), Midvale ($325,000), Medina ($269,000), Calista ($302,000), and Girrawheen ($318,000), all with growth averaging between 16 and 17 per cent a year over 10 years.
By comparison, swanky Dalkeith (median $2.45 million) managed 15.9 per cent, Cottesloe ($1.7 million) did 16.1 per cent, Subiaco ($1.1 million) managed 14.9 per cent and Applecross ($1.3 million) achieved 12.5 per cent.
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