The concept of the “hot suburb” is false and flawed. This gives buyers the impression that purchasing in these suburbs automatically results in exceptional capital growth. In reality nothing could be further from the truth.
Investors should not get confused between a growth suburb and a suburb that will produce the optimum capital growth. A growth suburb refers to a situation where both the number of dwellings and the population of that suburb are increasing. These suburbs will not necessarily produce the optimum capital growth.
There are many factors that contribute to the optimum capital growth, e.g. proximity to amenities, quality of streetscape, and the property’s scarce and unique features. Buying into the right suburb is just one of many boxes that need to be ticked.
In Melbourne the hot suburbs are those between approximately two kilometres and 10 kilometres of the CBD. Any closer than two kilometres will result in buying a property that has been replicated many times, such as apartments. These suffer from excess supply.
Purchasing a property greater than 10 Kilometres from the CBD means being too far away from sought after amenities, e.g. transport hubs, entertainment precincts, and job opportunities. There is limited demand in these outer areas.
Many buyers have made the mistake of buying the wrong property in the right suburb. This has resulted in the loss of many hundreds of thousands of dollars in capital growth.
Being a Melbourne buyer’s advocate, my choice of hot suburbs will always be situated within two to 10 kilometres of the CBD. Exactly what and where an investor purchases within this radius depends on their financial capacity.
As an investor it is shrewd to purchase a property at the lower end of the price scale without comprising on the quality of the asset. This is because real estate is a big ticket item and it is not wise to tie up excess funds in just one asset.
For this reason suburbs situated in Melbourne’s inner north and west are now becoming more sought after by investors. Investors can now purchase in suburbs such as Yarraville, Seddon, Footscray, Kensington and Brunswick without sacrificing capital growth.
However, always remember: choosing the correct suburb is just one determinant. There are many others if optimum capital growth is to be achieved.
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