House under hammer resized

Investing in middle-ring suburbs

In the property world, there’s always a lot of news about the inner city areas: the hubs of commerce, tourism and, increasingly, urban living. However, from an investment point of view, the property Cinderellas receiving less attention and deserving more, are our middle-ring suburbs.

What is a middle ring suburb?  It’s an area adjacent to the inner city and having no greenfield development.  Typically starting 5kms from the CBD, these suburbs are reasonably close to our city centres and there is no potential for new land to be developed near them.  Typically, these are areas that have been developed in the 60s, 70s and 80s and have mature sets of services, many with both shopping and good public transport.

There are three different ways of investing in these suburbs.

Firstly, there can be an opportunity to make a stag profit – that is, reaping an upfront capital gain – by buying and selling quite quickly, if you can identify where the next middle-ring suburb will be.  This strategy involves analysing land values and their rate of change over time; it’s not about the buildings themselves.

The second major investment strategy is to understand the unique features of the suburbs – what makes them special – and where these features are in short supply elsewhere.  For example, does the suburb provide proximity to public transport, good schools, and quality retailing?  When you find these amenities coming together, then you need to be on the lookout for the worst house in the best street.

Why the worst house?  Because this area is so desirable that, essentially, the value of the house is the value of the land. The dwelling has no inherent value so you can’t lose on the investment.  You would purchase the property with the aim of redeveloping or reselling later to someone who’ll redevelop.  In the meantime, the property can be rented until you make a decision about whether to upgrade or sell.  Look for suburbs where you see houses knocked down and new houses being built.

Over the past 15 years, this strategy has played out in places such as Concord and Strathfield in Sydney, and Coburg and Caufield in Melbourne.  It’s happening in all our capital cities, but the best arbitrage has been in the east coast capitals.

Coburg, Melbourne

So now to the third strategy.  This involves identifying quality dwellings in desirable locations which can be easily rented at a good yield.  The type of property you would purchase over a five-to-seven year period with no intention of redeveloping.  When sold, you would achieve a good capital gain because quality properties such as this are in short supply.

The areas to apply this strategy have houses of a reasonable median price but not a lot of turnover.  The time to sell is when the market moves from a normal phase to a boom. In Australia, we’ve had a boom-bust cycle every 7-9 years so this simple investment can result in significant profit with little risk.

Follow these strategies and you can become Lord of the Middle Rings!


About the author:

Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or amy.williams@macroplan.com.au.

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