picking the next suburb to go

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Secrets to success: what makes a boom suburb
Lucy Macken
January 15, 2011

Sydney's Booming Suburbs
Chicken or egg ... a growing number of Surry Hills restaurants coincided with a 23 per cent price jump last year.

Suddenly an average location becomes highly desirable. Lucy Macken outlines the factors that may be at play.

What buyer doesn't want to be able to pick the next suburb about to hit the boom time?

Admittedly, those buying a home - not an investment - might be looking at more subjective factors than capital-growth forecasts but if you can manage to buy the perfect home in an area that just so happens to be about to see soaring property values, what's not to love?

And it happens. Sometimes, for no easily explicable reason, a suburb's property prices will take off beyond the norms of the greater Sydney market and even despite falls in neighbouring suburbs. So much so, that local house values need readjusting upwards, as what was one stand-alone sales result fast becomes the norm.

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Selling agents will often put it down to their sales prowess, while others might use knowledgeable expressions like "lack of stock" or "pent-up demand".

Either way, they're wrong. Not that all those things aren't always a factor but a lack of stock, pent-up demand and talented selling agents are all business as usual in Sydney.

For a suburb's value to seriously depart from the area's norm, other factors need to come into play.

Here are some of the things to look for this year to pick a winner.

One crazy comparable

It takes one crazy sales result and news of it will spread faster than email, says the chief executive of Raine & Horne, Angus Raine.

"Real estate is street by street. If you have one couple sitting down to contemplate selling in the hopes of getting the same high price as the family down the road, then you can bet there are three or four others.

"They then go to market and get just as good a sales result and so, street by street, a new price benchmark is set."

It's a conversation many Leichhardt locals had last May when a three-bedroom house with no parking sold through Belle Property Annandale for $1.475 million, well over the $1.35 million reserve.

This, in a suburb that marvelled at a record 22 houses selling for more than $1 million in 2009 and in which 55 sold for more than that amount last year.

Perhaps inspired by the work taking place to extend light rail from Lilyfield to Summer Hill, an agent for McGrath Inner West, Luke Bellero, says the rapid price rises caught many by surprise when he sold matching three-bedroom semis on equal-size lots: the first went for $1.01 million in December 2009 and the other half for $1.13 million last July.

"A $120,000 difference in seven months," he says. All of which explains the 22 per cent rise in Leichhardt's median house prices last year.

Infrastructure

Admittedly, not all forms of infrastructure do the locals any favours. Mascot and Lucas Heights being prime examples. But there are other examples in which local values have seriously benefited.

Take the clean-up of Sydney's sewerage outfalls in 1990. The clean-up of Sydney's iconic Bondi Beach wasn't expected to spark a housing boom; it was more an expectation that the deepwater ocean outfalls would stop raw sewage washing on the sand.

And yet, two years after the water quality started to improve, Bondi Beach house prices spiked in 1992 with a 60 per cent jump in the median house price, followed by a healthy rise of 34 per cent in 1994.

"Previously, prestigious property was found on the harbour-front but from then on the surf beaches started to see serious gains in price," says the director, residential division, of Raine & Horne Bondi Junction, Coogee, Clovelly, Tony Laing.

More recently, the M5 East is said to have had a knock-on effect in the St George suburbs of Bexley North and Bardwell Valley last year, where median house prices rose 23 per cent in both suburbs thanks in large part to the freeway and despite rises of less than half that for the rest of Sydney and a sluggish last quarter of the year.

Both suburbs look even better compared with nearby areas outside the reach of the M5, such as Sans Souci (up 4.5 per cent).

"The M5 is a significant link between this area and the east now," says an agent for McGrath St George, Sasha Tasic.

"If we list a quaint Federation home it's now most likely to sell to someone either from the eastern suburbs or the inner west."

Natural attractions

Finding a comparatively affordable beachside suburb reasonably close to the city has a lot to do with recent gains in median house prices.

Take Maroubra. The median price rose 22 per cent last year to cross the $1 million mark, with a median of $1.2 million in large part thanks to the buyers who are increasingly priced out of nearby Bondi, Bronte and Clovelly but can afford the entry-level $850,000 for a two- or three-bedroom semi on 240 square metres in a beachside suburb.

"People from Maroubra don't aspire to move to Bondi but there is a push among the professional couples in Bondi, who inevitably can't afford to buy a semi there but who are happy to buy in Maroubra," says an agent at NG Farah Maroubra, Shane Vincent.

The zeitgeist

It is a chicken-or-the-egg argument among experts as to whether buyers are following the coffee shops and community facilities or moving into an area and creating a demand for such things. Either way, one tends to follow the other.

Take the cafes, shops and quality restaurants transforming Naremburn, one of last year's strong-performing suburbs. "The up-and-coming executives and young couples that don't need a lot of space and relish that cosmopolitan lifestyle are being well catered to by the retail sector and the local cafes," says Justin Ferguson, of his namesake agency in Cammeray.

Likewise, there are parallels being drawn between strong housing prices and the busy cafe, restaurant and retail outlets as well as council refurbishments lining Burwood Road, Burwood, and Majors Bay Road, in Concord.

Concord locals can thank the earlier arrival of nearby developments, Breakfast Point and Cape Cabarita, for first inspiring retailers on Majors Bay Road to cater to a more cosmopolitan crowd, says the agent Michael Tringali, of McGrath Inner West.

"What were a few pizzerias and a hardware store have been replaced by a very lively eating strip, which has enhanced the lifestyle choices and attracted more people to the area, thereby strengthening demand and prices in the suburb," he says.

Then there is Surry Hills, which has recently seen a steady increase in restaurants, cafes and design shops, not to mention a new library and a median house price rise of 23 per cent last year, which is in stark contrast to the reported woes of retail outlets lining Woollahra's Queen Street and where house prices fell 2.2 per cent in the same period.

As the Surry Hills agent Shannan Whitney, of BresicWhitney, says: "More than property prices, the more dramatic change in recent years has been to the social fabric of the suburb."

This is a designer fabric that has been accompanied by prams and kids using parks and library, says David Servi, of Spencer & Servi First National.

Educated buyer

There has long been good reason why agents publicise a property's location if it's in a certain school catchment area. It's a deal-maker for many families hoping to get their children into the local school.

And ever since the MySchools website was launched earlier this year, the pressure to enrol children at the best-performing state schools has intensified, according to the principal of Ray White Killara, Megan Tozer.

In her experience, the demand for housing in the Killara High School catchment means a like-for-like house will easily sell for 10 per cent more than one outside the zone.

That figure sounds about right to the managing director of Beecroft Real Estate, Steve Evans, pointing to Cheltenham Girls High, Beecroft Primary, Epping Boys, Carlingford High and Pennant Hills High as major drawcards for buyers.

Income levels

"When we rate suburbs for clients, the overriding factor to look for is accelerated income growth," says the director of SQM Research, Louis Christopher.

"We pick the strong-performing suburbs according to that accelerated income growth compared with the neighbouring suburbs and other capital cities."

Growing incomes tend to accompany low unemployment rates, Angus Raine says. "And job security means a buyer's hand is more likely to be raised at auction one more time."

Take Whale Beach, Christopher says. The poor cousin of Palm Beach until the mid-1980s, when its median was on a par with the rest of Sydney, it is now widely regarded as equal to its neighbour.

"Whale Beach prices jumped enormously throughout the 1990s, particularly in the late 1990s through to 2007," says Glenn Lee, of Raine & Horne Palm Beach. Indeed, Lee adds: "Price per square metre [at] Whale Beach is ahead of Palm Beach but Palm Beach holds the area's top price."

2010 figures are estimates as APM is yet to release final December-quarter data.

Best buys in 2011: Houses

Avalon
Camperdown
Five Dock
McMahons Point
Hunters Hill
Best buys in 2011: Apartments

Camperdown
Curl Curl
Hunters Hill
Neutral Bay
Potts Point
Source: John McGrath

Sold when the going was good

Warwick Plumstead, 42, and his wife, Alysha Hodge, had been following the local market with interest for some time before they sold their two-storey timber house.

It wasn't an easy decision as the couple liked where they lived and wanted to stay but, given the heat in the local market, it's not something they regret.

Having bought the house in near-derelict condition six years ago, they then spent a good $300,000 rebuilding the back half of it, installing a second bathroom upstairs and restoring much of the facade and pressed-metal walls and plaster ceiling in the front rooms.

Their efforts and timing of the sale paid off when the three-bedroom house sold last September over the reserve for $1.215 million through Luke Bellero of McGrath Inner West.

"We'd been in two minds about whether to sell," says Plumstead, who runs About Mortgage Options. "We wanted to get rid of a big mortgage and release the capital in this house so we could buy again and renovate but we had to weigh that up against the fact we also really like living in this area."