Eventually, the property prices in those suburbs increase so much that people who would once have been able to afford to live there become priced out.
When buyers can no longer get into their first choice locations, they turn to nearby suburbs for the next best option, where prices have not begun to rise yet. Of course that influx then sees the next best or ‘bridesmaid’ suburb become more sought after and the property market there has a surge of its own.
Suddenly, the suburbs next to that original hip inner-city postcode start to see warehouses converted into advertising studios, cafes begin to spring up, workshops close down, and hipsters enter the area and begin sitting on milk crates and drinking rum from vintage jam jars.
This is known as the ripple effect, something property investors keep a close eye on. When prices in a popular location are on the grow, a savvy investor might buy property in a bridesmaid suburb, which eventually has its own price surge and earns good capital growth. They are then ahead of the tide and can use equity gained from the ripple effect to put a deposit down on more property.
Home owners can benefit too. Rather than pay big money for a house just a few minutes’ walk from the train station, you might be able to get something much cheaper that happens to be a 10-minute drive away. Eventually, your own suburb is equally sought after and you’re sitting pretty, while other buyers have to look for the next best option.
Every popular suburb in Australian capitals has cheaper neighbourhoods on its outskirts. These are the areas that offer value to homebuyers, both in the present and in the future. Overextending your budget on a property in a suburb that has already experienced major growth is like a double-whammy compared to going below budget in a lesser known suburb; because once the latter experiences growth, you earn money on top of the cash you already saved.
Tim McIntyre is the senior real estate reporter for the Daily Telegraph and News.com.au.
Over the past decade, he has attained widespread knowledge of Australia’s many unique property markets and is an authority on all things buying, selling and investing.
His commentary appears every Saturday in the Daily Telegraph Real Estate lift out, as well as online at news.com.au.