I was reading through a property investment strategy document from a competitor recently. It explained how the next boom areas in South-East Queensland would be in Ipswich, Caboolture, Springfield, Logan and Coomera-Pimpama. Why? Because these were the areas that were growing the fastest, and would therefore experience the best capital growth.
This makes sense right? All of these locations, which lie on the fringes of Brisbane, have enjoyed higher than average population growth over the past 5 years. They are also tipped to have extremely strong population growth over the next 20 years, ranging from Caboolture's 2.5% per annum through to Springfield's 4.7% per annum. This is backed up on the ground - you only need to visit these areas to see the amount of construction that is occurring to see the growth that's happening.
But does population growth equal capital growth? You might think that population growth occurs because of demand - i.e. a suburb grows in popularity and therefore the number of people in it increase. But this is actually false. Population can only grow in a suburb if there is more housing to accommodate it. After all, people don't squat on the street waiting for new housing to be built - they can only move to a suburb and increase its population when there are more houses to move into. So at the suburb level, population growth is purely a function of housing supply. And high forecasts of population growth in a location means that the government is expecting lots of houses to be built there in the future.
So future population growth in an area is about supply, not demand. And lots of supply is the enemy of capital growth. Why? Because it gives buyers in the future plenty of properties to choose from. We know that scarcity of products creates price rises, and product gluts reduces prices. For the investor, plentiful supply in an area leads to more competition, which leads to less capital growth. It's no different than investing in a business - would you invest in a business that had lots of competition, or little competition? You'd go for as little competition as possible, wouldn't you.
Now this might be different if the business you were investing in was making products that were in high demand. But let's be honest, are the areas of Ipswich, Logan, Caboolture, Springfield and Coomera-Pimpama the most desirable areas to live in South-East Queensland? They're a long way from the Brisbane and Gold Coast CBDs, where the highest paid jobs are. They're not where the best restaurants, cafes and bars are, nor are they home to best beaches in the region. None of the top sporting teams play in stadiums there. Is this likely to change? I don't think so. Most people will live in these locations not because of amenity but price. And the fact is, these areas will remain cheaper, because there will be plenty of supply and less demand relative to more desirable areas.
So are the regions of Ipswich, Logan, Caboolture, Springfield and Coomera-Pimpama the areas most likely to experience capital growth in the future? I would say the opposite - I'd say they are the areas least likely to achieve the best capital growth in South-East Queensland in the long-term. I'd also say that investing in a new property in one of these locations, which will cost you well above the median price point of the area, is a surefire way to not achieve the growth you're after. But then again, I'm not selling properties in these areas for a commission worth thirty thousand dollars or more.
So where are the best locations for growth in South-East Queensland? There's no such thing as a single answer, but they need to have strong future demand and limited supply. Take a look at our Brisbane and Gold Coast Market Outlooks if you want to get our latest take on where and what to buy.