Potential investors should tread carefully before rushing in to buy properties at the lower end of the market in suburbs which feature the biggest price gaps.
When Australian Property Monitors released figures for the 12 months to June 2013, they named Dalkeith, Cottesloe, Applecross and Mosman Park at the top of the list of suburbs in which the range of house prices varies the greatest.
While it can be a sound strategy to invest in areas with big price gaps if you do your research, there are a few key dangers to watch out for. For example, the highest price achieved in a suburb or the highest quartile median is not necessarily the potential ceiling for resale in the area.
The prevailing idea is that you could buy for a low price and add value – potentially raising it to the higher quartile. However the lower quartile may comprise mostly properties on small blocks, older properties or a lower priced segment of the suburb, whereas the higher quartile may include new properties, bigger blocks of land or encompass the premium pockets in the suburb.
If this is the case, buying in a poorer location and adding value would not improve the location in the suburb and you may never reach the level of the premium segment prices. This applies similarly to block size and property type, size or age.
If you are looking at renovating to make a big gain, you need to consider similar types of properties being sold, and find examples of older homes and examples of renovated homes on similar sized blocks in similar parts of the suburb to see the potential increases in price. Comparing an old fibro 3×1 on 500sqm of land with a renovated brick 4×2 house on 900sqm will not give an accurate reflection of your potential gain in price.
The suburbs named by Australian Property Monitors as having the biggest price gaps are well established and out of the price range of average investors, but for those with the money, there are two opportunities:
You could buy to add value in a big way – either by gutting and renovating completely or demolishing and redeveloping, ideally with subdivisible properties. It’s a high-risk, potentially high-return option that is not for the faint hearted. Sourcing the property is key, as it is essential to buy at a low price, and in a prime location to catch the potential upside.
A more affordable strategy is to aim for older villas or apartments in the best suburbs you can afford. Aim to do a high grade renovation that doesn’t cost a mint, without external or structural work, and you may give the property a great lift in value and rental potential if you get it right
Prime investment and add-value opportunities have been scarce since early 2013, and competition is still strong for good add-value properties at or within $200,000 of the median price range. Holding out for a better buying price is unlikely to work for investors; the best move is to choose your strategy, do your homework and get on with it or risk missing out altogether.
For further information about Perth’s biggest price gap suburbs, read the November 2013 issue of API Magazine or visit our Media Page.
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