How to Spot a Bargain Neighbourhood

Sketch of Waterfield Street, Coburg, a proposed new development.

It's the essential skill of getting the right property at the right price. Finding the next up and coming neighbourhood. So what do you look for? 

Well news.com.au wrote a great article the other day. Here are their suggestions:


JUST because a suburb has cheap property doesn't mean it's the next real estate hotspot.
There are simple steps you can take to find a property hotspot and one of the most obvious indicators for future capital gain is whether people with money are moving into cheaper areas.

Signs of gentrification

• Are people spending large amounts of money on renovating/extending their homes?
• Browse the menus of the local cafes/restaurants. If their prices are relatively high, it often means that the local population has a relatively high income and can afford to dine here.
• Do the pubs have boutique beer on tap? 
• Look through the window of the butcher shop. Are they selling premium cuts of meat or are they budget buys?
• Are there small black BMWs and Audis parked in the driveways or are they old Ford Falcons and Holden utes?

Major drivers of growth
Often suburbs are at a low price for a reason; there might be many factories located there, predominantly low quality housing or they are long way from the city or the sea.

A bargain suburb is one that is relatively cheap now but has the potential for capital growth in the future. The major drivers of capital growth are:

• Proximity to the city
• Proximity to the sea
• Adjacent to a prime suburb
• Gentrification of the area
• Redeeming features such as proximity to a train station, large shopping centre, within the zone of a highly sought after public high school.
• Suburbs that contain period style homes e.g. Californian bungalows, Federation, Victorian, Edwardian style homes.

Before you go home hunting
1. List all the suburbs that are near to the city or on the coast. Near in Sydney means within a 12km radius of the CBD. In Melbourne it means within 10km, Brisbane 10km, Adelaide 5km.

2. Highlight suburbs that have median prices that are markedly cheaper than surrounding suburbs.

3. Find out what the highest prices paid in these cheaper suburbs are. Buying into suburbs where people are willing to pay a very high premium for properties (often updated period homes) is a good sign that the area is in demand.

4. Be wary of median prices. They don't tell the whole story. Median prices don't distinguish between new and old properties. Newly constructed properties are often sold at a relatively higher price as they are brand new and the developer has factored in their profit to the selling price.

5. The best way to make price comparisons between suburbs is to compare similar properties in different suburbs. In other words, find pairs of properties built around the same time, of similar size, on similar sized blocks of land. If the property in the cheaper suburb sells for less than the identical property in the more expensive suburb, you should go to the area and check it out.

6. Drive, walk, ride or run around the suburb looking for signs that it is an up and coming area.

Two excellent indicators of capital growth are to look for areas where governments are spending their money and where the private sector is investing their money. Government money expenditure is evidenced by beautifying of main streets, parks/reserves, upgrading roads, and installation of new infrastructure such as train stations and hospitals.

Private money expenditure is indicated by construction of new homes and renovation or extensions of existing shopping centres. To help secure your chances of buying in an up and coming area, there needs to be low/no factories, streetscape should be similar in nature to the neighbouring expensive suburbs, low number of shops for lease and evidence of a low crime rate eg lack of graffiti, vandalism, tyre burn out marks on the streets.

7. Talk to the locals and try and find out what is happening to the area. If the butcher says that they used to sell mainly chops and sausages ten years ago but now it is fillet steak, thats a sign that a wealthier demographic is moving in. Speak to the police and ask them if they have seen signs of the area improving. Visit the local council office and ask what plans they have for the upgrading of the area.

Many of the above indicators are signs of gentrification. This is where a down and out suburb morphs into a suburb that is in demand. Suburbs such as Paddington and Balmain in Sydney have already gone through this process. As have Richmond and St. Kilda in Melbourne, West End in Brisbane and Norwood and Unley in Adelaide.

If you'd like a head start on your search for a bargain suburb, have a closer look at the suburbs below which are currently going through the gentrification process:

Sydney Erskineville, Enmore, Marrickville
Melbourne Coburg, Seddon, Yarraville
Brisbane Albion, Woody Point
Adelaide Torrensville, Thebarton, Port Noarlunga
Perth Balga, Ashfield, Maylands, Bayswater, Yokine, Bedford, Morley

So are there suggestions that you think they missed? If so what do you look for?