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Ben Kingsley Blog post by Ben Kingsley

City Fringe: Is it Real Gold or Fool’s Gold?

City fringe property; is it property investment gold or is it fool’s gold? It’s an interesting question because often in property investment research, we measure the performance of a suburb by its median price point and this is an important message for people who are buying hot property reports or new hotspot reports and those type of things because the data doesn’t tell a 100% true story. So let me unpack that for you.

What we are talking about here is looking at existing property in a location that is potentially getting some subdivision in the green field area behind that. If we look at what median price mean, it means the middle value in a group of values. So we might have properties worth $480k, $490k, $500k, $510k and $520k that has been sold in that time period and usually, as a minimum time period, I’m looking at a quarterly time period. In that particular example, $500k is the median value. Now that might be the median value of the existing stock in that area. But what happens when the new stock start to be built and start arriving? I’m going to show you on Google Earth what actually happen in these areas. Let’s take a look now.

So here we are on Google Earth. This is a fantastic tool for which to do your property investment research and you can see up here, I’ve introduced a timeline bar and this is going back to 2003. If I were to fast track it to today, here’s what it looks like today. So you can see an enormous amount of property growth in terms of sub division coming in to what was a city fringe area back here. You can see those changes taking place. The question is, with all of those changes, have they moved the property values of all the existing property in those area up? You can see some further subdivisions going in the neighboring suburb as well so there has been a lot of development out there but does that constitute the actual improvement on the existing stock in the area? Because if it doesn’t then effectively, these reports are going to be misleading around median price gain. So let’s go and have a look at our Location Analyser software. Here at Empower Wealth, we’ve got the cutting edge technology for us to do further insights. So what I’ve done here is I’ve done a search on Redbank Plains and I’ve looked at the growth report. We’ve got growth, historical, market activity and quite a lot of interesting information. And we can see a few things. Here’s the historical sales volume that have occurred through that time. Very flat and soft housing growth in terms of what’s happening around the price growth and that’s the value of growth over time. So we can see here through this 2003 period, we have some strong growth coming through here. Now, again, back in Google Earth, we can see that back in 2003, and we aren’t able to go back further than that, but we can see some evidence of subdivision starting to come in here. Some newer stock as oppose to the old subdivisions. And you can usually tell these subdivisions by the way they lay our their constructions. So you can see as we move through, we can see more and more of those constructions coming around that sort of 2007 and 2008 period, that’s the change that has occurred through here. A lot more constructions through these part so we are seeing that construction occur and we can see what happens to the price point. So again, we can see further growth in terms of the price point moving through that whole subdivision period. Those commentators who might be claiming fantastic growth for that suburb may not necessary be the case because all that has happened is new properties has come online and they are probably selling it at a higher median. And if those properties that has been sold represent the new median because they are all new properties, effectively you are getting an artificial capital gain target based on median value. So it’s really important when you are studying this information to get the facts around what actually makes up that data and obviously as we fast forward into the current situation, we’ve got more development going on in the neighboring area which potentially could feel like the area is growing in value but in fact, it may not be the case.

So in that example that I just showed you, it’s important to understand what actually inflated the median or was there more newer properties being sold at a higher price point. So, in reality, we didn’t see those older properties sky rocketed. All we saw was that reporting that we do in terms of median house price changed significantly during that time period. So again, don’t get seduced by the data if the data is not telling the true story and comparing apples with apples. Remember, when you are buying in a fringe area of a city, are you buying real gold or are you buying fool’s gold?

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