When you invest in property, leave familiarity at the door

GUEST OBSERVATION

When you work in the property industry, you tend to notice patterns. Anytime you're immersing yourself in data in order to predict how things are going to turn out in the future, this is bound to happen.

In terms of real estate, one unmistakable trend that I've noticed is that more and more Australians are looking outside the Sydney CBD to fulfil their property goals. Rather than looking at smaller apartments in the city centre, buyers are opting for houses and land in suburbs that we might think of as more remote.

These investors have the right idea. As Sydney gets bigger and bigger, the premium on its outer suburbs is only going to follow suit.

Bucking the conventional thinking

This all might sound strange or even counter-intuitive for those who feel they know the Sydney real estate market. For some time, investors were quite cautious about looking outside the CBD area, which has always been a strong reference point.

This reflects one of the issues around property investment. There are 1.7 million property investors in Australia. Rather than taking a scientific or math-based approach to their investing, however, most of these Australians base their investment choices on instinct, gossip and what they already know. Familiarity, not fact, becomes the basis of judgement.

Unfortunately, while this might seem like a safe approach, it can also close you out of a number of opportunities. In fact, it is the investors who broke away from this trend earlier and invested in outer suburbs who are reaping the benefits now.

Outer suburbs mean big returns in Sydney

When you look at the totality of Sydney, it's clear how limited simply focussing on the CBD is. For one, let's take the fact that, for most investors, the price range is around $400,000-$700,000. Today, to afford something in the CBD for around $600,000, you're looking at a one-bedroom apartment. This is on top of the fact that rental yields aren't necessarily high, that you're facing high body corporate costs and you've got a low land component.

As well as this, there's the massive amount of growth and development happening in parts of Sydney other than the CBD. You've got a city like Parramatta emerging, which is about to overtake Adelaide as the fifth biggest CBD economy in the country, is a considerable economy in its own right and is seeing the construction of the tallest tower in Sydney.

You can also look at key infrastructure areas like Penrith, or maybe Liverpool, whose hospital is the largest in the southern hemisphere. There is a massive amount of growth and development happening in many previously overlooked parts of Sydney, making them more viable for investors to consider.

It used to be that people wouldn't think twice about a region like western Sydney, which is stereotyped as a low socioeconomic area. But it's also one that's experiencing a large amount of investment, from the new airport in Badgerys Creek to the $11 billion WestConnex road project, along with the many housing developments taking place in the region.

The first law of economics

The fact is, Sydney is a basin, and there is only so much land - something investors are increasingly becoming aware of.

Because of this, it's the areas that were once ignored that will be the new growth centres over the next decades - that's where the affordability is. If you can get land there now and hold onto it, you stand to win. It's basic supply and demand.

A good example of this is Kellyville. Years ago I was telling people it was a great place to invest, and people would ask me if anyone actually worked out there and whether they had high incomes. Today, land is virtually impossible to access in Kellyville, and before I even start talking, people ask me if I have anything available there.

If investors can look beyond conventional wisdom and forget about what they're familiar with, they can benefit just like the landowners in Kellyville have.

Sam Khalil is founder and director of Direct Property Network.

Direct Property Network (DPN) provides clients with an end to end property investment solution from selecting the right property through to settlement and beyond.