Assessing capital growth: Infrastructure

Assessing capital growth: Infrastructure
Assessing capital growth: Infrastructure

Assessing capital growth: Infrastructure

We're regularly told to "buy near infrastructure" but what does this really mean? And isn't it already priced in?

Firstly, let's divide up our expectations. There's infrastructure that already exists in the area, such as the train line, and there's infrastructure that may be coming your way sometime soon. It's this latter part that tends to get investors excited, and it's the former part that owner occupiers and, more prominently, renters, tend to base much of their area selections around.

Clearly, if the train line is already there, some of that growth has already been "priced in".

Current infrastructure

Specifically looking at infrastructure that currently exists in the area - what should you be keeping an eye out for?

Observer Cameron McEvoy previously wrote for us this 'vital' and 'desirable' checklist that you can tick off when looking at your chosen area.

WalkScore can be great for this purpose. Figuring out what infrastructure and amenities already exist in a neighbourhood.

For instance, this record of Townsville City when used in conjunction with Google Maps quickly shows you where local cafes and restaurants are, where stations are and, essentially, what exists in the area.

Infrastructure projects upcoming

Why are upcoming infrastructure projects often of so much interest to investors? The answer is simple. Here, observer Terry Ryder discusses infrastructure and how it correlates to growth.

Infrastructure, particularly when on a large scale, regularly boosts employment in an area. This, in turn, boosts demand, which can put pressure on the existing supply, which can possibly lead to value growth.

You might notice nothing definitive in that list. The words 'possibly' and 'regularly' are there for a reason. Not every infrastructure project will lead to capital growth. A 200-person mine in a boom town might not actually increase the pressure within an area substantially. A developer could also build in there, just as you buy, offsetting some of the supply/demand pressure that we discussed yesterday. A bypass might actually just make the next town on more amenable, and may make you start looking in that area instead.

Nothing is a dead set certain in this game of property.

In saying that, it's rare that new infrastructure doesn't also bring a wave of positivity and excitement to an area. If it's a new hospital, you can be sure that it will drive employment. If it's a new train station, it may increase the area's amenity. It might also increase crime and noise in the local vicinity to the station hub. You'll want to bear in mind that while the effect of infrastructure can be a significant positive for the overall area, when you look again at the micro, it may work against you.

We compiled a list earlier this year of 34 Infrastructure Australia projects that property investors will want to put on their radar.

Observer Jo Chivers recently talked about how infrastructure developments feed into her investments.

A bit of a warning

When buying due to upcoming infrastructure, such as a suggested airport location or similar, be aware that it is not necessarily set in concrete. Plans can, and do, change. Unless there is significant reason to believe that the project will see the light of day, it is worth ensuring that the area stacks up without it.

Investors will also want to ensure that the area they’re buying into is ‘proactive’ not ‘reactive’ – that is, according to wHeregroup’s Todd Hunter, the area is building infrastructure in prediction of future growth, rather than as a result of growth that has already occurred. Sometimes it can be hard to tell which this is.

This article is part of Property Observer's ongoing series looking at how to find your first investment property.

You can also read  about assessing capital growth potential: supply and demand and five steps for choosing the right investment suburb.

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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