Key takeaways
Property taps into some of our strongest needs and desires, and as with any asset, when demand outstrips supply, prices go up. There are a number of key factors that will always play a part in the value of property, in the most buoyant or subdued of markets.
The new Coronavirus normal world is based on the ability to work, live and play all within 20 minutes reach. This makes properties in aspirational lifestyle locations or in gentrifying suburbs more in demand and more valuable moving forward.
Increased investor demand for properties in prime locations is part of what has been helping to drive prices in many locations around Australia. And with interest rates being at historic lows, more investors are turning their minds to property.
Value… it’s such a tricky concept to unpack and define.
We all know that gold, diamonds, oil and even saffron are high-value commodities thanks to their scarcity, desirability, or the fact that we need them to go about our lives.
It’s the delicate balance between supply and demand that drives up the value of these goods – the illegal drug market is the perfect example of how a highly-coveted, yet hard-to-come-by item can become inflated several times over its original worth because if people want it badly enough, they’ll pay the price.
But what makes real estate so valuable?
We live in a country with vast expanses of space, yet we cling to the major coastal cities for dear life and treat the inner-ring suburbs of Sydney, Melbourne and Brisbane like hallowed turf that we can only hope to be worthy of residing on.
Property taps into some of our strongest needs and desires – security, safety, prestige, status, a sense of success, and something to leave behind for our children.
We all need somewhere to live, or somewhere to operate a business, and as with any asset, when demand outstrips supply, prices go up – as we’ve clearly seen over the past few months.
Having said this, there are a number of key factors that will always play a part in the value of property, in the most buoyant or subdued of markets.
So let's take a look at why some properties are more valuable than others…
1. Where we want to live
Prior to Covid Australia's population grew by around 1.4 per cent a year - we were adding the equivalent of one new Darwin every 20 weeks or a new Tasmania has to be squeezed in somewhere every 18 months.
Sure population growth has stopped at present, but once the borders reopen and the government allows immigrants back into the country to help bolster our economy, it's likely that her population growth is going to surge once again.
And it is likely that the bulk of the new immigrants will come where the jobs are – to Melbourne Sydney and Brisbane making property more valuable there.
But there's another significant trend that will make some properties much more valuable than others.
The fact is that in the new Coronavirus normal world the ability to work, live and play all within 20 minutes reach is the new gold standard desirable lifestyle.
People love the thought that most of the things needed for a good life are within a 20-minute public transport trip, bike ride or walk from home.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet a 20-minute neighbourhood test.
However, very few of the outer suburbs would do so.
So properties in aspirational lifestyle locations or in gentrifying suburbs will be more in demand and more valuable moving forward.
2. It turns out size does matter, after all
The value of a property is driven primarily by the worth of the land it’s situated on, meaning in any given location larger blocks will be worth more than smaller plots.
But that’s not the whole story - it really matters where the land is located because not all land is created equal.
In general, land closer to the CBD or the water, or locations within short walking distance of public transport or train stations is more sought after and therefore more valuable.
Just look at your own neighbourhood – not all spots are considered equal, are they?
Some locations will be sought after, some streets will be more attractive and even one end of a street can be more desirable and therefore valuable than the other.
3. The character, style and appeal of homes
Period, Federation and art-deco style homes, bursting with architectural features and charm, are both harder to come by and more sought-after than cookie-cutter new builds.
As such, they tend to grow in value faster than the same-same properties surrounding them.
Homebuyers are usually willing to pay more for a home that has character, a level of scarcity or a twist – something special about it.
4. Infrastructure
Improving infrastructure around a property can make it more accessible and liveable and therefore more valuable.
Think freeways giving easier access to the CBD or workplaces or improved public transport, shopping centres or workplaces.
5. Gentrification
One of the significant changes to occur in Australian cities over the past 50 years, which has pushed up inner- and middle-ring suburb property values, is gentrification – the shift in the socioeconomic demographic of a suburb.
Areas undergoing gentrification are suburbs where more affluent residents move in renovating older houses or building new ones pulling up the value of neighbouring properties.
6. Solid returns on investment
There's no doubt that increased investor demand for properties in prime locations is part of what has been helping to drive prices in many locations around Australia.
And with minimal returns from many other asset classes, more investors are turning their minds to property with interest rates being at historic lows.
The bottom line:
Like most things in life – supply and demand for a property determine its value.
And in future, Australia’s population growth, our increasing wealth as a nation and our desire to live in a select number of locations in our big capital cities will underpin the future value of well-located properties.
