Gentrification - a Capital Growth Driver.

Gentrification for profit

As we discussed last week, many investors get caught out through buying prestige and lose sight of the drivers behind capital growth.  For one investor it cost them $250,000 in negative capital growth over 4 years. 

At the same time our clients were growing their portfolios.  Many achieved from $25,000 to $30,000 per property per year in locations other than Sydney or Melbourne.  That translates into $200,000 in average capital growth over the same period of time. 

Hind sight is always good but how do we know in advance what is going to happen?

Gentrification

Gentrification is the name given to the process of the changes in the demographic that occurs over time in a suburb or an area.  It is slow to start and then speeds up in the last few years of this cycle.

Deception Bay was nicknamed Depression Bay by the locals because it was full of retirees and social welfare recipients many of whom had no future plans.  It was reflected in the local shopping centre that had an IGA supermarket, a TAB betting shop, a liquor store, a pawn shop and a laundromat. 

The gentrification began with the opening of the North Lakes and Mango Hill Master Planned estates.  A few people who couldn’t afford to buy in those new estates bought in Deception Bay. 

The delivery of the new rail line from Kippa Ring to Petrie increased accessibility for people from North Lakes/Mango Hill to Brisbane.  More people considered the commute from Deception Bay with the added advantage of costal living one suburb away from North Lakes shopping centre.  

The local Deception Bay shopping centre has been sold and is being upgraded with a Woolworths supermarket, Dan Murphy’s, the local tavern and lots of smaller service shops.  There is still only one fashion shop in the 42 on the list that can compete with North Lakes.

The next thing to look for is the development of good cafes with good coffee for breakfast, lunch and dinner.  ‘Mermaids By The Bay’ seems to fit that bill and has good social feedback on its service. More cafes create a destination that increases the appeal and drives a demographic change. 

In August 2014 the median price for houses in Deception Bay was $292,000 and it took 80 days on average to sell a home.  In August 2017 the median price for houses was $348,000 and it took 66 days on average to sell a home.  Capital growth over three years was about 18.8% or just over 6% per annum.   

In comparison Mango Hill had 21.4% capital growth over 3 years on a median price of $517,000 and North Lakes had 7.1% growth on a median price of $480,000.

Deception Bay with a median price for housing of $348,000 is a $130,00 less than North Lakes and $75,000 less than Rothwell. How long will it take to close the gap? 

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