03 Aug Bride and Bridesmaid Suburbs – Secret Agent
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Suburbs such as Fitzroy and East Melbourne have historically strong capital gains. Conventional wisdom is that by investing in neighbouring suburbs that have lower median prices, an investor would achieve stronger growth than in the blue chip suburb. This is because they would benefit from the spillover effect of buyers being unable to afford the blue chip locations and the subsequent gentrification of the suburb. This bulletin aimed to test if this is the case by analysing the growth of 5 bride and bridesmaid suburb pairs in inner Melbourne.
- A bride suburb is a relatively expensive suburb with good capital gains. It may be out of reach for a large proportion of property investors due to the high entry point.
- A bridesmaid suburb is a neighbouring suburb that boasts a lot of the qualities that make the bride such a good investment, yet with properties selling for much lower prices.
To compare, the median sale prices and annual growth rates since 2011 for all suburbs shown in Figure 1 were gathered. These suburbs were divided into suitable pairs, based on locality and differences in median prices. The results are shown in Table 1.
This data tells us that while entry points for bridesmaid suburbs may be considerably lower, bride suburbs still offer better returns. This is most likely a reflection of these areas being more desirable and having a lower turnover rate, resulting in reduced supply, than their cheaper neighbours. While the average property in Brunswick East can be bought for $150,000 less than comparable properties in Carlton North, median growth over the past five years has been half as good. The best alternative in the list is Kensington, where properties grew in price on average only 0.2% less than properties in North Melbourne, while being on the market for about $115,000 less.
This data tells us that while entry points for bridesmaid suburbs may be considerably lower, bride suburbs still offer better returns. This is most likely a reflection of these areas being more desirable and having a lower turnover rate, resulting in reduced supply, than their cheaper neighbours. While the average property in Brunswick East can be bought for $150,000 less than comparable properties in Carlton North, median growth over the past five years has been half as good. The best alternative in the list is Kensington, where properties grew in price on average only 0.2% less than properties in North Melbourne, while being on the market for about $115,000 less.
To conclude, it is often not the suburb that determines your returns, but rather selecting the right property for the right price. Great returns are possible in almost all of inner Melbourne, provided that the property selected meets the right value criteria.
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