Suburb gentrification is the new term for a hot spot. So what determines that an area should be, or is about to be, gentrified. Property lecturer and author Peter Koilizos says many investors have jumped in thinking an area is about to be transformed when it was never going to happen because the fundamentals were never there. In today’s show, Peter tells us what to look out for.
Kevin: A suburb that’s gone through gentrification is a suburb that no one really has wanted to live in for some 30 to 40 years but which is now desirable and a more expensive place to live. As an example, Balmain in Sydney, St. Kilda in Melbourne, New Farm and Newstead in Brisbane, as well as Paddington in probably both Brisbane and Sydney. How do we find out the next ugly duckling waiting to turn into the next swan?
Peter Koulizos, property lecturer and author, has been looking at this, and he joins us. Peter, why does gentrification occur?
Peter: Gentrification occurs when wealthier people move into an area, in particular, an area close to the city or close to the sea. But very importantly, it needs to have character and/or period-style buildings, because it’s those sorts of buildings that the people are looking for to update and live in.
Kevin: Generally, how long does it take for a suburb to become gentrified? I mentioned there at the start about Balmain in Sydney and St. Kilda in Melbourne. Typically, how long? Is it like a generation?
Peter: Yes, a generation, decades. It doesn’t happen overnight. Places like Balmain didn’t become highly sought after overnight. It was down and out for maybe a century. I’m not exactly sure, but it was certainly down and out for a long time. It could take 20, 30, or 40 years to come good. Then people very much want to live in those sorts of areas, but obviously pay a very high price to live there.
The key is just because something has started to gentrify doesn’t mean you’ve missed the boat, because you still have many years to go. In many cases, you’re far better off being relatively sure that the area is being gentrified rather than buying in somewhere thinking, “Oh, yes. Well, surely, this has to be gentrified sooner or later.”
Don’t forget, if your property investment goal is only five years – and I’ve just said that gentrification could take 30 to 40 – well, buying in an area that hasn’t even taken off yet is not going to meet your property investment goal.
Kevin: But I guess in a sense, the longer it takes, probably the more substantial it’s going to be. It’s a bit like oak trees take a long time to grow, whereas weeds grow almost overnight and don’t have any life span.
Peter: I like that analogy, Kevin. That’s very good. Can I use that, as well?
Kevin: You certainly may. Any time at all.
Peter, what sort of impact does gentrification have on property values?
Peter: Oh, it’s fantastic. You have the solid bones of an older-style property, a character property. Somebody comes in, polishes the floorboards, updates it and keeping the character, possibly does an extension, pours a lot of money into the property. At the same time, the local council and possibly state government are also fixing up the area. So, so far as property values are concerned, it’s fantastic. They increase markedly, especially compared to the majority of the property market.
Kevin: Yes, I guess it comes down to pride, too, doesn’t it? If people can see their area improving like that, they’ll take a lot of pride in their own property, as well, Peter.
Peter: That’s right. Don’t be scared off by the high prices because in my opinion, you’re far better off getting a small property in a good location than a big property in a poor location. Even if you can only afford in a one-bedroom unit in an area that’s going up in value, that’s being gentrified, you’re far better off doing that than spending the same money in another area to buy a house that is a long way from town and is a long way from being gentrified.
Kevin: Peter, I’ve heard you say that you should drive through a suburb. What is it – when you do – that you look for?
Peter: I look at a number of different things. I look at the people in the area. Are there young adults wandering the streets in the middle of the day and there’s vandalized bus shelters, or are there lots of well-dressed parents pushing prams with young kids in them?
As you mentioned before, housing. Is there evidence of people being house-proud, or are the front yards full of weeds and car wrecks? So far as cars are concerned, are there lots of little prestige cars, like little black BMWs, Audi, or Lexus? This is a sign of wealth. Streets: are there wide tree-lined streets? Are they lined by – in the main – character or period-style homes?
There are lots of little things that I look for. Even looking at places where people go to have a drink or have a bite to eat. If you go to the café, are they just selling your standard cappuccino flat white, or are they selling herbal teas and affogatos and macchiatos, and for the little children, babycinos. The second type of café, you will generally find in a gentrifying area.
The local pub: is there a jazz band on a Sunday afternoon playing in the courtyard? Is there a wide selection of boutique beers on tap, or is it mainly VB and Tooheys on tap, horseracing on the big screens, and not a glass of wine to be seen anywhere?
Kevin: You really have to get your feet on the ground, haven’t you? When you’re going through these suburbs and you identify them, what types of properties do you look for in those areas, Peter?
Peter: The keys are the older style, the character properties, and the date or the event to remember is the 1940s or World War II, anything before then. Some of the common styles are art deco, bungalows, cottages, villas, or in Queensland, the typical Queenslander-style property. They’re the sort of properties that do best because many people – and in particular white-collar workers – are willing to pay a premium for those older style homes in anticipation of updating them.
Or you can even take the next step. You can buy one of those older-style homes, update it yourself, and then people will pay you a huge premium for that.
Kevin: My guest this time has been Peter Koulizos. Peter, thank you very much for your time.
Peter: My pleasure, Kevin. Thank you.