What Determines Property Prices?

Historically, the residential property market has been kind to Australian homeowners.

Realestate.com.au provided a price growth example of two different Melbourne locations over the last 40 years, which helps explains why location determines property price growth.

Suburb 1974 2017 Growth per Annum (%)
South Melbourne $18,700 $1,400,000 10.6
Cranbourne $22,500 $430,000 7.1

With a 40km difference from Melbourne CBD, those who chose to buy closer to the CBD are three times better off today.

This is why it’s vital to consider location when buying a home or investment property.

What determines property prices?

There are three main factors which drive market demand and therefore prices:

  1. Economic Activity: People move to cities where they can access job opportunities.
  2. Human Interest: What can I do in this suburb on the weekend?
  3. Human Behaviour: What will people think of me, if I live here?

Owner occupiers will pay a premium to buy a property they want, whether it be water views, within a school catchment zone, or close to lifestyle conveniences. These lifestyle factors are the direct cause of some property markets outperforming others.

Location, Location, Location!

The only thing you can’t change about the property is its location. As a rule of thumb, when it comes to property price growth, the suburb does 80% of the heavy lifting and the property itself does the remaining 20%.

Basically, an average property in a great location is better off than a great property in an average location.

You should consider the characteristics or features of a property you wish to buy in the following order:

  1. State
  2. Suburb (ideally within 10-12km of a capital city)
  3. Street (position and performance)
  4. Property (detailed analysis)
  5. Due Diligence (building inspection, title type)
  6. Negotiation

Property Type:

Once you’ve narrowed down the location, the property type comes next.

Houses, townhouses and units are all good home or investment options. The secret is what best suit your needs or those of the local demographics. Is the location largely a family area which would prefer houses over units?

Article originally published on realestate.com.au: