Cheap vs Expensive Suburbs: Which Get More Capital Growth?

https://www.youtube.com/watch?v=_lMnvaDCPQ0 We are often told to get the best capital growth we should buy the more premium and expensive suburbs and avoid the cheaper suburbs.People things suburbs are cheap for a reason and are going to stay cheap. But is this actually true? Do cheaper suburbs actually underperform compared to more expensive suburbs. Cheap Markets Are Not Under-Performers (Article Link) Select Residential Property DSR Data 0:00 - Introduction1:23 - Why are cheaper suburbs cheaper2:59 - Cheap vs Expensive Growth Australia Wide5:26 - Cheap vs Expensive in Regions7:00 - Cheap vs Expensive in Smaller Regions8:30 - Cheaper suburbs always perform better no matter which way you look at it9:05 - Cheapest vs Cheaper vs Dearer vs Dearest12:00 - Cheap vs Expensive in Major Capital Cities13:17 - Looking at Deciles15:00 - Looking at a 40 year period16:30 - Cheap vs Expensive Yield17:13 - Why buying cheaper properties could be better than more expensive properties Recommended Videos: Do Properties Near The CBD Actually Get More Capital Growth? (Property Data Dive) Transcription Ryan 0:00We're often told in order to get the best return on investment when buying property that we should buy the more expensive suburbs, the more premium suburbs with the idea being that people in the suburbs maybe have more money. And so I know property's going to grow faster. But what about cheap suburbs? People often think, okay, they're cheaper reason, and they're probably going to stay cheap. But is that actually true to cheap suburbs, underperformed compared to more expensive suburbs? Or is the opposite actually true? So today, I have with me, Jeremy Shepherd from select residential property to actually look through the data and to say, should we be investing in the more expensive suburbs? Or should we be investing in the cheapest other? So hey, Jeremy, thanks for coming on today. Jeremy 0:43Thanks for having me. Ryan 0:45Yeah, this one is really close to home at the moment, because I have saved my deposit, I'm looking to invest in the next few months, three to six months, and looking at different options in South Brisbane for me, but there's the cheapest suburbs, you know, kind of around $350,000 that I can get into with a lower deposit, or there's more expensive suburbs looking at 450 to 550, where obviously, I need a bigger deposit. And so I'm kind of arming an iron between the two. So it'll be interesting to go through this and to see, okay, what could be better? Jeremy 1:19Yeah, well, first of all, they don't underperform. So they're cheap for a reason is true. They are cheaper because they don't have all the nice things that the expensive suburbs have. But that doesn't mean that they underperform just being expensive, doesn't mean that you've had better capital growth. And I think that there's this mistake, mistaken belief that if a suburb is expensive, how did it get there, maybe it had better capital growth, but it's always been more expensive. And there's this correlation between proximity to CBD and higher prices for suburbs close to the CBD in the map, major capitals more expensive than the suburbs get. But they've always been like that they've always been more expensive. And as property investors were not interested in whether our properties is is cheaper, expensive, but whether it has a capital growth, that's the that's what we're after. Ryan 2:11And exactly right. Because let's say I'm going to invest a million dollars over the next couple of years into property or buy a million dollars worth of property, I could buy three for around, you know, $330,000 each, or buy two for 500,000, or one for a million. But what I hear at the end of the day is how much they go up in value. I don't care about the individual property price and its ROI. You know, I think one of the best videos we've done together is whether or not proximity to the CBD does correlate to higher capital growth. And the difference there was very small and not as much as the experts say, so I'll link up to that one down below. But let's jump into the data here. Sure, cheap markets versus expensive markets and talk us through some of the analysis that you've done. So we can get an idea of which does perform better. Jeremy 2:59Yeah, so this, this table, as you can see here was an analysis of cheaper markets versus more expensive. So what I did is, at a start date, I split the entire nation up into two groups, you either had a suburb below the median, or above the median, that's the cheaper or dearer columns there is. And then I measured on Australia as a whole. Yeah, yeah. And then looking at every suburb, over whether it's three years growth, you can see there in the far left, gone, three years, four years, 510, or 20. And in every one of those cases, it was actually the cheaper market that that outperformed. But you'll notice that after 20 years, there's very little difference. So the capital growth rates is 7.3% versus 7.1%, which means Ryan 3:44we expect a three year period cheaper suburbs grow at 9.1%, whereas your suburbs are 6.7. So there's a big difference there of around, you know, two and a half 3%. And then once you get to 20 years, the difference is just 0.2%. Jeremy 3:58Yeah, and and, you know, there's errors involved in this sort of measurement. So that could effectively be the same. And you see this as people are trying to get into the property market. They're looking for cheaper alternatives. If they've been priced out of one market, they're looking for a cheaper alternative. So it makes sense that the demand is going to flow away from too expensive and towards cheaper alternatives. But over about 20 years, well, it's just going to even out and it gets more, more and more even the longer the timeframe is Ryan 4:30well that's in a future video, we're going to talk about short term investing versus long term investing and how, you know, it tends to be that most markets perform exactly the same over the long term when it comes to property. Jeremy 4:42Yeah, yeah. It's a startling insight, really, because everyone's sort of jostling to trying to eke out the maximum but if you're holding long term probably doesn't matter so much. Rather that you just get in early. Yeah. Anyway. I yes. Yes, exactly. I had a Look at this through some different different angles having a look at it from different angles. Ryan 5:05Well, that's because I think looking at Australia as a whole, you're gonna have Sydney and Melbourne. Just in general, the majority of those suburbs I can imagine would be above the median for Australia. That's right. You know, there's other smaller regional towns and things like that. Jeremy 5:22Yeah, so in this chart, I've actually split it up into areas. So the cheapest suburbs within this the same area as more expensive suburbs in the same area. And that area is called an essay for it's, it's from the Australian Bureau of Statistics, it stands for Statistical Area level four. So they just split the country up into all these these different areas. So it's it's commonly referred to as a, perhaps a region. So you might have, I don't know how many Sydney has it might have, say, a dozen of these sa fours. I think the there are only about 90 sa fours around the entire country. And it's based on population. So they're trying to make each one of these sa four regions large enough to encompass the same number of people. Okay, anyway, Ryan 6:15a kind of like Southern Sydney, inner West, CBD, Western Northern Beaches, Jeremy 6:22those sort of areas. Yeah, Northern Beaches is one of the the ESA fours. It will include a large number of subsets This is bigger than a local government area. Yeah. And as you can see from the numbers there, even when you are just looking at such cheap suburbs, in the same essay for as expensive suburbs, over 345 1020 years, it's still the cheapest suburbs that seem to to outperform. And again, this is probably due to people looking for cheaper alternatives in their local area. Yeah. So yeah, and I've, I've done the same thing, drilling down to sa three, which is roughly equivalent to a local government area smaller than an SI four. And you get a similar sort of stories. It's like Ryan 7:07a local council area sort of thing. Jeremy 7:09Yes, yes. But then you get like, a council, a mega council like Brisbane. Brisbane has just one Council. So the Australian Bureau of Statistics is trying to keep things a little bit more uniform, but not by geography size, by population, new people, Ryan 7:29with an essay three likely encapsulate, what does it Jeremy 7:33say, say a dozen. And he doesn't, it's hard to tell because if it's sort of regional markets, rural markets, you may have very sparse population may be a massive geography including an enormous number of suburbs or localities. And, and that just has enough population to comprise one, essay three, but then in Sydney or Melbourne, you might have an essay three that's, that's only over say 1015 square kilometers, because the density of population is so high. So it's, it's more based on on population. So it might not have you might not have as many suburbs in one, so three is another. But the same thing comes out in the data as you can see there. So we're really struggling now to find a case where cheaper is actually underperforming? Ryan 8:27Yeah. Firstly, when Australia as a whole, the cheapest suburbs in Australia as a whole, did they perform better than the more expensive suburbs in Australia? The answer was yes, they do. Then we went down to you know, there's essay for kind of regional areas, cheaper suburbs, still outperforms now gone down to even smaller essay, three areas, and the cheaper are still outperforming. So it's like no matter how you spend it, how large or small, you're shrinking your sample size, the same sort of thing tends to be true. Jeremy 8:55That's right.