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McGrath Report - location matters

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By John McGrath 

Last year we released our annual McGrath Report, where we talked about the importance of location when it comes to capital growth, and certainly a consideration for anyone wanting to invest in property. Check out the Location Matters section of the report to see this information in a graphic – it’s an interesting visual. 

Essentially, we took a look at the historical capital growth of three Sydney locations – inner city Paddington; Sydney’s second CBD, Parramatta; and Penrith in the outer west. Two things were clear:

1. Inner city property price growth trumps growth in outlying areas over the long term by a mile; however

2. Property around major employment centres away from the city that have a lot of infrastructure in terms of jobs, recreation, cafes/restaurants and transport can achieve capital growth not too dissimilar to inner city suburbs, but you need to pick your spots wisely. 

If you study the price growth history of homes located close to the CBD compared to property located in the outer areas of Sydney, you will see a significant difference over the past 20 years. Paddington prices are up 350% compared to Penrith prices up 250% and Parramatta up 335%.

Note how close the capital gain is between Paddington and Parramatta, yet median values are worlds apart today at $1.55 million versus $712,500. 

The opportunity here is that you can buy for far less in Parramatta and still expect to achieve excellent capital growth and that solely comes down to Parramatta being a growing, vibrant jobs and lifestyle centre. 

My company established an office in Parramatta many years ago because we recognised it as one of the most important markets in Sydney’s future. Parramatta employs approximately 50,000 people and is home to 10,000 residents, according to council statistics. But I believe there is still plenty of economic growth to be had in this area and a lot is happening to facilitate that right now, with an inevitably positive flow on effect to local property values over the long term. 

A new draft City Centre Planning Framework Review proposes a number of measures to encourage growth, such as no building height limits and higher density buildings with a similar floor space ratio to Sydney CBD. 

BIS Shrapnel estimates 1600 new apartments per year will be built in Parramatta from now through to 2019, including the $550 million Chinese-developed Promenade community. 

Infrastructure projects include the $2 billion Parramatta Square Urban Renewal Project – a three-hectare mixed use precinct in the centre of the suburb that will include a new campus for 10,000 students of the University of Western Sydney. 

There’s also a lot of state and federal government focus on developing Sydney’s broader west, south-west and north-west above all other areas of the city and that’s going to prompt big population growth and demand for homes. 

If you have a relatively healthy buying budget, I still recommend buying as close as you can to the CBD. But if you have some restrictions, then more affordable and established markets such as Parramatta, that have strong signs of continuing economic growth, are a great pick assured to deliver strong capital growth. 

Published: Tuesday, January 20, 2015

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