Capital Gains

Every home buyer wants to be assured of strong capital gain and many dream of buying in the next ‘boom’ suburb, where values increase even more than average. Can they make this dream come true?

Most people who make money on property follow certain basic rules. They know that the best suburbs to buy in are those with good infrastructure and amenities offering their residents quality of life and convenience. Obviously, life is easier if there is close proximity to a CBD with excellent transport, parks, shops, cafes, restaurants, bars, schools, and hospitals. And successful real estate purchasers also know that it takes time for property to realise its full potential. Selling too soon means that the costs of buying and selling consume a disproportionate amount of the capital gain achieved.

Once the basic rules discussed in the last paragraph have been followed there is one more thing that many people forget to consider.

Supply of housing and the potential for further development is one of the greatest factors putting pressure on prices. If a suburb is already fully developed (such as the inner suburbs of Sydney or Auckland), then an increase in demand will not be followed by an increase in supply as it might in a new housing estate; instead, prices are likely to be forced up as more buyers compete for scarcer housing stock. This has a compounding effect as the population of the city gets bigger and the city spreads more. So buying where research tells you that supply is unlikely to keep pace with demand is a key factor in maximising capital gain.

If you think you have found a place that is about to boom, make sure you research the reason for the boom. Demand based on short term need doesn’t last and may leave buyers with a property that is worth less than they paid for it. Examples of short term boom conditions are often seen in tourist areas based on overseas tourism so that when the dollar increases in value or there is international terrorist anxiety, tourism is reduced to a trickle and houses are harder to rent and therefore even harder to sell.

of finding a suburb that is cheap now but likely to boom has to be backed up by time spent researching property prices, the relative amenity ratings of whole suburbs and individual properties and talking to a range of experts whose ideas may help you formulate your best value for money and capital gain scenario.

Original Article Written by Peter O’Malley