There are plenty of advisors out there who reckon you make your money on property by timing your purchase or buying below market. Maybe you’ve heard the old catch-cry “buy low, sell high”. For those of you familiar with our network and our Property Development Formula course, you’ll know I don’t subscribe to this notion because there are lots of ways to create profit that have very little to do with your purchase price.
But that doesn’t mean buying well won’t add to your end profit.
And one way to target a good development site is to look for suburbs in the early stages of gentrification.
Today I’m going to explain what gentrification is and the 5 key signs you should be looking out for if you're a property investor or developer.
Gentrification is when an older, often working-class suburb that was developed a few generations ago, gets a serious facelift. Developers, middle-class or upper-class buyers move in and either renovate or knock-down and rebuild housing stock, changing the character of that neighbourhood.
Some classic examples are Redfern in Sydney, Fortitude Valley in Brisbane and St Kilda in Melbourne.
While most suburbs go through some level of renewal every generation or two, major gentrification areas are typically in the inner and middle-ring suburbs of a big city. These areas deliver good infrastructure like public transport, a choice of schools, shopping centres and lots of employment opportunities.
These older areas have become run down over time and in contrast, newer suburbs look more appealing even if they’re not quite so convenient. But because of their proximity to the city, these older areas are a prime target for modernisation. The theory goes if the homes and facilities in that suburb get a proper makeover, they’ll become highly desirable.
If you’re a small-scale developer, the best time to jump aboard the gentrification train and maximise your returns is as an “early adopter”, right after the “innovators” have moved in. You can read more about the gentrification time cycle here.
Basically you don’t want to be the first to buy into a lower-income area, but if you’re the second cab off the rank then there’s a good chance you’ll catch the up-tick in property values that follows in the wake of gentrification.
So how do you know when gentrification is definitely underway?
Five signs a suburb is gentrifying
1. Tradies
If you notice increasing numbers of builder’s utes, cement trucks and vans belonging to plumbers and electricians, chances are the middle classes are moving in. They don’t want to live in a run-down or dated property so they’re throwing money at tradies to give their home a makeover. This is especially the case with character homes which, when renovated well, attract buyers priced out of more expensive, neighbouring suburbs.
2. Footpath activation
Instead of rubbish and people strewn on the footpath you’ll see café tables, planter boxes and new street lighting. You’ll notice more people walking at a relaxed pace in the evening. The sidewalks may have been repaved and new seating and bike racks installed. You might also see art appearing on power poles and public buildings.
3. New retail offerings
You might hear on the grapevine or by trawling through council newsletters that a major supermarket chain has been given the green light to open a store. You’ll often see rundown or boarded-up shops getting a new lease of life with new tenants moving in, or brand-new ground-floor retail in newly-built apartment developments. Look for new yoga studios and beauty bars.
4. New wining and dining
When a hip new café has soy lattes on the menu or a cosy wine bar takes over from a tired neighbourhood restaurant, there’s a good bet a suburb is getting ready to shine. Gin distilleries and craft breweries can also be an indicator of change, as can organic food stores or an upgrade to the corner pub or a new live music venue.
5. Cars
If you see more luxury cars or EVs cruising the streets and parking up at the local supermarket, this can also suggest a changing of the guard. Cashed up homeowners are moving in and bringing their European-badged vehicles with them.
Taken one by one you might not notice these changes, but collectively you’ll start to think hey, this is starting to look like a much nicer place to be. You’ve got to keep your eyes peeled for the little elements that shape a suburb’s transformation.
Sydney’s Redfern is a great example. It was a suburb with an historically low socioeconomic demographic, and was once known for its public housing, graffiti and above-average crime rates. Drug trafficking and drug use meant it had become a bit of a no-go zone for anyone who lived out-of-area.
But it was only a matter of time before hipsters moved in. After all, Redfern is only 3km from the city centre and had plenty of character homes just waiting for rejuvenation. The early birds gutted the Victorian terraces to allow for light-filled living spaces and created funky cafes, bakeries and bars.
People who had been priced out of Surry Hills decided Redfern was the next best thing – cheaper housing, good facilities, you could even walk to work.
In Victoria, Port Melbourne is a great example of ongoing gentrification. Once highly industrial and entirely working class, it’s now in the process of becoming one of the city’s most stylish neighbourhoods.
And in Brisbane, Moorooka is being touted as another Redfern. This area has a magic mile of caryards, some industry and lots of blue-collar workers but we’re seeing more white-collar workers commuting into the city, which is 10km north.
The trick to spotting gentrification is to recognise that while a suburb might still have unsavoury elements, rents and property prices are starting to creep up. If you can jump in as an early adopter and tackle some of the missing middle in that neighbourhood, you might just bump up your profit margin as a property investor or developer.
But that doesn’t mean buying well won’t add to your end profit.
And one way to target a good development site is to look for suburbs in the early stages of gentrification.
Today I’m going to explain what gentrification is and the 5 key signs you should be looking out for if you're a property investor or developer.
Gentrification is when an older, often working-class suburb that was developed a few generations ago, gets a serious facelift. Developers, middle-class or upper-class buyers move in and either renovate or knock-down and rebuild housing stock, changing the character of that neighbourhood.
Some classic examples are Redfern in Sydney, Fortitude Valley in Brisbane and St Kilda in Melbourne.
While most suburbs go through some level of renewal every generation or two, major gentrification areas are typically in the inner and middle-ring suburbs of a big city. These areas deliver good infrastructure like public transport, a choice of schools, shopping centres and lots of employment opportunities.
These older areas have become run down over time and in contrast, newer suburbs look more appealing even if they’re not quite so convenient. But because of their proximity to the city, these older areas are a prime target for modernisation. The theory goes if the homes and facilities in that suburb get a proper makeover, they’ll become highly desirable.
If you’re a small-scale developer, the best time to jump aboard the gentrification train and maximise your returns is as an “early adopter”, right after the “innovators” have moved in. You can read more about the gentrification time cycle here.
Basically you don’t want to be the first to buy into a lower-income area, but if you’re the second cab off the rank then there’s a good chance you’ll catch the up-tick in property values that follows in the wake of gentrification.
So how do you know when gentrification is definitely underway?
Five signs a suburb is gentrifying
1. Tradies
If you notice increasing numbers of builder’s utes, cement trucks and vans belonging to plumbers and electricians, chances are the middle classes are moving in. They don’t want to live in a run-down or dated property so they’re throwing money at tradies to give their home a makeover. This is especially the case with character homes which, when renovated well, attract buyers priced out of more expensive, neighbouring suburbs.
2. Footpath activation
Instead of rubbish and people strewn on the footpath you’ll see café tables, planter boxes and new street lighting. You’ll notice more people walking at a relaxed pace in the evening. The sidewalks may have been repaved and new seating and bike racks installed. You might also see art appearing on power poles and public buildings.
3. New retail offerings
You might hear on the grapevine or by trawling through council newsletters that a major supermarket chain has been given the green light to open a store. You’ll often see rundown or boarded-up shops getting a new lease of life with new tenants moving in, or brand-new ground-floor retail in newly-built apartment developments. Look for new yoga studios and beauty bars.
4. New wining and dining
When a hip new café has soy lattes on the menu or a cosy wine bar takes over from a tired neighbourhood restaurant, there’s a good bet a suburb is getting ready to shine. Gin distilleries and craft breweries can also be an indicator of change, as can organic food stores or an upgrade to the corner pub or a new live music venue.
5. Cars
If you see more luxury cars or EVs cruising the streets and parking up at the local supermarket, this can also suggest a changing of the guard. Cashed up homeowners are moving in and bringing their European-badged vehicles with them.
Taken one by one you might not notice these changes, but collectively you’ll start to think hey, this is starting to look like a much nicer place to be. You’ve got to keep your eyes peeled for the little elements that shape a suburb’s transformation.
Sydney’s Redfern is a great example. It was a suburb with an historically low socioeconomic demographic, and was once known for its public housing, graffiti and above-average crime rates. Drug trafficking and drug use meant it had become a bit of a no-go zone for anyone who lived out-of-area.
But it was only a matter of time before hipsters moved in. After all, Redfern is only 3km from the city centre and had plenty of character homes just waiting for rejuvenation. The early birds gutted the Victorian terraces to allow for light-filled living spaces and created funky cafes, bakeries and bars.
People who had been priced out of Surry Hills decided Redfern was the next best thing – cheaper housing, good facilities, you could even walk to work.
In Victoria, Port Melbourne is a great example of ongoing gentrification. Once highly industrial and entirely working class, it’s now in the process of becoming one of the city’s most stylish neighbourhoods.
And in Brisbane, Moorooka is being touted as another Redfern. This area has a magic mile of caryards, some industry and lots of blue-collar workers but we’re seeing more white-collar workers commuting into the city, which is 10km north.
The trick to spotting gentrification is to recognise that while a suburb might still have unsavoury elements, rents and property prices are starting to creep up. If you can jump in as an early adopter and tackle some of the missing middle in that neighbourhood, you might just bump up your profit margin as a property investor or developer.
