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Blue-chip locations prevail in investor market

19 February 2014 Staff Reporter

Blue-chip locations remain in high demand from investors, according to one of Queensland’s leading real estate groups.

It's the age-old question that many investors debate: invest in a property with greater risk but with greater returns, or in a property that performs consistently?

“Generally speaking, while high risk and high return areas will always put up a heavy fight, blue chip will prevail,” said Lachlan Walker, Place Advisory director.

“Although a blue-chip location will be more expensive to buy into initially, the end results are well worth it.

“A blue-chip area is one that has consistently strong rental yields and steady long-term capital growth – it’s a reliable region that constantly delivers but takes a ‘slow and steady wins the race’ approach.

“These regions will weather downturns and operate profitably in the face of adverse economic conditions, which help to contribute to their long record of stable and reliable growth.”

Mr Walker said blue-chip areas are traditionally classified as those within a 10-kilometre radius of a capital city’s CBD.

“A blue-chip location will almost always possess the stereotypical price drivers, such as abundant public transport, parks and water and a flourishing cultural, restaurant and entertainment scene, which is typical of capital cities and inner-city suburbs,” he said.

“For this reason, they are usually more expensive to buy into than other areas.”

While blue-chip areas are the favourite for Place Advisory, Mr Walker noted there are some benefits to investing in more risky locations, which are typically cheaper but have the potential for augmented growth and subsequent high – but volatile – demand for renting.

“Risky areas are still serious contenders for investors,” he said. “This is an area that has the potential for a massive rental market but differs from a stereotypical investor suburb.

“These locations often come onto an investor’s radar due to a particular occurrence – for example, increased job opportunities. But they have earned their ‘risky’ label for a reason and the risk is that there are high peaks and troughs, and therefore the possibility their growth could end as quickly as it has begun – sometimes with very little warning.

“This means investors aren’t able to exit this market with as much profit, or as easily if the market changes.

“Taking a punt on the underdog sometimes pays off, but timing is critical in these areas and remember, if it looks too good to be true, it generally is.”

Mr Walker noted there are three fundamentals that investors look for: population growth; infrastructure and government investment; and employment opportunities and diversity. Blue-chip suburbs have all three, while a risky area may only possess one of the three factors.

“For example, a mining town will have multiple employment opportunities but they do not have the growing resident population to give them that ultimate security as a long-term investment suburb,” he said.

“In the situation of a mining town, very often the increased use of fly-in fly-out workers means the resident population is located well away from the mine.”

Blue-chip locations prevail in investor market
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