Targeting the right infrastructure can help beat the house price blues


Investors and owner occupiers are looking to counter Australia’s weakening house price market by targeting infrastructure hot spots that can turbo-charge capital growth.

And there are plenty of savvy buyers making the most of the strategy.

First home buyers Jack Barclay and Madeleine Hodge have just gone through the process of selecting a home based on infrastructure led growth when they were gearing up to buy in Melbourne’s inner western suburb of Sunshine.

“On auction day we had to choose between a property 15 minutes from the station and one eight minutes from the station,” says Barclay, a 27-year-old engineer. “The property further away was in better condition, was on a bigger block – and sold for less. But we were hell-bent on getting this one close to the station, even though we paid 70, 80 grand more just to be ten minutes closer to the station.”

Route of the Melbourne Metro Tunnel which connects to the Sunshine station line.

Route of the Melbourne Metro Tunnel which connects to the Sunshine station line. a

The couple paid $705,000 for the fixer-upper, a two-bedroom weatherboard house little changed since the 1970s. It was the best house they could afford in an area with good access to their jobs in the CBD 13km away.

“That was one of the biggest drawcards for Sunshine – that it’s got a really good train station,” says Hodge, a graduate architect. “There’s definitely [cheaper] areas like Altona North or other areas, but they don’t have the train line that Sunshine has.”

Having purchased their first home, the couple is now set to benefit. It’s an affordable hotspot, according to real estate agency PRDnationwide. Road, bike lane, commercial and residential investments worth $19 million slated for commencement in Sunshine during the final six months of 2017 alone were part of a wider slew of projects likely to push values higher in coming years, PRDnationwide figures show. The $6 billion Metro tunnel project due for completion in 2026 will put Sunshine on a straight high-frequency line to Melbourne’s CBD, Melbourne University, RMIT and St Kilda road.

It’s a pattern being repeated across Australia’s eastern seaboard. It is a variant on “location,location,location” but where the issue is not so much a nice view as proximity to public transport or employment centres like a new hospital or university. Infrastructure spending on publicly owned land worth $2.7 billion across greater Melbourne in 2016 increased to $6.9 billion in 2017 and current planned spending between 2018 and 2022 will be a further $9.6 billion, PRDnationwide says.

The Grattan Institute in a recent study “What price value capture?” says new infrastructure usually boosts residential property prices but the size of impact varies can vary dramatically. New heavy rail which opens up a whole area has a big impact but other forms of transport such as rapid transit bus lanes or light rail may be less significant because they make only a marginal difference to accessibility. Freeways are good for industrial property but can be a turn-off for residential.

Sydney's two-stage metro train line is already boosting property prices nearby.

Sydney’s two-stage metro train line is already boosting property prices nearby.

A study by LUTI Consulting found the Chatswood to Epping rail line completed in 2009 in Sydney’s north boosted the price of houses within 400 metres of the stations by 48 percent whereas for the new Dulwich Hill light rail line in Sydney’s inner west the increase was only 7 to 23 percent. The Perth Mandurah rail line opened in 2007 was found to have boosted property values by 28 to 40 percent. Grattan argued that while the Dulwich Hill light rail may have been a good way of easing pressure on the  transport system but its impact on property prices was small because the area was already fairly well served by other transport options.

The other tricky finding in the Grattan report was that it is hard to predict how long it will take for property prices to rise with new infrastructure. Epping prices sky rocketed after the train line opened while in Mandurah price rises occurred while it was still under construction. Prices are already surging in north west Sydney even though the new North West metro won’t open until 2019. A top floor level-19 212sq m penthouse apartment near the new Bella Vista station recently sold for a record $3.1 million even though it is 40 kilometres from the Sydney CBD.

Asti Mardiasmo, PRDnationwide’s national research manager buying property based on infrastructure is a long run game,” Mardiasmo says. “Fixing the highway or building a hospital doesn’t happen overnight.” But once that infrastructure is established and draws others into the area, demand for property will increase, pushing up values, she says. “It’s like a multiplier effect that will suddenly lead the turbo charged capital growth,” she says.

The wave of private gain coming from public spend could reignite the debate about capital gains tax deductions – which the opposition Labor Party campaigned to abolish in the last federal election – or could even raise the question about taxes on value gains resulting from public spending or policy changes to change zoning rules.

Infrastructure matters because the real goal is 'to make money while you sleep,' says Kogarah investor Joe Konnaris.

Infrastructure matters because the real goal is ‘to make money while you sleep,’ says Kogarah investor Joe Konnaris. Daniel Munoz

“Most economists would agree that rents – an increase in value you haven’t done anything to create – are an appropriate thing to be taxed,” says economist Saul Eslake. “There is a valid argument for taxing some of those rents because they have arisen from public policy decisions.”

Grattan however argued it is so hard to adjust fairly to all the variables that determine price rises that governments should just rely on a broad-based land tax.


In Sydney, where property values fell 0.9 per cent in December, leading a 0.3 per cent fall nationally in valuesthe pattern of infrastructure led property investment is similar. Spending of $2.2 billion in 2016 rose to $3.6 billion in 2017 and including residential developments will jump to $32.6 billion, as projects including the Sydney Metro Rail project from Chatswood to Bansktown, Circular Quay redevelopment, WestConnex, the CBD light rail and Sydney Fish Market redevelopment pick up steam.

The F6 extension in Sydney could ease traffic around Kogarah.

The F6 extension in Sydney could ease traffic around Kogarah.

In NSW, where Treasurer Dominic Perrottet last month  trumpeted the state’s $80.1 billion infrastructure pipeline over the coming four years, investor Joe Konnaris is also betting on gains.

Two years ago, Konnaris bought an investment unit in a residential development on Belgrave Street, a commercial street with medical practices and offices. He paid in the “mid-600,000[s]” for the two-bedroom apartment with underground car parking. Since then it’s gained between 10 per cent and 15 per cent in value, he estimates.

The rental yield of 4.5 per cent he gets on the unit is “okay” but the the real goal is “to make money while you sleep,” says Konnaris, an accountant.

“For me the whole purpose hinges on capital gain,” he says. “While you’re working you don’t need revenue. As the value is increasing you’ve not getting taxed on that money until you actually sell.”

Konnaris, who started working in Kogarah in the late 1980s, has seen it develop. When he first opened his practice, the suburb was a poor backwater compared to bustling Hurstville next door.

“It was like a little village,” he says. “The corresponding suburb of Hurstville was a big growth area. There was a lot of development in terms of apartments and Kogarah was the backwater.”

But development in Kogarah is now also being turbocharged by an estimated $113 million-worth of projects due to start in the last six months of 2017 alone that include refurbishment of the St George Hospital cancer centre and redevelopment of the Kogarah RSL into a mixed-use commercial and residential site.

“The area still has a lot of development potential,” Konnaris says. “They’ve changed some of the height restrictions within the local council. There are a lot of sites being demolished and up for development.”

For an investor looking to build wealth, that is crucial, he says.

“The infrastructure is very, very important. Some people make the mistake of buying property based on the tax advantages, but unless that property increases in value you’re losing money.”

In Kogarah, the ongoing development of St George’s hospital, a $307-million expansion that will create a new 7-storey extension above the emergency department, will continue to bring workers – and demand for accommodation – into the area.

“The hospital’s always going to keep growing,” Konnaris says. “It’s not getting any smaller.” The biggest potential upside is the NSW government’s pledge to build a new freeway SouthConnex that will go directly from Kogarah to the airport. Details are supposed to be announced this year.


Infrastructure doesn’t just benefit the suburbs in which it is being built. In Brisbane, property values in the inner southeastern suburb of Hawthorne are getting a boost from developments in neighbouring – and pricier – suburbs of Balmoral, Morningside and Bulimba, where the $90-million redevelopment of part of the defence department’s Bulimba Barracks is taking place.

Last year Kimberley and Cameron Carr moved from Wellington Point, 22km southeast of Brisbane into a $1,010,000 four-bedroom house in Hawthorne, across the Brisbane River from the CBD.

While the couple with three small children moved closer to the city for lifestyle reasons, such as being able to jump in and out of the city by ferry – “With small children you’re not packing for the entire day, which is what we used to do,” Kimberley says – they’re happy to benefit from capital gains that come from being in an area with good infrastructure.

“We won’t complain about it,” she says. “Ideally everyone wants their own property price to go up, but that just means you pay more rates.”


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