To ensure that the purchase of a property has strong capital growth potential, it is important to choose an area that is predominantly owner occupied. Preferably a 70%+ owner to renter ratio or greater will suffice.
There are tenants at all levels of the market as people ‘see’ themselves in certain areas and would not be comfortable living elsewhere. A person is generally a tenant when they cannot afford the deposit and associated costs to purchase in the area where they would like to live.
To ensure that one avoids areas that have too high a rental to ownership ratio, purchase within 30% of the median price range of the city.
A ‘Conforming’ property’s purchase price should always be within 30% of the median price of the city, ensuring that in most cases an excess of 70%+ owner to renter ratio per suburb / postcode applies. The objective is to buy in a postcode that has a predominance of owners. Owners tend to continually recapitalise their homes. After all, they live in them and want the best standard they can afford.
The more owner occupied private dwellings in an area, the more recapitalisation/improvements occur and thus more value is continually added to these properties. This serves to increase the median value of property in these postcodes. In other words, it is owners who aspire to best maintain and improve their homes, and this increases the demand for and pushes up the median price of properties in the area. The corollary applies to areas with too many renters, where very little recapitalisation occurs, hence a lower capitalisation rate resulting in a lower desirability level. An area that has a predominance of rental properties is more likely to stagnate and grow at a slower rate.
THE PROPORTION OF OWNER OCCUPIED PRIVATE DWELLINGS IN AUSTRALIA IS
(Reference: Australian Census 2017)