How Improved Infrastructure Can Dramatically Impact On Property Prices And Rental Demand

Article courtesy of Noel Peebles

The first question most "newbie" residential property investors will ask is, "where is the best place to invest?" Experienced developers and investors will know that property is demand driven, and it is usually best to buy where there is a current, or likely future demand, for residential housing or rental properties. People want to live within easy access of services - it's as simple as that.

The point is; large infrastructure projects generally stimulate demand for nearby real estate. These infrastructure projects usually create plenty of jobs as well as follow-on demand for goods and services. They also provide a more effective use and connectivity of the available economic resources.

The resulting increase in economic activity from new and "more disposable" incomes will in turn typically boost economic growth. That's why more people will want to purchase or rent residential real estate in locations within close proximity to major works.

Major infrastructure projects can take many forms and often include transport infrastructure improvements such as link roads, railway line extensions, new bridges, and major freeways. Other projects could be new shopping malls and commercial precincts, new power stations, improved communications facilities, industrial areas and business parks, new hospitals, schools and universities. These can all have an impact on local property values and demand for residential property.

Let me give you an example of what I mean.

In July 2010 the Daily Telegraph in the UK reported an increase of 26 percent in East London house prices following the news that London had won the right to host the 2012 Olympic Games. Not surprisingly, East London is getting a huge upgrade in facilities associated with the 500 acre Olympic Park. The main transport hub for the London Olympics is the Stratford Regional Station which requires upgrades aimed at a threefold increase in capacity. So, it's not surprising that all this impacts local property values.

The key from a property investor's point of view, is to attempt to buy in areas before the major infrastructure projects are announced or started. However, there is a risk in this strategy. The project may not start on time, or the project may get cancelled before it even gets under way. That's why it pays to stay well-informed especially if politics are involved.

Let me give you an example of another major infrastructure project, this time "down-under" in Queensland, Australia. Both sides of the political spectrum are committed to building the new $2billion Sunshine Coast University Hospital at Kawana. They are so committed to completing the project, they are arguing over who can build it sooner - either 2015 or 2016.

Now, if I were a local property investor, I would take this as a strong indication the project is a high priority on the political agenda and will proceed with urgency. Plans are also on the drawing board for a town center alongside the new hospital. The nearby Sunshine Coast University is also projecting big increases in student numbers which, like the new hospital and town centre, will require good supporting roadways and transport infrastructure. The question is; what will that do to property values and rental demand for nearby suburbs like Kawana Island? If I was a local investor I certainly know where I would be investing.

In general, improvements in transport infrastructure such as roading and rail, or constructing new hospitals and universities are typically strong drivers for residential real estate prices. It is important to not only look at the short-term impact during the construction phase, but also consider the long-lasting ramifications on the area as regards permanent employment prospects.

The key is to thoroughly research areas before buying real estate, particularly if you are a property investor looking for a good return. Local knowledge is always an advantage when it comes to investing in property.