Property Fundamentals

The Importance of Location



The importance of location cannot be understated. In order to achieve capital growth, an investor needs to know what role location plays in price growth. There has been a long-standing belief that location is fundamental to increasing house prices. When speaking with numerous property investors or professionals in the real estate industry, most propose location is a key factor in where they purchase. Though, why is location so important and stressed by so many people?

Demand Drives Growth

Before discussing the importance of location it is important to understand the driving factor of price growth. The demand for a property is what drives growth. Many investors or so-called experts will suggest that there are numerous variables that drive growth. In a sense, there are numerous variables that indirectly influence house prices. Though, this distinction needs to be clarified. For example, some may suggest infrastructure, proximity to amenities, and demographic influence growth. These variables actually influence either supply or demand. In fact, all variables mentioned either impact the supply or demand of a property in a particular location. It is the demand for a property that drives capital growth. So, if you only focus on a handful of variables, you are not going to see the entire picture. To achieve capital growth, the focus should be on demand.

Location Drives Demand

The location of a property has a strong correlation with that particular property’s demand. Location dictates numerous variables which influence demand. This can include the likes of desirability, affordability, demographics, supply of housing, distance to jobs, infrastructure, and amenities. Each of these variables is determined by the location of a property. Therefore, the distinction can be made that the demand for a property is determined by its location. This may best explain the relationship between location and growth.

How to Find a Viable Location?

Knowing the importance of location on property performance, it is important to know how to identify how to find a property. When searching for an investment, consider starting at a state level, before working your way down to the pocket of suburbs with the highest demand. In doing so, the investor may identify the greatest demand areas which fall within their budget. Many investors make the mistake of overlooking the importance of location within their property journey. This can later come back to bite them as only time and money can fix poor investment choices.

There are numerous online tools that can be used in order to evaluate the viability of a location. These tools can be extremely helpful for an investor looking to identify potential areas to invest in. Though, in most cases, online tools catering for this service are paid subscriptions. So it is up to the investor if they are willing to pay for this service.

The Verdict

You may have heard the age-old saying: “location, location, location”. This is used to emphasise the importance of location and still holds true today. The demand for a property is heavily reliant on location.  So location should be one of the main driving forces behind your investment decision. If a property is tired but in a great location it may still prove to be an excellent investment. You will always be able to spend more money to freshen up a property, but you can’t spend more money to change the location of the land.

Want to see other examples of significant property growth elsewhere in Australia?