Ask Paul: Backyard or beach for our new house?

Dear Paul,

My wife, 31, and I, 38, have just accepted an offer on our home in Adelaide's north-eastern suburbs.

We essentially own it outright and will keep the proceeds of the sale with the exception of the agent's fees and usual costs.

I bought the property as a single man some 11 years ago for $325,000 and our offer sits at well over double this price.

This puts us in an interesting position, as we will be able to put down the majority of a new home's value in cash (easily 80%-plus and still have some back-up savings) and be borrowing very little, and will likely be mortgage free again within two to three years conservatively.

We've always focused on clearing debt first as a family and are completely debt free otherwise.

We are considering Darwin due to the current low home costs and the block sizes, coupled with the fact I'm initially from there and liked the lifestyle.

We're selling high and buying low, which is the perfect situation.

While scouting real estate there, I began to wonder what the most optimal buying strategy is.

Do we pursue a property in a more desirable area, namely beachfront or closer to the CBD, which will likely be a smaller block size (300-500sqm)?

Or do we push the limit and buy one of the larger homes/blocks (800-1000-plus sqm) only slightly further out.

A real estate agent friend of mine basically said every square metre is dollars in the bank and that's where the focus should be.

Even during our sale process, it seemed so much emphasis was placed by buyers on our square metres, ignoring all other factors such as property condition, location and age!

Thus, my question: what will hold the ultimate long-term value?

I'm more inclined to go for an older home on some land, as in Australia it seems very few people actually have a yard and room for a family, and blocks get smaller and smaller with the newer builds.

I also witnessed properties in South Australia, largely in questionable physical condition but not knockdown jobs, fetch astronomical offers simply due to block size alone.

I have a dream for my boys (four years and nine months) to have a dog, a yard to play in and room to run around, but want to also set us up for the future and could also deal with a smaller property adjacent to the bays and waterfront.

I'd never subdivide and build personally.

However, as these more inner-metro homes are demolished and carved up, this could set us up to reap from an investor buying us out to do exactly this down the track, having opted to choose size now.

Love to hear your thoughts! - Kev

This is a very interesting question, Kev. We can take a good look at this, but my crystal ball, barely reliable at the best of times, is going to be working with a blindfold here.

I've been to Darwin many times, filming with the Money TV show, plus for work and holidays. As you do, we like Darwin.

But apart from keeping a casual eye on property values there, I have zero expertise in this market or its characteristics.

Population growth

As always with property, there will be the usual 'fixed laws of money'. The most critical thing is population growth.

Obviously, population growth drives demand for property. The Northern Territory government has just released its population forecasts titled Northern Territory Population Projections 2024 Release. Let's start there.

The population was 248,151 in 2021 and it is projected to grow to 342,083 in 2050. This is not particularly dynamic growth at 1.1%pa, but it is growth. More importantly for you is Greater Darwin.

In 2021, it was 147,971 and projected to be 199,902 in 2040. Why the projections change to 2040 rather 
than 2050, I have no idea.

Anyway, this means growth in Greater Darwin of 1.5%, which is stronger. The rest of the NT is a pretty stagnant 0.5%.

Of course, this report contains a stack of 'risk factors' for this projection. We should look at these, as risk is always a factor in any property purchase based on population growth.

"The projections are based on the Australian Bureau of Statistics (ABS) final estimated resident population 
as at 30 June 2021, published and unpublished ABS Census and population data on fertility, mortality, migration... these projections and assumptions align with the Northern Territory 2024-25 Budget and consider data released up to 14 May 2024."

Okay, that is fair enough. Major events such as a pandemic and the economic drivers that boost or shrink demand for the NT's goods and services can also have a major impact.

With Australia's population set to grow by more than four million by 2034, it is not unreasonable to think that a small percentage of this four million would head to Darwin for work, home affordability or the lifestyle you enjoy.

Land drives the value

It sounds to me as if all of your three strategies make sense.

You plan to buy a smaller block close to the CBD, on the beachfront or a much bigger block "only slightly further out". This is an important issue.

Your agent friend is quite right - land is 'dollars in the bank', but only in areas of high demand. Land is the driver of growth in value when it is in scarce supply.

Buying a large block near areas due to be developed for housing will have constraints on its value.

Buyers have a choice of an existing block of land or a newly developed suburb. This is extra supply, and in the absence of extra demand can see prices stable or falling.

Another very strong factor is key services and infrastructure. In our big cities, factors such as traffic jams, expensive toll roads and possibly less public transport will reduce demand.

That is why you will have read or heard many, including me, recommend buying where most people want to live.

My wife, Vicki, and I have consistently used this key human desire when looking for property. It is not a budget issue; it is a land size issue.

In Sydney way back in 1983, we had a set amount we could afford, a combination of a deposit and a bank loan.

We looked at great homes on bigger blocks, often with a pool, about 45 minutes out of the city. But we settled on a tiny semi-detached home on a very small block five minutes' walk from a station and about 12 minutes to the Sydney CBD.

This meant we only needed one car, and it was doing very few miles.

Near us we had restaurants, shops, cafes, a medical centre, a few minutes to a major hospital and schools. That worked for us, though it did mean going to a nearby park to ride a bike and to our local pool for a swim with the kids.

Family needs

I think your strategy on all three areas fits the key attributes of a good property decision.

It seems to me that those who value a beach will go with a smaller block on or near the water.

The same with close to the CBD. I can certainly see why a young family would like a big block, in particular when it is close to the city.

In your shoes, I'd choose what suited your family now.

Your word 'dream' is ringing strongly in my ears, as it involves a great option for your kids: a big yard, a dog and being close to city, meaning future development opportunities.

I suspect I know which way you will go, and I have no argument with that.

Family comes first, but a bigger block, in a desirable location, close to amenities is highly unlikely to go wrong when Greater Darwin is predicted to see population growth.

Next question, what sort of family dog? But I'll leave that to you.

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