Why are infrastructure developments important for property investors?

What is infrastructure?

Infrastructure provides essential services that drive economic growth, employment and productivity, and can be classified into three main categories;

1. Utilities: electricity, gas, communications and water
2. Transport: airports, roads, and rail
3. Social: schools, hospitals and community facilities

Why is infrastructure important to investors?

There is historical evidence to suggest that new infrastructure projects boost the local economy by creating new jobs and attracting more people to a precinct. Not only do infrastructure projects increase employment and local property values, but they also provide indirect benefits to the community such as consumer expenditure and social benefits of community development-- all of which drive demand.

This is why property investors should take an active interest in reviewing both current and planned infrastructure projects within different markets.

In particular, road upgrades and developments play a critical role in driving up property values, as these projects make areas more accessible. A freeway extension can reduce the time it takes to drive between a regional town and a major city, making that town a more attractive area to live in and thus raise prices.

A new public hospital in a suburb adds jobs, brings in more visitors and increases demand for housing in the area, driving prices up.

Are some infrastructure projects better than others?

When determining the importance of an infrastructure project, you should consider the size and scale of the project to identify whether it's likely to have an impact on demand or supply within the area.

The nature of the project and type of infrastructure project is also critical. For instance, an airport may be more beneficial to property investors compared to a roadwork construction, as an airport will provide sustained employment and demand beyond the construction period. While a new highway or road work is valuable, it won’t create employment once the project is completed.

What about the timing of infrastructure projects?

Some property investors buy into an area during the hype of a current infrastructure project, but a good time to invest in a market with planned infrastructure is once the tender has been placed and the project has been confirmed to go ahead.

Frequently asked questions

• What is an infrastructure investment?

  Infrastructure investment involves putting money into physical assets such as transportation systems, utilities and communication networks. These investments typically offer stable returns due to their essential role in the economy.

• What is the difference between real estate and infrastructure investing?

  Real estate investing focuses on residential or commercial properties, while infrastructure investing involves assets like roads, power plants, and water systems. Real estate is often more volatile, whereas infrastructure tends to offer steadier, long-term returns.

• What are the disadvantages of investing in infrastructure?

  Disadvantages of investing in infrastructure include high initial costs, regulatory risks, and the potential for political influence. Infrastructure projects are often large and complex, which can lead to delays and unexpected expenses.

• Does infrastructure do well in a recession?

  Infrastructure investments often perform well during recessions due to their essential nature. Services like utilities and transportation are still in demand, making infrastructure a defensive asset in economic downturns.