The term “blue chip” gets bandied about a lot in real estate circles. Generally, it is used to indicate a location or property that is high quality, highly sought-after, and, usually, highly valued. It often also suggests a sense of prestige and aspiration.
For many investors, blue chip locations are the only ones worth considering. They believe that the great reputation these areas have will help ensure ongoing demand, boosting long-term capital growth and rental returns. But blue chip locations tend to be quite competitive and choosing the right one to invest in can be tough.
Here we take a deeper look at blue chip real estate and why they are appealing to investors. As part of this, we explore what makes a location “blue chip” and why this term can be so valuable. We also share our advice on what you should be looking for in a blue chip location.
What does blue chip actually mean?
The term “blue chip” comes from the US and originally referred to a high value chip in a poker game. Over the years it has maintained this connection to wealth and now generally refers to something with solid earning potential. In addition to locations (and properties), this term is also used in relation to other investment types, like shares.
While the exact definition varies, “blue chip”is most consistently used to describe investments that deliver reliable returns. As such, a blue chip location is usually one that has a long history of achieving stable capital growth. While it may not be the best performing area, it is considered a safe investment, particularly over the long term.
The term “blue chip” can also be used to describe something that is seen as luxurious or in high demand. This is particularly true when it comes to real estate, with the term often used to describe most exclusive neighbourhoods. In this instance, “blue chip” also carries a connotation of being more expensive and more difficult to obtain.
Why target blue chip locations?
For investors, the relative security of blue chip real estate is one of its biggest appeals. As with any investment, there will be highs and lows, but property in a blue chip location should always come out ahead. As such, it provides a safe and reliable foundation to build a successful investment property portfolio.
Also, while they may not always be the most competitive, blue chip real estate always see strong demand. This helps protect property values and usually means these areas are not hit as hard by major market downturns. It also means that they may still see capital growth, even when other areas are in decline.
That being said, the reduced risk associated with a blue chiplocation usually comes with a reduced return on investment. This is particularly true when calculated dollar-for-dollar, as properties in blue chip locations tend to be more expensive to buy. As such, depending on your financial situation and investment approach, targeting blue chip property may not be your best option.
How do you spot a blue chip location?
One of the easiest ways to identify a blue chip location is by its reputation. These areas will generally have a broad appeal, attracting buyers and renters from a wide range of backgrounds. They will also be well known for offering a highly desirable lifestyle and great selection of local amenities.
Generally, there will be clear evidence of a blue chip location’s strong performance, often stretching back 20 – 30 years. Market data will usually indicate that these areas have seen stable growth and consistent demand over an extended period. It will also show that they have been steadier than the broader market, experiencing more moderate highs and lows.
Scarcity is also an important feature of many blue chip properties. Limited stock, combined with strong broad-based demand, increases competition and helps protect local property prices. It also makes it more difficult to buy into the area, further reinforcing the sense of aspiration and exclusivity.
With this in mind, most blue chip locations are found close to the CBD of the major cities. This usually means they have great transport links and easy access to a range of employment opportunities. They often also provide important added extras, like highly rated schools or a vibrant shopping and dining scene.
That said, there are some blue chip locations outside of the inner-ring of the capitals. These are usually within commuting distance of a major city and are often well-known lifestyle locations or popular holiday destinations. We expect the number of regional blue chip real estate locations will increase over the coming years as working remotely becomes even more commonplace
Want more information?
If you need help working out where to invest, give Search Party Property a call. As experienced buyers agents, we specialise in helping everyday people achieve financial freedom through property investment. We also take the guesswork out of the investment process and can guide you every step of the way.