Why neighbourhood has never been so important when investing in property

Over the last few years, the coronavirus pandemic has forced all Australians to reevaluate how we live our lives.

Last year offices were shut, lockdowns were in place and now people are likely to continue working flexible rosters and working at home more than ever.

This means gone are the days where our ‘home’ was simply the place we rest our heads and enjoy some downtime between work and our social lives – the coronavirus social distancing has put an end to life as we once knew it.

If social distancing and the Covid-19 environment has taught us anything, it has taught us the importance of the neighbourhood we live in.

If you can leave your home and be within walking distance of, or a short trip to, a great shopping strip, your favourite coffee shop, amenities, the beach, a great park, the recently implemented coronavirus restrictions might seem a little more palatable than if you had none of that on your doorstep.

That’s why choosing the right neighbourhood is important for property investors?

In short, it’s all to do with capital growth, and we all know capital growth is critical for investment success, or just to create more stored wealth in the value of your home.

Sure there is always the opportunity to add value through renovating your property or making a quick buck when buying well.

But these are off’s and won’t make a long term difference if your property is not in the right location because you can’t change its location.

This is key because we know that 80% of a property’s performance is dependent on the location and its neighbourhood.

In fact, some locations have even outperformed others by 50-100% over the past decade.

And it’s likely that moving forward, thanks to the current environment, people will place a greater emphasis on neighbourhood and inner and middle-ring suburbs where more affluent occupants and tenants will be living.

These ‘liveable’ neighbourhoods with close amenities is where capital growth will outperform.

What makes a ‘good’ neighbourhood?

A good neighbourhood means different things to different people, but there are some key factors that help to determine which locations have the potential to grow in value faster in the future.

Generally, a good neighbourhood is determined by the physical location, suburb character and its close proximity to amenities such as a shopping strip, park, coffee shops, education, and even some jobs.

It’s obvious then that in our new ‘Covid’ world, people will want to be in a location where everything they need is in short 20-minute proximity – whether that is on public transport, bike ride or walks – to their home.

In planning circles, this concept is known as the ‘20-minute neighbourhood’.

Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet the 20-minute neighbourhood tests, but very few outer suburbs do because there is a lower developmental density, less diversity in its community and less access to public transport.

The key criteria for a ‘good’ neighbourhood

Here is a list of 7 primary neighbourhood factors which have the potential to drive up property prices:

1. Close proximity to public transport

Neighbourhoods with properties that are within walking distance to public transport, such as the train, bus, ferry or light rail, are popular with buyers and therefore are likely to add value over the longer term.

2. Close proximity to schools

 Some buyers will pay a premium to be in the catchment area for particular schools and as such, high demand generally means higher property price points.

In fact, house prices in some of Australia’s school catchment areas have soared by as much as 35% over the past 12 months according to a new 2020 School Zone Report by Domain Group.

While our property markets have been generally subdued last year, the top 10 primary and top 10 secondary school catchment zones nationwide all reported house price growth of at least 25% year-on-year.

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NOW READ: Australia’s top 10 school catchment areas for strongest house price growth

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3. Accessible amenities

 As we have previously discussed, a neighbourhood with all the local amenities you could want – parks, shops, restaurants, cafes, gyms, the beach etc. – would fetch a premium price for its local properties.

4. A low crime rate

 It goes without saying that a property in a neighbourhood with a low crime rate will be more valuable than one with a high crime rate.

5. It’s well maintained

Neighbourhoods and homes which are well maintained and clean indicate a level of community care which can help add value to properties in the local area.

6. Planned upgrades which are beneficial

 Neighbourhoods with planned upgrades could be beneficial or detrimental to property prices in the area.

For example, improved public transport and any plans to make the neighbourhood more visually attractive (improvement to the appearance of buildings or footpaths for example) could increase property prices.

7. Any historic charm

Historic charm brings unique character to a neighbourhood that is often in demand by buyers and in the long term buyer demand for this type of area has the potential to translate to higher property prices going forward.

It’s all about the neighbourhood

Neighbourhood has always been a key factor to consider when buying an investment property, and now it’s even more important.

I’ve always looked for desirable neighbourhoods in aspirational suburbs – locations where people aspire to live – which are very different to locations where the only reason people live there is because they can afford it.

Not only do we already know that location does the heavy lifting when it comes to capital growth, with some areas fetching 50-100% greater capital growth than other locations, we’re also in unprecedented times which has forced us to adapt to a new normal.

This became the new normal where restrictions are put in place on our movement, social distancing has been implemented and your home now doubles as your office.

This shone a spotlight on the neighbourhood we live in and what we have available at our fingertips.

As the world around us evolves and adapts, homeowners and investors must do the same and view properties with a post-pandemic eye.

Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet a 20-minute neighbourhood test.

However very few of the outer suburbs would do so.

But it’s about much more than walkability.

For outer suburbs to become 20-minute neighbourhoods, then two key requirements must be met.

1. Local development densities need to be increased, to say around 25-30 dwellings per hectare, which will better support local activity and services provision.
   An introduction of a mix of uses into these neighbourhoods. This would bring more jobs and services close to where people live. They would also have a range of housing to support a mix of household types, income levels and age groups.
   This combination is often known as density plus diversity.
2. Second, local public transport service levels need to be greatly improved.

And this will be very difficult for many outer suburbs to achieve.

At the same time, they won’t meet the aspirational and desirability criterion I mentioned above.

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