Expert Bust #4 - schools, shops, transport, etc over-rated

Proximity to amenities has very little influence on capital growth. Investors think they need to avoid main roads and buy close to schools, shops, transport nodes, etc. But historical research shows there's little benefit, except in one case - when the amenity is new.

If an amenity has been around for years, the benefit has already been factored into prices. Only if the amenity is new would there be a change to the perceived value of property nearby from buyers and renters. Then prices might grow faster for a while until the new amenity is once again factored into prices.

Continual above average growth due to amenity proximity simply doesn't happen as this chart shows.

 

I agree with this. I mean nearly every suburban property is near schools, shops, transport etc. It's hard to see what's so special or rare about such a trait.

 

Generally agree with the similar growth rate thing. Though properties close to train stations are more likely to be rezoned in the future, and properties close to transport or in a desirable school catchment sell faster.
If you have to sell quickly, esp in a slow market, it makes a difference. It will likely rent faster too because there are more obvious things to advertise.

Flipping it around a little, a property thats far from a station doesnt mean its a bad investment, as long as you can get it for a good price.

 

Supporting my two issues with boarding houses/low cost housing:
1. They don't need to be close to train stations because potential tenants can't afford to buy a house, but can afford to buy a car; and
2. The car parking requirement of boarding houses is far too low because (1) so the ratio of 0.2 (or whatever it is) is far too low!

 

I think in the long term you are right. People might pay a 20pct premium now to be walking distance to a school. But if growth rate is always higher then there is no ceiling to the premium eg 50pct higher in 20 years, 100pct in 40 etc.

 

I read the article. Apparently it is not over rated in Perth according to the analysis. Also, not only close to schools, it needs to be close to "good" schools.

 

Aptly put, Squirrell. Many "experts" don't get what you said. It's key to metric choice when researching growth potential.

 

I can easily find more cases like Perth that show the complete opposite of the general trend. Are Perth buyers different to the rest of the country? Unlikely but theoretically possible.

There are plenty of cases of declining markets with high auction clearance rates (ACR), for example. But the overall trend shows a strong relationship between higher ACR and higher growth.

My money goes with the general trend. Exceptions that I've considered outliers will prove me wrong. But there will be less of them. It's a game of probability.

The chart of Melbourne schools did include those considered "good" but only considered "good" now. The analysis assumed they have always been good. That might not be the case. But if school ratings can change, then picking a suburb with a good school now is poor research for capital growth. We need to know how their rating will change in the future.

Again, it's all about change in amenities. Well-established amenities have little impact on future growth.

 

Interestingly, Sydney suburbs with stations performed below those suburbs without. Oh, they drive.

Being close to a good school - only applies if they're going to walk to school but most don't.

Proximity to hospitals - more relevant to particular demographics (age/lifestage)

Proximity to CBD/Jobs/beaches - the city/facilities ain't getting any closer to the outer suburbs but travel times/tolls are increasing.

 

I think the value of these things is more to do with tenant demand rather than capital growth.

 

Totally agree with the fact there is a huge misconception about not buying on main roads etc.....I know more ppl that got rich from buying on main roads and then the area got rezoned or developers bought them out, or a church bought them out to build on, or a new Coles and Woollies built on the corner etc......Main roads are sometimes the best locations to buy.

In fact one of my very best friends an anglican church bought him and 3 neighbors out for almost DOUBLE their property value to build a new church on the grounds. This is on a main busy road with 1000s of cars on it daily.

 

Thats luck to some extent.
I have many friends that did that.


Due to not having much money main road horrible living conditions yet over time the area got more dense and they are bough out.



Although i would never put my family living on main road like they did.(mind you not by choice)

I would rather live in a town house.


Than again what if the redevelopment takes 10/20/30 year sna they never get bough out.


You lived in an awful location most of your better years.

 

Yes luck does have some influence but luck and timing are what is required in this investment game doesnt really matter where you buy.

Even if you buy in a quite little cul-de-sac the growth might not be there either and definitely might not be more than an equivalent house on the main road plus I was referring to investment purposes not for yourself but the opportunity value is not being considered.

There will be 0 percent that a developer or a large shopping centre or another major infrastructure development will cause significant rise in a house inside a quite little cul-de-sac. On a main road that opportunity or "luck" as you put it is always there. I dont own many houses on the main road (only 1 on a main road actually) but in hindsight I wish I had bought more on a main road next to a train station, major shopping centre or something alike.

 

Some more thoughts about main/busy roads: what impact will battery powered cars have re- noise and pollution? What impact will driverless cars have e.g. fewer accidents, honks and radical driving? What impact will more work-from-home have? And what about an influx of migrants from places like Calcutta where they have a very different idea of "busy"?

 

If you live walking distance to train station, you'll always enjoy that benefit while you live there.
Many people don't want to bike ride, so they'll have to use buses or drive. It's not something I want to be doing if I can avoid it. Back in the mid 1980's, my aunty specifically bought in a location so the kids would always be walking distance to the trains so they'd never have to be driven to the station and just be completely independent. Roads are always getting busier. Might have to wait a few years till driverless cars take over.

 

The article is a total nonsense.
In my suburb, a property 800m away from train station is worth $1.9m. A similar property 3000m away is about $1.1m. Using the same prediction as per the article, in 20 years, one property will be worth $3.8m, the other $2.2m. And yes if you plot a graph they both increase by 100% during that time.

 

I agree, in my area there's a huge difference between properties near the station / the local Westfield.

I suspect it's simply aggregating all the data - the crappy stations that only get one train every 30 mins, the crappy run down shopping centres mixed in there with the Westfields, all girls catholic schools that 80% of the population isn't even eligible for. I know I'm willing to pay a huge premium to be within walking distance of a major station / station. I can't be the only one.

 

Battery powered cars in there current form are dangerous imo
there will definately be a heap more people and animals getting toppled

 

I think this post should read. 'New Infrastructure/amenity under rated'.

The exceptional case as OP points out is when new infrastructure/amenity is built, expanded planned etc.

I think the tone of this myth bust citing amenity is misleading. Existing amenity is priced in. Existing amenity is attractive, obvious and contributes to cost. Existing amenity is real. No need to 'bust' it, it isn't even mythical.

 

So? His point is that growth in properties that are close to amenties and far from amentities are similar due to you pay premium to get close to the station. Using your example here, if instead of using the 1.8m to buy one property close to station you buy 2 * 1m property that is far from station (You can likely borrow more due to increased rent) and then years down the line your property will be worth 2*2mil which is 4mil