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By Michael Yardney
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Here’s how to find locations that will outperform in the long term

Everyone knows that location is critical when selecting an investment property that will outperform.

But what makes a good location and why are some locations better prospects than others?

Selecting an investment property that will outperform

When I started investing around 50 years ago the emphasis for homebuyers was largely affordability and proximity to infrastructure.

The outer fringes of our capital cities were developed in the wake of freeway extensions on all sides and commuting from vast, newly born suburbs into the CBD became commonplace.

As far as amenities go, as long as you had a relatively easy drive to your place of employment, as well as nearby shops, healthcare services and schools, life was pretty good.

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Note: It’s different today!

Nowadays the property choices Australians make are still driven by lifestyle, but how we think and function in today’s world has changed.

With more than half of Australian households having only one or two people in them, more of us are:  

  • Choosing to start a family later in life.
  • Enjoying the opportunity to work flexible hours and from home offices.
  • Seeking better work-life balance and prioritizing downtime before overtime.
  • Opting to live within walking distance from not only infrastructure necessary for daily living, but also cafes, restaurants and recreational facilities, as lifestyle moves to the top of the owner-occupier and tenant wish list, alongside affordability.
  • Downsizing to easily maintainable and cost-effective apartments and townhouses, with smaller gardens and more efficient, compact designs.

A short stroll to success

This means that “walkability” has become the new buzzword on the property investment block.

Of course, proximity to amenities such as shops, parks and public transit that allows local residents to either walk or take a short train, bus or tram ride, has long underpinned property values in inner-city neighbourhoods throughout the developed world.

But now we are witnessing a similar trend across an increasingly cosmopolitan Australia.

In fact, it is common for a considerable premium to be paid for properties that are a short walk to the beach or café strips and long-term capital growth figures show that in Sydney the city’s most “walkable” suburbs have outperformed the averages by up to 20%.

Where it’s “at” – the café culture

It should come as no surprise that as our lives become busier and time is in increasingly short supply, cafés have become a kind of transition point where we meet up with friends, family and often business associates for a “catch up”.Where it’s “at” – the café culture

Many city dwellers have their favoured haunts, where they’re on a first-name basis with the local barista and have a “regular” order.

The serving and consumption of coffee have become somewhat of a ritual and many of us fancy ourselves as coffee connoisseurs.

Given that more of us are living alone or in smaller households, it’s not surprising that the relaxed, “home away from home” vibe of inner city cafes is becoming an increasingly popular drawcard for those seeking a familiar social outlet.

Lifestyle locations dominate

Yes…lifestyle has undeniably become the fundamental force in today’s residential real estate market.

Culturally, we have become a nation that enjoys strolling to the local corner eatery to catch up with friends or just enjoy some time out with a latte.

But it’s not only suburbs close to beach and bay that command premium.

Proximity to schools with a good reputation is a must for many family buyers, with some purchasers prepared to pay extra to be within a particular school catchment zone so their children can either walk, bus or “train it” to school.

In fact, in my experience, parents are more willing to spend half an hour or more driving to work if it means their children can safely walk to an esteemed, local school.

Walkscore has ranked Australian cities

As our population grows and our major cities increase in population by an estimated 5% over the next 8 years, the walkability of an area will become an even more important consideration for property investors seeking locations that will outperform into the future.Australian cities have now been ranked by Walkscore

Well…now you can find out how “walkable” your suburb is. 

Walkscore.com, which measures the number of typical consumer destinations within walking distance of a dwelling, with scores ranging from 0 (car dependant) to 100 (most walkable) has recently ranked more than 100 Australian cities and 3,000 suburbs.

And the good news is that walkable neighbourhoods were recently recognised for their health and economic benefits afforded to residents by the University of Melbourne, where a ten-year study found good access to local infrastructure encouraged more people to ditch the drive and adopt “health-enhancing behaviours”. Lifestyle is the fundamental key in our marketplace

For property punters, the cultural transition that Australians are currently undergoing is important to note.

It signals an end to the suburban McMansion “fad” and demonstrates just how crucial demographic waves of change can be to planning and executing a successful, long-term property portfolio.

While affordability will always be a factor in our property decisions, lifestyle is the fundamental key in our marketplace today.

Inner city, bayside apartments filled with character and complemented by flowing, commonsense floorplans, with excellent nearby lifestyle amenity, have become the “new black” in residential real estate for many buyers – young and old.

This is where investors would do well to focus their property investment activity in years to come.

Our property markets will be more fragmented

The property boom of 2020-21 was very unusual.

All types of properties in almost any location around the country increased in value substantially.

We've been through a downturn since and are now in the early stages of the next property cycle, but now it’s likely that high interest-rate and inflation will keep eating away at the average Australian's household budget for some time making the property less affordable for many.

This means moving forward our property market will be much more fragmented.

If you think about it, certain demographic segments will find the rising cost of living due to inflation and higher rents or higher mortgage costs at a time when wages are not keeping up with inflation will either stop them from getting into the property markets or severely restrict their borrowing capacity.

Of course, the 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 that they can afford it.

Location PropertyNot 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, but we’re also in unprecedented times which has forced us to adapt to a new normal.

The Covid pandemic 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.

 

 

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
8 comments

Michael, I am a big fan of your site and read your articles from time to time during lunch. My wife and I bought our first home together (unit in Bexley - we took your advices relating to land to building ratios and walkability scores etc) last year ...Read full version

1 reply

What are your thoughts about investing in the inner suburbs of Newcastle eg Cooks Hill and Hamilton?

1 reply

Good point about cafe society - applies especially to singles and DINKS. Another important demographic affecting property values is families with children. The driving force with them are the high quality public schools, plus access to private schoo ...Read full version

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