When it comes to the reputation of a suburb, there’s no escaping the fact that some perform better than others. Consider areas where we hear frequent reports of violence and criminal acts like home break ins; it certainly gives us the perception that these are not necessarily the safest neighborhoods in which to live.
This begs the question – would you be prepared to live in a house that has been the scene of a horrific crime, or in a street or suburb that is regarded as “dodgy”?
And if you wouldn’t live there, do you think a lot of other people – namely tenants and property purchasers – would also be reluctant to do so?
For property investors, this is a question that needs to be considered, because when you’re looking to maximise your returns you need to have assets located in areas that are deemed desirable.
This question was raised recently in a report on domain.com.au, which reveals that UK police have launched a website for home owners to find out what crimes have taken place in their area, that also provides crime hotspot maps.
Property experts are concerned that providing house hunters with such detailed information will have a detrimental impact on values in certain areas for obvious reasons – they simply won’t want to live there!
Australian home buyers are already showing signs of being increasingly picky when it comes to the requirements of “desirable” neighbourhoods. Here, we have a MySchools website that gives house hunters the ability to locate streets that fall within high performing school zones.
So is perception really important when it comes to determining where to invest?
Of course it is!
Any successful property investor knows that locations with a “feeling” of safety and desirable amenity will be a stronger performer than the low-income area with a high crime rate.
This is evident in research conducted in London in 2004, where a report entitled The Costs of Urban Property Crime investigated the impact of domestic property crime on home prices in the UK capital.
It found that crimes involving vandalism and graffiti had a significant negative impact on local property prices while surprisingly, burglaries had no measurable effect. The report’s authors surmised that because criminal damage offences are on public view, they generate more fear of crime in the community and suggest a neighbourhood in deterioration.
Then there’s the US register that details the locations of known sex offenders, along with their photos, date of birth and the type of crime committed by the offenders in Californian communities. Is it likely that if Australian home buyers, particularly those with young children, had access to such information it wouldn’t make a difference as to where they bought or rented a home?
It certainly makes a difference in America, where a 2006 paper – There Goes the Neighborhood? Estimates of the Impact of Crime Risk on Property Values From Megan’s Laws – found that houses next to a registered sex offender sell for about 12% less, while those about 160 metres away trade at a 4% discount, while at more than 160 metres there is no price decline.
So is there such evidence of criminal activity impacting on property values here at home? According to senior valuer with Herron Todd White, Kim Quick, one-off, high-profile crimes in an area can affect property prices but any negative affects generally wear off once publicity surrounding the event stops.
However when it comes to specific properties that have been the scene of a gruesome murder for example, buyers will avoid the property like the plague if they’re aware of its history.
Take the instance of NSW student Sef Gonzales murdering his entire family.
When agents put the house on the market in 2005, two marketed it without revealing this fact to the eventual buyers (who were from overseas), and were fined $20,000 for doing so. They were forced to refund the buyer’s deposit and relist the home, revealing its tragic history. The home eventually sold for $720,000; $130,000 less than the original asking price of $850,000 and $80,000 less than the first buyers paid.
Quick says that when it comes to offences such as robberies and theft, the actual crime rate is not as important as public perception of the area’s safety. She adds that it’s critical for investors to do their homework on any potential area they consider buying into.
“Most potential purchasers would act with confidence when purchasing in their home city, and have a fair idea or where they can get most value for their dollar – they can research real estate sites or act on the recommendations of friends or family,” she says.
“However, if you are purchasing interstate and the property appears a bargain then it could be for a sinister reason and extending your research by asking the neighbours or local shopkeeper might be beneficial.”
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.