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If you are planning to buy an investment property, you must have been receiving advice like these:
“You should buy something near a train station.”
“Houses in a good school catchment zone grow better.”
“Why don’t you buy a house near that new shopping centre? Great potential!”
“This beach town has always been performing better than the surrounding suburbs.”
“The closer to CBD, the more potential tenants you get.”
…
They are all reasonable. Amenities such as public transport, good schools, shopping centre, beaches or distance to CBD are indeed important for many when they decide on a place to live. However, as an investor, you need to understand that the local amenities or the distance to CBD are not as important as you think they are to property growth. They should NEVER be your No.1 focus.
You might be like, “why? that doesn’t make sense!”
I didn’t believe that until I saw the solid proof reflected by data. I will now pass these learnings on to you.
We are going to take a deep dive into the SA3 regions across the country, especially the most popular housing markets of Sydney, Melbourne, and Brisbane. We are going to compare different areas with and without some of the commonly believed important features, including train station, top school, and being close to the CBD.
Sounds good? Let’s get started!
A. Train Stations
We are dividing suburbs in a certain SA3 into two groups based on whether there is a train station in the suburb or not and comparing their house price trends in recent years.
Sydney
In the SA3 of Blacktown – North, the suburbs of Quakers Hill, Schofields, Riverstone, Rouse Hill and The Ponds have one or more train/metro stations closeby serving the local residents, while the other suburbs (Acacia Gardens, Glenwood, Parklea and Stanhope Gardens) do not. Below chart shows the median sale price of houses in the two groups from 2012 to 2021.
Melbourne
In the SA3 of Knox, the suburbs of Bayswater, Boronia, Ferntree Gully and Upper Ferntree Gully are served with train stations, while Lysterfield, Rowville, Scoresby, Knoxfield, Wantirna South and Wantirna are not. Below chart shows their median house price trends from 2012 to 2021.
Brisbane
In the SA3 of Springwood – Kingston, three suburbs (Kingston, Logan Central, Woodridge) have train stations, while the rest (Berrinba, Underwood, Rochedale South, Slacks Creek, Springwood and Daisy Hill) do not. Below chart shows their median house price trends respectively.
The above charts show that the house price growth pace of suburbs with or without a train station tend to be similar, indicating that having a train station in walking distance to your property does not make your property grow faster than others.
Also, have you noticed something interesting? Usually, we would think that the house value near a train station would be higher than those far from the station, as life should be more convenient closer to public transport, right? But the fact is, as shown in the charts above, the average median house price of suburbs with train stations are LOWER than the opposite group. How surprising!
Our hypothesis is that while the train station adds value to an area, it, in many cases, would change the local zoning and building restriction as well. Building density may be higher around the train station than the surrounding areas, leading to smaller land lots and higher density dwellings such as townhouses or even apartment buildings. The average property value would consequently become lower.
This phenomenon can be seen around other amenities as well, such as schools. In the below section you will see that the median house price around an NSW top school is lower than their neighbouring suburbs.
B. Schools
Here, we are comparing house price trends of the suburbs around a top-ranked school with the suburbs (in the same SA3 or just next to it) around an average school.
Sydney
James Ruse Agricultural High School has been ranked No. 1 in NSW for years. It is a selective school and does not have a catchment zone, we assume the suburbs within the 2km radius from it are the most popular areas to live if you are attending this school. The suburbs are Epping, Oatlands, Telopea, Dundas Valley and Carlingford.
In comparison, Marsden High School is an average school ranked 200+ in the state, and its catchment falls in Ermington, West Ryde, Denistone East, Denistone and Eastwood, which are just next to, but not overlapped with, the top school’s 2km radius.
The below chart shows the house price growth in the two suburb groups. The growth paces are almost the same with each other, despite the value difference.
Melbourne
Nossal High School is ranked No. 3 in Victoria. As it is also a selective school, we draw the 2km radius around it and get Narre Warren and Berwick.
We use Endeavour Hills and Doveton Gleneagles as comparison as they are the catchment of two average schools, Secondary College and Dandenong High School, both ranked 200+ in the state.
Guess what? 9-year growth of the two groups are once again extremely close, with the average school catchment growing slightly (0.44% annually) faster.
Brisbane
Ormiston College is Queensland’s No. 4 high school. It is an independent school, so we are using the 2km radius again, falling in the suburb of Ormiston.
We use Cleveland District State High School which is ranked QLD 200+ as comparison. Its catchment falls in the suburb of Cleveland.
Unsurprisingly, the overall house price growth of the two suburbs over the past 9 years are close to each other, although the annual growth rates varied along the way. And again, it seems that the average school catchment zone even slightly outperforms by 0.44% per year.
C. Distance to CBD
We are picking two SA3’s in each city for comparison. One is around 10km from the CBD, and the other around 30km from the CBD. Let’s see if there is any significant difference.
Sydney
10km northwest from CBD – Ryde & Hunters Hill
30km northwest from CBD – Baulkham Hills
Hmm, Baulkham Hills has grown stronger although it is farther away from the CBD.
Perhaps the farther from the CBD, the better growth? Let’s be patient and keep on testing.
Melbourne
10km east from CBD – Boroondara
30km east from CBD – Maroondah
Aha, the growth rates are the same! This is getting more interesting. Let’s continue.
Brisbane
10km north from CBD – Nundah
30km north from CBD – Redcliffe
Here, it seems that Nundah, the closer SA3 to the CBD, is performing slightly better than the other.
By looking at all three charts, you might have noticed that, in fact, there is no correlation between a market’s performance and its distance to the CBD. It is impossible to say for sure that a suburb will be growing fast merely because it is close to the CBD or far away from the CBD.
OK, after presenting all the charts, the idea I really want to share with you is that local amenities and distance to the CBD do not make a significant difference on the growth of a property. What’s more, being closer to an amenity does not even necessarily equal to higher value, because of the likely higher dwelling density close to the amenity.
I know, while data shows the facts, the facts are just hard to accept. One way that helped me understand how things work was to always remember that “To each their own”.
When we talk about cars, you may be crazy about the all-mighty Jeep Wrangler while I just love the classic MINI Cooper. People have all kinds of demands and tastes, no matter how unbelievable they seem to you. It is the same when it comes to the place to live.
Some live in the CBD because they like to walk to the office, while some live far away so they can enjoy half an hour driving-alone time each day or be closer to family.
A sea lover lives next to the beach so they can jump into the water whenever they feel like to, while a hiking enthusiast lives near the national parks to explore the countless hiking trails each weekend.
While some families are just after good schools, most singles would chase lifestyle.
…
Every location has a market. When we buy an investment property just based on our own tastes, we are missing out on so many possibilities.
Now you might be wondering, if I can’t rely on local amenities or distance to CBD to decide where to buy, what should I look at?
Market indicators!
While local amenities, attractions and distance to CBD are fixed, markets pressure is constantly changing. This is where the opportunities are, not something that hasn’t changed in forever!
While local amenities, attractions and distance to CBD help you decide where you (and only you) feel like to live, market indicators tell you which areas are expecting growth in the coming years or are currently in high pressure.
What are the magical market indicators?
One might argue that investors can make their moves simply based on a suburb’s place in its market cycle (shown in the figure below), and market indicators are not as crucial. One thing worth noting is that the market is a complex system with countless factors working on its movements, and the cycle is never a prefect motion. A suburb might stay in its Slump stage longer than usual, and another suburb might have an extra brief Slump stage and enter another boom sooner. An example is the Sydney property markets over the last 2 years. At the end of 2019, everyone was expecting a longer period of stagnation, however, it rapidly recovered in the year ahead.
To conclude, stations, schools, shops, beaches, and the distance to CBD are not as important as you may think. Data shows that these features do not make a significant difference in the growth of a certain area. Besides, people’s demands and tastes are not limited to these features. On the contrary, what really matters is the market indicators. By interpreting market indicators, we can identify potential for growth and subsequently make smarter moves.