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Why neighbourhood has never been so important when investing in property

by xyonent
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Key takeaways

Investors should focus on selecting the right neighbourhood when making their property buying decisions, as socio-economic dynamics and lifestyle preferences shape today’s property market.

80% of a property’s performance is dependent on the location and its neighbourhood, and today’s property investors and homebuyers are placing an unprecedented emphasis on lifestyle. These ‘liveable’ neighbourhoods with abundant amenities are where capital growth will outperform.

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

Over the next few years, our property markets will be more fragmented as high interest rates and inflation will continue to eat away at the average Australian’s household budget. This will impact negatively on the lower end of the property market and cause little impetus for capital growth.

In the ever-evolving landscape of real estate there has been a notable shift in focus towards neighbourhood when home owners have been making their buying decisions.

And investors should similarly focus on selecting the right neighbourhood as this trend transcends mere aesthetic appeal or status symbols; it delves into the more profound aspects of socio-economic dynamics and lifestyle preferences shaping today’s property market.

Remember it wasn’t that long ago that the coronavirus pandemic of 2020 and 2021 forced all Australians to reevaluate how we live our lives.

And it wasn’t that long ago that offices were shut, and lockdowns were in place and that resulted in many of us working from home.

Now that our lives are back to normal, people are likely to continue working flexible rosters and hybrid situations where we work at least part-time from home are here to stay.

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 have 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, or 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 “one 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 today’s property investors and homebuyers are placing an unprecedented emphasis on lifestyle.

It’s not just about finding a place to live, but about discovering a place that aligns with one’s way of life.

This is especially true in urban centers like Melbourne, Sydney and Brisbane where neighbourhoods offering a mix of cultural experiences, entertainment options, and leisure activities are highly sought after.

These ‘liveable’ neighbourhoods with abundant amenities are 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.

Neighbourhood2Generally, a good neighbourhood is determined by its 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 today more 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

School Zone

A key factor to consider is a suburb’s connectivity and infrastructure.

Neighbourhoods with properties that are within walking distance of public transport, such as the train, tram, 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

While the quality of local schools has always been a crucial factor in property investment, its importance has escalated in recent years.

Families are more willing than ever to pay a premium for properties located in top school zones, driving up demand and prices in these areas.

Interestingly during the property downturn of 2022, the top 10 primary and top 10 secondary school catchment zones nationwide all reported house price growth of at least 25% year-on-year.

3. Accessible amenities

 As I have already mentioned, 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.

And don’t forget the green factor.”

Green spaces, parks, and environmental quality are no longer just ‘nice-to-haves’.

In the wake of increased environmental awareness, these features have become significant determinants in property investment.

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