Close to the CBD is not all it's cracked up to be

Many of those who advise people where to buy do so under false pretences.

They bring to the game a set of cherished attitudes which are unshakeable, unchallengable and unmitigated nonsense.

What they don’t bring is research-based knowledge, or a clear understanding of the factors that drive capital growth over time.

For some of these pretenders, the list of criteria has just one element: proximity to the CBD.

Why do you think this suburb is a hotspot? Because it’s five minutes from the CBD. Why is this other suburb a no go zone? Because it’s an outer suburb, a long way from the CBD.

That’s pretty much it. You can’t expect capital growth unless you’re walking distance from the tall office buildings.

One real estate service provider recently nominated the City of Armadale as an area to avoid in Perth because it had no capital growth potential. It was too far from the Perth CBD.

In reality, the City of Armadale is the capital growth king of the Perth metropolitan area in the past 12 months, with most suburbs delivering double-digit price growth, headed by Brookdale which grew 16% and Mt Richon which grew 20%.

In most of our major cities the highest long-term capital growth rates are delivered by places a long way from the CBD.

This is someone who makes his living advising people how to grow their wealth through property investment. Apparently capital growth is not part of the plan.

A Sydney buyer’s agent, asked by a newspaper to nominate the five best places to buy, reccommended a bunch of “prime” suburbs. Again, it appears the clients of this un-researched buyer’s agent are interested in elements other than capital gains, because “prime” Sydney has been the worst-performing sector of capital city Australia over the past 10 years, notwithstanding the growth experienced in 2013.

To base your assessment of a location’s worth on proximity to the CBD is not only simplistic but shows a lack of the elements that matter in real estate.

Here are five things that it’s better to be near than a CBD:

1. Jobs nodes: “Experts” who think you have to be close to the CBD to be worth presumably think everyone works there. News flash: factories are not found in CBD. Nor are warehouses, maintenance facilities, airports, export ports, distribution centres, regional shopping centres, transport depots, abattoirs, hospitals, universities (with some exceptions), oil refineries, heavy industry and a host of other major employment nodes. The key thing that decides location for many home buyers and renters is proximity to work – and for many that means Frankston or Dandenong rather than Docklands.
2. Commuter train links: Hotspotting research has shown conclusively that train suburbs, on average, have higher capital growth rates than non-train suburbs. Public transport is a key criteria for people selecting location – and trains outrank buses and trams in that regard. Even if they do work in a CBD, people don’t feel the need to be within walking distance of it if they have access to rail links.
3. Education-medical nodes: Hospitals and universities often cluster together in our major cities. These clusters are important in real estate because they generate tremendous demand for real estate accommodation. Suburbs near these precincts usually have very low vacancy rates. And in most cases (North Melbourne is an exception) these clusters are found well outside the CBDs.
4. Major shopping facilities: CBDs all over Australia, in regional centres as well as capital cities, have had to reinvent themselves since major shopping centres were developed in the suburbs and attracted the shopping spend away from city centres. Proximity to regional shopping centres can be the deciing factor in locational choice.
5. Schools: For some families, proximity to a particular school is the No.1 factor in deciding location. And for most, a location won’t rate unless it provides convenient access to schools.

Why are all these elements more important than being within cooee of the CBD? Because affordability rules. It drives the great mass of demand to places that are nowhere near the city centre.

Mass demand creates capital growth, not so-called quality homes, nor consistent Victorian or Edwardian streetscapes (which is the one-track record from one deluded adviser), nor “prime” locations (defined as high-class suburbs with million-dollar homes).

The great mass of demand goes to the locations where the houses are affordable. And when it comes to choice among the attainable suburbs, its proximity to jobs nodes, transport links, shopping and schools that drives decision-making. CBDs don’t feature in the argument.

That’s why, in most of our major cities the highest long-term capital growth rates are delivered by places a long way from the CBD.