Should you only consider buying in the best part of a suburb? He Said/She Said

Jonathan ChancellorSeptember 12, 2013

HE-SAID-WORDSNOT-NECESSARILYjc-silhouette-5

It is prudent to look beyond a suburb’s best patch, whether you’re buying for investment or your own home.

Wise pricing is extremely important when buying in any area, and properties situated on a suburb fringe may offer better value than those in premium precincts.

Evidencing this is last weekend’s highly competitive auction of a crumbling deceased estate at Erskineville, an inner city suburb of Sydney.

In the suburb’s prized patch, known locally as the ‘Golden Triangle’, the 82 square metre Park Street property is situated directly opposite Erskineville Park.

Despite the dilapidated condition of the two-storey terrace, Laing+Simmons Potts Point issued contracts to 40 prospective purchasers during the marketing campaign.

On auction day, 25 bidders registered which resulted in 10 people competing to push the price up to $890,000 – much higher than the initial $750,000 price guide from agent Nuri Shik.

As Property Observer noted earlier this week, $890,000 for 43 Park Street reflects a land rate of $10,800 per square metre – more than double the land rate of a nearby John Street property sold in April through local agent Braden Walters.

In a similarly run-down condition to the Park Street house, the one-storey three-bedroom terrace (on a 186 square metre block) at 26 John Street sold for $770,000 which reflected $4,100 a square metre.

About five minutes walk from the Park Street property, yet equidistant to Erskineville village and railway station, John Street lies outside the suburb’s coveted ‘Golden Triangle’.

Home buyers and investors should do detailed research on suburb prices before buying a property, but be selective about which area to buy because some parts of a suburb could perform better than others.

If you’re going to buy in a less fashionable part of a suburb look for a property with fair market value, as well as telltale signs of future price growth – these could include gentrification of a particular street with period houses and proximity to shops, transport and schools.

Cheaper precincts can hold good prospects for capital gain because when prices of a suburb’s top-end properties rise, there is usually a ripple effect on surrounding areas.

SHE-SAID-WORDSNOT-NECESSARILY

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You can buy outside the best part of a suburb, but you need to be very careful not to pay over the odds or let emotion and perception drive an impulsive purchase of a property which could result in a financial fiasco.

Take Sydney’s Paddington for instance, where the most expensive homes traditionally are on the suburb’s northern side which is considered superior to the precinct on the south side of Oxford Street.

In October 2011, actor Toni Collette and her musician husband, David Galafassi paid a huge price of $6.35 million for a Paddington terrace in Stewart Street on the suburb’s southern side.

Collette and Galafassi failed to settle on their $6.35 million purchase after they changed their minds about buying the house. This change of heart resulted in a legal suit by the vendor, Susan Kelly, to recover her losses which included a lower sale price of $5.5 million for the property when it traded in April.

In May the court ordered Collette and Galafassi to pay $814,000, plus the deposit, plus legal costs to Kelly.

To my mind, this substantial loss was incurred because the Collette/Galafassi purchase showed a lack of understanding about paying a premium price in a lesser part of Paddington (the southern side of Oxford Street).

However, many people have reaped rewards by not paying too much for a large property in a less fashionable part of a suburb – and then being careful not to overcapitalize on renovations.

Among these are businessman Neville Miles and his artist wife, Beryl, who bought a warehouse residence, situated in an unfashionable part of Surry Hills, for $3.1 million in June 2009.

Located one block from busy Fitzroy Street which carries a lot of traffic, the circa 1870 building stands at the corner of Marshall Street and Bennett Place.

After extensively renovating the property, the couple sold it for a record-setting $5.71 million in February 2012.

However, there are circumstances when you should rule out buying a residential property in a suburb’s cheaper precinct where detrimental factors won’t change – these include close proximity to factories and freeways.

If you’re careful to choose a property with desirable attributes such as a north aspect, renovation potential and a location with gentrification upside, then it could be a better choice than the best street’s worst house of hideous design and wrong aspect. The key factor is not spending too much.

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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