Property in prestigious school zones always in demand for both investors and owner-occupiers


11/10/2011

Property in prestigious school zones always in demand for both investors and owner-occupiers

 

By Catherine Cashmore

Tuesday, 11 October 2011

 

 

An article in Melbourne’s Herald Sun this weekend (October 9, 2011) highlighted how it’s just as possible to lose money through unwise investment in the real estate market as it is with any other financial acquisition.  Residex sifted through 268,000 sales transactions to conclude that over the past three years 5,427 vendors have sold property for less than they paid (not taking into account stamp duty and transaction costs).

To put this into perspective that’s a little over 2%, with the main losses occurring in areas that either have a surplus of high-rise developments – for example, Docklands and Southbank in Melbourne’s CBD – or in areas that suffer accentuated volatility during the property cycle such as those with $1 million-plus price tags such as the bayside suburb of Brighton, with a median house price of $1.79 million. Furthermore, the losses were incurred over a three-year period, which in real estate terms is too short to make any substantial profit even in the best of times.  However, even taking this into account, for many still hoping to get a foothold into their area of choice, life isn’t getting any easier or property prices any lower.

One sector of the market particularly feeling the strain is young families wanting to enrol their children in reputable inner-city schools.  Melbourne’s population is estimated to reach 5.6 million by 2026.  It’s growing faster than any other Australian metropolis, and while a bulk of the population is being squeezed into newer suburban regional areas such as Warrandyte and Werribee, it’s only a result of increasing density in the inner- and middle-ring suburbs with facilities unable to cope with the growing demand.

While the state government has been busy planning large developments of high-density housing on disused industrial land such as Fisherman’s Bend in West Melbourne – an area expected to provide accommodation for an extra 12,000 residents – little planning or finance has been dedicated to adequately facilitating existing public schools or building new establishments to cope with the extra surge in enrolments.  Furthermore, the squeeze is putting pressure on an already limited supply of residential family accommodation for middle-income families wanting to give their children the best education Melbourne has on offer.

This is why there is a very strong connection between Melbourne’s top public schools and the prices of residential property.  If you analyse the statistics, being in a school zone for one of the top 20 or so government schools in Melbourne can increase the price of properties in the area an average of 10 to 15% – and the smaller the zone, the greater the pain.

For example, Melbourne’s McKinnon Secondary School zone only covers an area of around four kilometres – however, it spreads over four suburbs (McKinnon, Bentleigh, Bentleigh East and Ormond). There can be a big difference in the price of a house on one side of the street in the zone and the other side of the street outside the zone, even though they may be located in the same suburb. We’re talking differences of $100,000 or more on a house in Bentleigh East for example - which has a median price currently recorded at $732,500.  Even within such a small area, the number of enrolments being submitted to the school each year is often so high there is always talk of the zone reducing in size, which obviously worries anyone who is purchasing property near the zoning boundaries – take away the zone, and you can potentially wipe that $100,000 off the price tag.

As a consequence, the homes closer to the school (easy commutable distance –within two kilometres) will sell for higher prices and potentially generate a greater appreciation in price than those located on the edges.  Even in soft markets such as we’re experiencing at the moment, demand in the school zones remains robust. The average clearance rate in Melbourne is currently 58%, however in the areas surrounding McKinnon high school it’s sitting at approximately 70% and so tightly held is the location, there have been fewer than 50 house sales recorded by the REIV over the past 12-month period.

Investors add to the demand in school zones because not only is capital growth generally higher, so too is yield from families who have been forced to rent due to high property prices or not finding a suitable property in time for enrolment.  Neither is it unheard of for an old property located in a popular school zone to be rented by a family never intending to move in, but simply using the address to meet the criteria for enrolment into year 7. However, it’s important for investors to understand they will only reap the benefits of a school zone if purchasing a property that suits the major home buyer demographic in the area.

Purchasing a “set and forget” two-bedroom unit obviously won’t attract the same intensity of demand and will therefore only produce comparable returns for the general suburb rather than the school zone.  Developers aren’t missing out either – land sizes are shrinking as full blocks are being sliced in half to accommodate high-spec townhouses often selling for double the price of the initial land value – and to further accentuate the point, according to the latest valuer general data, over the past five years, houses in the McKinnon school zone have recorded an average annual growth rate of 12.62%.

It’s another symptom of poor planning for a growing population, which is unduly inflating property prices of desirable inner-city residential real estate.  For example, six years of secondary education at Melbourne Grammar School is currently around $139,920.  When you take into account stamp duty and transaction costs, plus the time and effort it takes to find a house appropriate for a growing family, you can easily pay more to get a foothold into a popular school zone. Therefore, even though we’re seeing price falls in some areas of the state, we’re still facing challenging problems adequately accommodating an increasing population looking to settle into the world’s most liveable city – and this will only result in increasing prices over the long term.

Catherine Cashmore 

 

 

Our Services

Buyer Advocacy

Buyer Advocacy

Whether you want us to bid at auction, or provide a comprehensive buyer advocacy service to search, asses and negotiate your ideal investment property or home, we tailor a plan ideally suited to your individual needs.

Read More
Development

Development

We have the expertise to assist with any type of development you are considering - large, or small - from concept to completion.

Read More

What our Clients are Saying

Catherine worked tirelessly in finding me a great property at a good price. She did things that I wouldn't have done (hours and hours of legwork) and more importantly, couldn't have done (organising the purchase before anyone else had even put in an offer). When I was ready to give up, Catherine kept working. I'm certain that I never would have been able to buy the same property within 10k of what we eventually settled at.... David
The expertise you bring are excellent and helped us understand the process and what to do and what not to do. You discussed at the beginning that by using you it will save us money and in our instance and the current environment of Melbourne’s market I believe you saved us $100,000 or enabled us to get into a suburb which going to auction would have gone way over our limit. You worked tirelessly to help us purchase a home.... Karen
“You impressed us from the start, especially compared with the other buyers agencies we approached…” - Raj

More Testimonials

Why use Cashmore & Co?

Our advocates and researchers are international experts on market and real estate cycles. 

With decades of experience working in the Australian real estate market Catherine Cashmore and her associates have lectured widely on the real estate cycle and the economics of investment.

Cashmore & Co use their expertise to assist investors, home buyers and developers.  They simplify the buying process saving buyers thousands in negotiation, as well as preventing costly mistakes.

Cashmore & Co's services and expertise will not only assist you to increase your wealth, but also educate you to become a better investor.

Please click here to see the range of services we offer. 

Or contact us for more information. 

About Catherine

Catherine Cashmore

Director

Herald Sun Pic .jpg

Catherine Cashmore has been working in the Australian real estate market for over 14 years. As a buyer advocate, she has assisted hundreds of Australian home buyers and investors to secure quality real estate for the best possible price. Originally from the UK, and having lived in the US, Catherine is a seasoned traveller who has extensive experience across a range of international real estate markets for those interested in property investment overseas.. 

As President of Australia's oldest economics organisation, Prosper Australia, Catherine is a regular and highly respected media commentator and often called upon to give guest lectures to university students (including RMIT and Sydney University) on how tax policy affects real estate, the design of cities and the economy.

She is editor of Port Philip Publishing’s 'Cycles, Trends, & Forecasts' – a publication that teaches real estate investors about the land cycle and its effects on the economy. She is author of ‘Speculative Vacancies’, the only study in the world that analyses long term vacant housing based on water usage data (Melbourne focused). As such Catherine has an in depth knowledge of the Australian real estate market, few can rival.

You can contact Catherine directly on 0458 143 089 or at cc@cashmoreco.com.au

 

 

Meet the Team

Please contact us for more information
or call us on +61 458 143 089

Contact us for More Information

Contact Us