Hi,
In scanning the press lately I found an article that I thought I’d bring to the forums attention.
For several years now, I’ve been suggesting that severe caution be used when thinking about investing in inner city markets.
My reasoning behind my warning is based on the following:
1. Inner city apartments depreciate quickly, so what is high-tech today soon becomes obsolete. This can be a problem as inner city apartments usually command a premium rent, however this cannot be sustained once newer buildings are released with more mod-cons. The fear is that something built only a few years ago then attracts a discount-tenant for lesser rent.
2. From a capital gains perspective, there is little that’s scarce about a forecast glut of apartments coming on the market which means that demand will be weak compared with supply.
Does this mean that you can’t make a profit? No, however it means that you need to be very discerning about what you choose to buy as the landscape can be frought with problems.
One handy hint is to think about GST. Brand new apartments attract GST, however second-time sales do not (as the property is no longer new). Therefore, you may find that in the current market a second-hand sale of a property (that may never have been lived in) is cheaper than buying a new dwelling off the plan.
Now, getting back to the interesting article in the press…
Central Equity is a large developer listed on the ASX. They do large-scale developments in Melbourne.
Anyway, in a press article that appeared in the Herald Sun (you can read it here), the company revealed it was cutting back its activities on the basis that the downturn in the Melbourne property market was set to continue.
This is interesting as large-scale developers gain huge economies of scale by the size of their projects. They operate at a macro level, so if they feel the pinch then it will flow on to a micro level too (i.e. small investors).
What does this mean then? Well, if you are investing in Inner City Apartments for capital gains then one of the big boys is telling you that the landscape is looking pretty grim. “Flat or subdued conditions are the best investors can hope for in the immediate future.” Nasty words indeed!
On the other hand, if you are a bargin hunter then you may be able to start negotiating a great deal on surplus developer stock in a year or so should conditions really come off the boil. Watch out for partly completed projects being left unfinished too, as this is a sure sign that developers are feeling the pinch in a big way and is usually a sign of a protracted lull in the property market.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
I wanted to firstly say thank you to you for being an inspiration to me. I related to you from the moment i started reading your first book. I am a 34 year old christian who is searching for Financial freedom so I can serve others (give of my time) and one day help others to achieve their goals, helps and dreams. I have been passionate about property investing. i am married with a 2 and a half year old daughter with another one on the way. My wife is a stay at home mum and I work full time at Telstra. I have made money from buy and hold (capital growth) and buying old queenslander and renovating. I have a team of tradesman who do the work and they have become our friends. Your books have helped me to change my way of thinking from capital growth -negative gearing to positve cashflow deals. I am looking at my local market in Toowoomba QLD as the rental returns are great and properties are cheap. I have been afraid of getting into too much debt and that has been a setback to buy more. I have my PPOR and one IP (next door) which i picked up for 165,000 and is currently renting for 220pw after painting the inside only. The house needs exterior paint in which I am in the process of doing. I have my place with about 200,000 equity. Should I sell my home and use money to buy say 10 positive deals or use equity??? Our home was purchased for 145000 18 months ago and we spend 80000 on renovations. turned a 3 bedroom 100 year old queenslander intoa 4 bedroom, 2 bathroom(one is ensuite) new 2 pac kitchen, laundry, dining room and 2 sets of french doors out onto deck..The agents have valued our home around the 350,000 and my LOC loan is 150,000. Should I sell or use the equity from our home??? would love to hear from you .thanks steve
I was reading today that ANZ are now more positive on inner city apartments – they feel the downturn is mostly finished.
Can’t say I agree but it was interesting.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I mentioned in a post a little while ago that I had been inside a large block of units in Sydney that had been finished for at least a year. There were quite a few unsold apartments in it. I think the developer was Multiplex. I’d say they can afford to hold stock rather than let it go cheaply.
Smaller developers don’t have the luxury of being able to hold stock indefinitely. I suspect later this year there will be some real bargains in some small developments. There is one I saw recently where I don’t think the developers pre-sold anything. I sense that there may be a consortium of people who took out second mortgages on their homes to bankroll the project. It was a tricky site (ex servo) and the project took a fair while – around 2 years. In that 2 years, prices have come off around 15%. Oh dear.
Small developments are also attractive because invariably the strata fees are less than those in large complexes.
It can also be easier in a small building to make changes to an apartment i.e. value-add. That’s because the body corp is often easier to deal with.
ScottTax Depreciation Schedules
Australia wide service
1300 660033
[email protected]
http://www.depreciator.com.auThe main attraction with smaller complexes to me is that there is not always several units on the market which seems to drive prices down or at least hold them down.
All year 11 economics of supply and demand when you look at it.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Originally posted by Mortgage Hunter:I was reading today that ANZ are now more positive on inner city apartments – they feel the downturn is mostly finished.
Can’t say I agree but it was interesting.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Simon
The ANZ said that inner city markets had held up surprisingly well, but they were still concerned about what may happen in Melbourne with 3,400 NEW apartments being completed in the next year
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.auInner city units are the road to disaster. They have been pretty useless since 1999-2000. I would not waste my time even looking at any size unit any more even though there is the rare deal here and there.
TMA
http://www.email4money.info
Investor Links
First Home Buyer Website
You must be logged in to reply to this topic. If you don't have an account, you can register here.
