PORTFOLIO POINT: Buying an investment property without a car park, or one not close to transport links, could stall your overall return.
Some questions in life are asked more in hope than in expectation of good news: Are we there yet? Can you give me a time when that can be delivered? Do you have this sale item in my size?
“Can I ever buy an investment apartment without car parking?” falls into this category. Unfortunately, there are plenty of developers and estate agents flogging car-spaceless apartments who are happy to say you can. They talk about the paradigm shift away from car ownership and all those tenants happy to limit car use to the occasional hire vehicle for weekends away.
Now while there are indeed occupants who happily eschew car ownership, they have always been in a minority. So my advice has steadfastly remained constant: don’t handicap your investment property’s prospects by restricting the pool of potential tenants and future owners. A car park space is a must.
To confirm whether this advice remains current, I’ve delved into some recently published Census 2011 data from the Australian Bureau of Statistics.
A nation of car owners
As of 2011, Australians remain wedded to their cars. Across Australia as a whole, 81% of households own one or more cars. And of the 8,500-odd suburbs in Australia, there are less than a hundred suburbs where households without a car represent more than 50% of all the households in that suburb. In fact, there are only 205 suburbs in the whole country where less than 70% of households in a suburb own a car.
Even if one restricts the analysis to just Australian households who live in apartments and flats, 75% of these households own at least one motor vehicle. Now there are honourable exceptions to this pattern. For instance, in New South Wales, 67% and 62% respectively of apartment households in Haymarket and Sydney’s CBD do not own cars. In Victoria, 69% and 58% respectively of apartment households in Carlton and Melbourne’s CBD do not own vehicles.
But, in essence, these are some of the few places where residents are happy to forgo a car in any great number. Car ownership is high even in suburbs very close to our capital city CBDs. For example, only 51% of apartment residents in Darlinghurst and 46% of North Melbourne apartment residents – two close-to-the-CBD suburbs – do not own a car.
A paucity of public transport options outside the inner suburbs
As well as being a nation of car owners we are, by and large, a nation of car commuters. The ABS asked Australians to record the method of travel to work on the day of the Census. Overall it showed that around 77% of Australians used a car or other motorised vehicle, and just 12% used public transport (5% work from home, 4% walk and 1% cycle). Of the 8,531 suburbs in the survey, there were 5,404 suburbs where no one took the train to work on Census day and 3,966 suburbs where no one took the bus, tram or ferry. And there were only 722 suburbs across Australia where 10% or more of workers took the train to work, and only 1,005 suburbs where 5% or more of workers took either a bus, tram or ferry.
A simplistic conclusion from these results is that public transport doesn’t really matter for most Australians, and perhaps shouldn’t figure in property investment decisions.
But this, of course, isn’t the case. Access to a range of transport options is a major plus for property values in our cities. That’s because, according to the Census, 1.7 million people work in the heart of our capital cities and many more in surrounding areas. In our cities it is neither desirable nor feasible for everyone to drive to their place of work.
So it’s no surprise that public transport usage is higher in the inner suburbs. For instance, in Sydney’s Manly and in Melbourne’s Brunswick, 35% and 32% of residents respectively commute via public transport.
Demand for property is much stronger in the suburbs where residents have the luxury of choosing between the car, train, bus and possibly tram or ferry.
Indeed, there are a number of factors which will further enhance the attractiveness of those suburbs blessed with intense transport infrastructure. The populations of our capital cities are rising quickly and city limits are being extended. That means longer commutes and greater traffic congestion in our capital cities. Combined with ever rising fuel and car parking costs, life is becoming more difficult for the commuting car driver. This future looks inevitable unless or until we decentralise more jobs and education opportunities.
Property investment is always a long-term commitment and success is heavily linked to understanding and tying asset selection into the strongest and most consistent economic and demographic drivers. Census 2011 confirms that car parking and being close to transport infrastructure still matters.
- A studio in Sydney, or an apartment in Brisbane?
- Should I buy in Camperdown and rebuild?
- What do I need to consider in relation to body corporates?
- Is buying post-auction a good strategy?
A studio in Sydney, or an apartment in Brisbane?
I have been looking to buy a property for a while. My budget is not more than $350,000. As much as I would love to buy in Sydney, I can only afford a studio for prime locations in Sydney. Recently I read a lot of encouraging economic, market, residential property outlook reports for Brisbane. I am thinking of buying an off-the-plan one-bedroom 65m2 apartment at Showground Hill by a very reputed developer, for around $350,000. This property is part of a development in the initial phase of a four-year master plan development, located about 1.6km to city CBD. Would I be better off investing in a Brisbane apartment or the studio in Sydney?
Avoiding the studio apartment in Sydney is a good idea. Studio apartments represent a compromise too far for any aspiring investment. They are hard to obtain finance for, generally suffer from high tenant turnover and struggle for capital growth in the resale market.
You’re on the right track focusing on the Brisbane market given your budget. But please don’t jump out of the frying pan into the fire! Showground Hill will eventually churn out hundreds of new mid-rise one and two-bedroom apartments over coming years. There’s absolutely no scarcity value! You’ll be one of many investors who will likely want to sell at the same time in a few years, which does not bode well for capital growth prospects.
You would be far better off looking for an established 1960s/1970s apartment in a prime inner urban location in Brisbane.
Should I buy in Camperdown and rebuild?
What are you are your thoughts on the merits of purchasing an old terrace house in the inner Sydney suburb of Camperdown, with the intention of knocking it down and building anew? My investigations to date suggest a suitable property can be bought for around $850,000, but new dwellings can sell for around $1.5 million. My intention would be to sell if the market has held up (i.e., I can secure a reasonable price and profit), or otherwise hold for rental and eventually sell down the track.
Tread carefully here. Old terrace houses are a scarcer asset than new homes and their timeless styles won’t date. Consequently, you may well be better off renovating and extending the original dwelling. It would cost you much less than a new building, the risks would be lower and the return on your investment may well be comparable. Note you may also hit heritage issues when trying to demolish an old house.
What do I need to consider in relation to body corporates?
I would appreciate your advice on the things we need to consider in buying apartments in Sydney, namely in relation to the body corporate.
In the first instance, focus your search on apartments in two- or three-storey blocks on quiet streets. In terms of the body corporate (or owners corporation, as they are often known), there is a bit of a checklist: what are the fees; is there a sinking fund and how large is it; what are the projected capital works in the next five years; is the body corporate subject to any legal proceedings; and are there any expensive-to-maintain items such as elevators, swimming pools, security systems and common air-conditioning/heating systems?
In some cases a projected capital works plan may not have been completed for many years. If so, it’s safe to assume that there will be some significant maintenance fees coming your way – issues that may need to be addressed if they have not been completed in the last 10 years or so include repair or replacement of timber windows, roof repairs and galvanised iron pipes.
Is buying post-auction a good strategy?
Whilst auction clearance rates may have improved in recent months in Melbourne, on any given weekend around 40% of property is passed in. Would a good investment strategy be to never bid at auctions, but instead pick up something in post-auction negotiations?
This is rarely a good strategy, especially in today’s balanced market when nearly two-thirds of auctioned properties are selling under the hammer. Why would you select an asset based on the method of sale? An asset should be selected on better principles than that.
Don’t wait until the post-auction to get involved. You have no implicit or explicit control unless it is passed in to you. If a property suits you, bid! Work out the maximum you’re willing to pay. Public auctions are a great way to buy property. They are transparent. Buying before or after is not.
Monique Sasson Wakelin is a co-founder and director of Wakelin Property Advisory, an independent firm specialising in acquiring residential property for investors. Monique can be found on Twitter: @WakelinProperty.
Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.
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