Listen and subscribe
In this week’s episode, Dave, Cate and Pete take you through:
- Heritage listing and heritage overlay. The trio discuss the impact of heritage listings, which protect a particular property. Although the supply of heritage property is relatively limited, so is the demand, due to the restrictions in being able to renovate and update the look of the property. Heritage overlay on the other hand protects the consistency of the properties on a street, normally to preserve the charm and architectural appeal of a property in a place of historical significance. Heritage overlays are varied and the types of heritage overlays range from façade appearance to paint colours to specific attributes of heritage significance, such as chimneys and windows. Many heritage overlays are specific to particular streets and precincts too.
- Council zoning and regulations. If you’re purchasing in a developer friendly zone and the houses in the street are 40 years old or more, then you need to consider the future impact this will have on the street scape. Council regulations can limit the amount of property that can be built on a block of land by setting a minimum site area. If the minimum site area is quite large, it will be very difficult to subdivide the land and there is little chance of developments in this area.
- NIMBY suburbs – not in my backyard! The state government will give local governments targets on increasing population density. The approach taken by NIMBY suburbs will be to allow for high density dwellings on main roads and near transport hubs, rather than medium density in the streets. The drawcard of these suburbs is not to live in an apartment on the main road, but in a beautiful character home in the side streets. As character or period homes are no longer being built, they are in limited supply and, conversely high demand. OECD data has shown that Australian house values have experienced the fourth highest house price growth over the last 20 years because of development laws.
- Purchasing a block with subdivision capability. If you are not set on doing a subdivision, but would like the option to do it at some undefined time down the track, question whether this is the right strategy for you. If your block has the ability to subdivide, then the chances are that the rest of the houses on the street also do. This means that your street can turn into a medium density hot spot of renters and first timebuyers, with lots of cars in the street and cheap built decaying units. If you are thinking of subdividing, then it’s better to be the first on the street and not the 20th! And in a gentrifying area, a capital growth, buy and hold strategy can be optimized if you can pick the A grade street and watch it beautify over the years.
- The population paradox. On the macro or city level, you want to look at purchasing in a city that is attracting more people and experiencing population growth. On the suburb level, look for a stable population, because that implies that there isn’t a high supply of new property. In NIMBY suburbs, there is a high level of demand, but supply remains the same. This is in contrast with new Greenfield estates, where the supply is great, and demand raises to meet the supply before more are built. This is also a skewed sector of the market, where demand could be artificially created by governemnt incentives and grants to purchase new property. And don’t forget to consider the land to asset ratio!
- Rural towns and infrastructure. When comparing country towns, mains electricity, water and sewerage can be a key factor. The comforts of city living vs relying on rain water and septic tank maintenance can have a big impact on demand.
- Superstar cities – employment, job availability and industries. Superstar cities such as New York, London, Paris, San Francisco, Hong Kong, Melbourne, Sydney and Auckland have a wildly disproportionate share of the world’sleading high-value industries, high tech innovation, start-ups and top talent. For example, London accounts for around 25% of all economic value in the UK. Even more strikingly, when it comes to high tech start ups, globally just 6 city regions of London, San Francisco, New York, Boston, Washington DC and San Diego attracted nearly half of all the high tech venture capital investment across the entire world in 2016. These factors can create an increasing inequality between some cities and others, and within different parts of these cities, which is most obviously reflected in property values.
- Rental returns and vacancy rates. In a climate where rents are increasing and vacancy rates are decreasing, there will be more demand for investment properties. If you have a township or a city that is plagued by high vacancy rates, that will have an impact on the desirability of that area as an investment. Especially in smaller towns where there is a limited number of major employers who then leave the market.
- Capital growth – what increases property value (Ep.89)
- The population paradox – why more people doesn’t always mean higher prices
- Why established properties outperform (Ep. 48)
- Why Sydney and Melbourne outperform (Ep. 39)
- Dissecting 10 years of CoreLogic data (Ep.42)
- Land to asset ratio
- Why the land-to-asset ratio of a property can determine its future price growth
- How data can help property investors identify gentrification before it happens
- Melbourne suburbs set to transform in the next few years
- Interpreting data to uncover an outstanding property and location– and how to sort the gold from the lies, damn lies and statistics! (Ep. 8)
- How to develop your own Property Plan – start with the end in mind! (Ep.4)
- How age and stage of life can impact your property plan and selection (Ep.13)
- Why the family home is often the biggest piece of the investment puzzle (Ep.21)
- How many properties do you need to retire wealthy? (Ep.27)
- Starting without a plan and end goal – No.3 of the top 7 Critical Mistakes (Ep.33)
- Property v shares – how to strike the right balance in your investment portfolio (Ep. 79)
- Property planning and your next purchase – critical considerations and why modelling financial outcomes is vital to success (Ep.92)
- How will your mortgages serve you in the long run?
- Five mortgage strategies that can grow your wealth
- How mortgage strategy shapes your ability to hold property, and grow your wealth for decades into the future! (Ep.24)
- How our mortgage strategy helps us to hold properties
- How to succeed with Property and Create your Ideal Lifestyle
- Mortgage Strategy 101 – YouTube video series.
- Planning regulations
- Heritage listed – generally not many are heritage listed, sometimes it’s because someone famous lived there. There is national, state and local heritage listings. The supply of heritage proeprty is relatively limited, but so is the demand. If it’s heritage listed, generally speaking you won’t be able to touch the front of the property, or what’s called the façade. In some cases, the whole proeprty needs to stay the same.
- Heritage listing vs heritage overlay – heritage overlay means that it’s much harder to build new properties in that location. It could be about the colour of the paint that you could use, chimneys or particular kind of window. There is greater consistency with existing style of properties, has a charm and architectural appeal. Generally speaking, tree lined streets and bigger blocks, which means that they become highly sought after. In most cases, it is about preserving the streetscape.
- Planning can be subjective – who is going to determine, not just tick the boxes, who is going to determine how much a building contributes to an area. You can get around heritage overlays, providing that you meet or exceed minimum requirements for other areas.
- Council zoning – if you’re in a very developer zone and the houses are 40 years old or more, then you need to consider this when purchasing your property. Council regulations can limit the amount of proeprty that can be built on the land.
- NIMBY suburbs – Eastern suburbs of Adelaide, Sydney and Melbourne – tree lined streets, houses on big blocks. There is little chance that you’ll get developments in this area, and that is because of the local residents.
- Minimum site area – if you have a big minimum site area, it will be very difficult to subdivide the land. Allow for high density on main roads and transport hubs, rather than medium density in the streets. The state government will give local government targets – you need to increase your density by this much. Most people want to live in these suburbs, not in an apartment on the main road, but in a beautiful character home in the side streets.
- They are not making any more original character or period homes and chances are there will be no new development in the area, which will keep the beautiful street scape.
- Wanting a block with subdivision capability – if you’re not set on doing a subdivision but what the capability to do it at some undefined time down the track, question whether this is the right strategy for you. These properties are geared towards renters and in a gentrifying area first home buyers, lots of cars in the street, cheap built units that are decaying. If this is what you do want, then make sure you get in and be the first person to do the sub-division, not the 20th. Also planning rules can change, just because you can develop it today, doesn’t mean that you can develop it a year from now. You expect over the longer term, that generally things will free up – but what will free up, how long will that take? Some things could free up quicker than others.
- Also if you’re going for an area that’s hot for developers, there will be fierce competition from the developers to secure the property.
- OECD – Aus values have the fourth highest house price growth over the last 20 years because of the developing laws.
- Number and quality of existing stock
- Existing supply and demand for housing – On the macro or city level, you want a city that is attracting more people and is experiencing population growth.
- Suburb level – looking for stable population, because that implies that there isn’t a high supply of new property. In NIMBY suburbs, there is a high level of demand, but then supply is staying the same. Vs Greenfield estates, where the supply is great and the demand has to meet the level of supply before more are built.
- Dangers of greenfield development – if the rate of building depreciation is faster than land appreciation, then the property could be going backwards in value for a while due to the low land to asset ratio. This is also a skewed sector of the market, due to the government incentives and grants to purchase brand new.
- Migration – they look for new property, great opportunity to buy a new property because they haven’t had the chance to do that in their country of origin. It also has an impact on demand. The supply of property is inelastic, you cannot change it very quickly. But the demand for property is elastic and can change over night – an example of this was HomeBuilder. Huge amount of demand, but it takes a long time for the houses to be built and people to move in, and there has been so much demand, there is a national shortage of building materials.
- Level of infrastructure – this will increase demand, as people want to live in a place where they have access to amenities, whether that is shopping, restaurants, cafes, medical, hospitals, schools, transport – it all plays a part.
- Our urban sprawl in Melbourne may have been mismanaged in this respect – we have locations where you are in grid-lock traffic, where you have limited streets getting you on to the arterials or limited public transport (car park is full by 7am).
- Rural impacts – one country town has mains electricity, water and sewerage, the other one is that most people have rain water and septic tank. You can imagine that the demand for the location with all these services linked will be more than the town where you hope that it rains enough and you have to clean out your septic tank each year.
- Employment and underemployment, job availability, industries
- This is a key driver of growing gap of what has been coined superstar cities. This is cities such as New York, London, Paris, San Francisco, Amsterdam, Stockholm, Berlin and arguably Sydney and Melbourne in Australia and Auckland in NZ.
- These superstar cities have wildly disproportionate shares of the worlds leading high-value industries, high tech innovation and start-ups, and top talent.
- For example London accounts for around 25% of all economic value in the UK. London in essence occupies an entirely different economic planet to the rest of the cities in the UK.
- Even more strikingly, when it comes to high tech start ups globally just 6 city regions, London, San Fran Cisco, New York, Boston, Washington DC and San Diego attracted nearly half of all the high tech venture capital investment across the entire world in 2016. This may be anecdotally more diverse in 202, but never the less serves to highlight this key point.
- Another stat to reflect this, the 50 largest metro areas across the globe house just 7 per cent of the worlds population, but generate 40% of the worlds global economic activity.
- Just one small sliver of San Francisco attracts billions of dollars of venture capital annually, more than any nation on the planet others than the USA.
- These factors can create an increasing inequality between some cities and others, and within different parts of these cities, which is most obviously reflected in property values.
- This is also why capital cities are, or should be aiming to develop tech or digital hubs because digital innovation to take advantage of the 4th industrial revolution –
- Income levels – people’s living expenses do not change as proportionately as their income levels can. Where there is a higher percentage of high income levels, the amount of spare cash which can be put towards investing, is disproportionate and helps drive up property values in those areas.
- Rental returns and vacancy rates
- When investors can see that rents are increasing significantly and vacancy rates are decreasing, so it’s easy to get a tenant and increase the rent, there will be more demand for investment properties. But this is not the only factor, there are a number of things that go in here. What is driving the market now is that first home buyers have left and their places are being taken up by investors.
- If you have a township or a city that is plagued by high vacancy rates, that will have an impact on the desirability of that area as an investment. Especially in smaller towns where there is a limited number of major employers and one of them goes under.
David Johnston – The Property Planner’s Golden nugget: migration, you have national, interstate, intra state and intra city, which is essentially gentrification. What has been interesting is the capital city migrations and how those numbers have changed since covid. Sydney was already losing 8,000 people a quarter pre covid which continued throughout covid. Whereas Melbourne was losing 2,000 people a quarter but has now caught up with Sydney figures. Brisbane has been largely taking the people that Melbourne and Sydney are losing and Perth as well. Who are the people leaving Melbourne and Sydney, are they the high income earners, the top talent or people who are struggling. There are numbers, within numbers, within numbers – there are a lot of people who are leaving Melbourne and Sydney, but this doesn’t factor the international migrants and who those people are.
Peter Koulizos – The Property Professor’s Golden nugget: property prices are sky-rocketing -nationally there are 28% less properties for sale today than there were a year ago, but interestingly, there are 42% more sales than there was a year ago. If you look at the five year average, generally there is about 40,000 properties sold, which is now 50,000.