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What are the benefits and disadvantages of investing near a university? Smart Property Investment looks at how best to approach this type of property.
BUYING NEAR a university can be a great way to ensure a steady supply of tenants, but there are also significant risks involved – most notably, the reliability of a primarily student demographic. With preparation, however, investors can navigate these risks to successfully invest in a university suburb.
Some universities dominate the area in which they are located so it’s important for investors to ensure they’re not buying into a one-horse town.
Hot Property Specialists buyer’s agent Zoran Solano says while he has many clients requesting to buy in university precincts, he does not promote buying in an area that is solely reliant on a university. “This lack of economic diversity isn’t good for property,” he says.
Property Planning Australia director David Johnston agrees, emphasising that if the university is just one part of the economy and not its main driver, then the suburb has more potential to be a good investment.
“Ultimately, the fundamental growth drivers that impact property are the same irrespective of the town or city,” he says. “Therefore, people should still be considering the property in isolation of whether there is a university nearby.”
Even in a diverse local economy, there are many considerations to take into account before buying in a university suburb.
LOOKING AT THE MARKET
One of the primary risks of buying close to a university is the limited pool of potential buyers.
“If we break down what drives growth values in property, it is simply the number of people who want to purchase that particular property,” says Mr Johnston.
Student accommodation offers little to owner occupiers. This significantly smaller buyer pool can have a knock-on effect with price, ability to sell easily, and capital growth.
Real Estate Buyers Agents Association president Jacque Parker says this is mostly a risk in slower markets.
“In a market like Sydney at the moment that’s not such a risk. But if it was a slow market, investors have to be aware that in a mainly investor-driven complex could affect valuation and they may not be able to sell the property for the price they want,” she says. “There’s a ceiling.”
However, it’s not all bad news. Ms Parker says that investors who approach a university market correctly can be rewarded with a ready supply of tenants. Investors will also be able to plan around their tenants because they can be reasonably sure of the clientele interested in the property.
To best approach this type of market, the first thing to look at is the style of property. Ensure it matches the demographic of the area and that the area has a good history of capital growth and tenant demand for that type of property.
Mr Johnston says if you are buying into an area that may have limited capital growth but the investment still ticks the boxes, then you can still proceed. You must, however, ensure your numbers are accurate.
“It pays to be cautious and conservative, and consider who is telling you why the property is a good purchase,” he says.
Ideally, look for suburbs where the university scene is secondary to strong fundamentals.
“In these locations, you can find a better balance between homebuyers and investors, including emotional entrants who are cashed up,” Mr Johnston says. Emotional owner-occupier buyers often drive up prices, so if an area is too reliant on investors, growth in property values may be stagnant.
Read the full article here as featured in Smart Property Investment Magazine (December 2013 edition) with contribution from David Johnston, founding director of Property Planning Australia (PPA) and co-author of Property For Life – Using Property To Plan Your Financial Future. Property Planning Australia was established in 2004 and is a multi-award winning property, finance and financial planning consultancy that provides its clients with a holistic approach to financial and investment advice.
The PPA team specialise in developing holistic property strategies for first home buyers, investors, upgraders and those transitioning into retirement. To find out how PPA can help you make the right property decision today for your tomorrow, contact us.