Spiderman
14-01-2006, 06:45 PM
Books that advocate an active approach to property selection (eg anything by Peter Spann) often suggest that long-term capital growth can be maximised by:
1. Buying in an area 'in transition'
2. Buying property that will appeal to those moving into the area
Today I visited two adjoining suburbs that can be said to be in transition.
Both are within 12km of the CBD, have a reasonable range of local facilities and for a long time were considered 'working class'.
Suburb A (the one slightly closer in) comprises streets of weatherboard houses. These houses are freshly painted, maintained well and most (though not all) have a matching picket fence.
Occasionally the streetscape is interrupted by some 1960s flats and newer townhouse type developments. However for the most part residents are doing up rather than knocking over their homes. Prices have risen sharply and though rough edges are still conspicuous, the area seems to be gentrifying. Land prices are fairly high and this is likely to be the main thing stopping developers from knocking down houses and rebuilding.
Just 100 metres away, on the other side of the road is Suburb B. Average house prices are $50k or maybe even $100k less than Suburb A.
B appears less desirable than A. It contains mostly concrete block housing commission homes with some timber houses as well. Both local strip shopping centres are graffitied and underused, there are few picket fences and little evidence of residents doing their houses up. Many could do with a mow and a paint.
However the developers have not been asleep. With much cheaper land prices than Suburb A they have been knocking down ex-commission houses and building modern townhouses, some clustered around run-down shops. Large industrial sites have sold and are now large-scale housing projects.
Suburbs A and B are both changing, but in different ways.
Residents of A are keeping their homes but doing them up and the result is quite attractive. There may be gentrification, with A becoming higher status and more expensive. This is being driven by residents moving in and out.
B is increasingly a mixture between new townhouses and old concrete homes. Due to its relative proximity to the CBD and its low average price, this trend is likely to continue, since developers can buy in B cheaper than anywhere else of equivalent distance and get bigger profits. Developers seem to be driving change here, though this must be in sympathy with buyer preferences or the product won't sell.
It's all well and good to advocate buying in areas that are 'in transition', but which sort of transition is best, A or B?
Now onto the second point of buying property that appeal to those moving in to (not out of) an area.
In the case of A, the heritage suburb, the choice seems easy; it's got to be a weatherboard house with a picket fence, like others in the street. Or something that can be converted to same. The 1970s dark brick monstrosity that everyone hopes will be knocked down won't do.
For B it's harder. Note that the number of concrete houses is slowly shrinking as developers move in. In contrast there are more new townhouses, and eventually the suburb may be dominated by them as the 'new wave'.
If you follow this 'new wave', then the newer townhouse might appear attractive. But for value for money (especially when considering land component) they are very poor compared to the old concrete house.
As the suburb becomes associated with townhouses rather than houses, families get smaller, schools close and the market associated with a traditional house might fall. So as a tenantable proposition the 1950s concrete house might not be that good.
But for the land component, the low price vis a vis the new towhouse, and the possibility that it will become sought after by some townhouse developer, the house might still have something going for it, even if it appears to be an oddity in a changing suburb and breaches 2 above.
Maybe it's best just to rationalise it as a form of 'land banking', since (unlike a new townhouse) the land component could well be 80-100% of the sale price.
Peter
1. Buying in an area 'in transition'
2. Buying property that will appeal to those moving into the area
Today I visited two adjoining suburbs that can be said to be in transition.
Both are within 12km of the CBD, have a reasonable range of local facilities and for a long time were considered 'working class'.
Suburb A (the one slightly closer in) comprises streets of weatherboard houses. These houses are freshly painted, maintained well and most (though not all) have a matching picket fence.
Occasionally the streetscape is interrupted by some 1960s flats and newer townhouse type developments. However for the most part residents are doing up rather than knocking over their homes. Prices have risen sharply and though rough edges are still conspicuous, the area seems to be gentrifying. Land prices are fairly high and this is likely to be the main thing stopping developers from knocking down houses and rebuilding.
Just 100 metres away, on the other side of the road is Suburb B. Average house prices are $50k or maybe even $100k less than Suburb A.
B appears less desirable than A. It contains mostly concrete block housing commission homes with some timber houses as well. Both local strip shopping centres are graffitied and underused, there are few picket fences and little evidence of residents doing their houses up. Many could do with a mow and a paint.
However the developers have not been asleep. With much cheaper land prices than Suburb A they have been knocking down ex-commission houses and building modern townhouses, some clustered around run-down shops. Large industrial sites have sold and are now large-scale housing projects.
Suburbs A and B are both changing, but in different ways.
Residents of A are keeping their homes but doing them up and the result is quite attractive. There may be gentrification, with A becoming higher status and more expensive. This is being driven by residents moving in and out.
B is increasingly a mixture between new townhouses and old concrete homes. Due to its relative proximity to the CBD and its low average price, this trend is likely to continue, since developers can buy in B cheaper than anywhere else of equivalent distance and get bigger profits. Developers seem to be driving change here, though this must be in sympathy with buyer preferences or the product won't sell.
It's all well and good to advocate buying in areas that are 'in transition', but which sort of transition is best, A or B?
Now onto the second point of buying property that appeal to those moving in to (not out of) an area.
In the case of A, the heritage suburb, the choice seems easy; it's got to be a weatherboard house with a picket fence, like others in the street. Or something that can be converted to same. The 1970s dark brick monstrosity that everyone hopes will be knocked down won't do.
For B it's harder. Note that the number of concrete houses is slowly shrinking as developers move in. In contrast there are more new townhouses, and eventually the suburb may be dominated by them as the 'new wave'.
If you follow this 'new wave', then the newer townhouse might appear attractive. But for value for money (especially when considering land component) they are very poor compared to the old concrete house.
As the suburb becomes associated with townhouses rather than houses, families get smaller, schools close and the market associated with a traditional house might fall. So as a tenantable proposition the 1950s concrete house might not be that good.
But for the land component, the low price vis a vis the new towhouse, and the possibility that it will become sought after by some townhouse developer, the house might still have something going for it, even if it appears to be an oddity in a changing suburb and breaches 2 above.
Maybe it's best just to rationalise it as a form of 'land banking', since (unlike a new townhouse) the land component could well be 80-100% of the sale price.
Peter