Capital growth differences between units with differing number of rooms?

[Braddon]

Hi. I was wondering if anybody knew whether there was clear evidence that capital growth rates differ between units with different number of rooms.

That is, if the average rate of capital growth for the last 10 years of 1 bedroom units is X and the rate of capital growth for the last 10 years of 2 bedrooms is Y, is Y<<X or X>>Y or X=Y?

I have "heard" that 1 bedroom units dont appreciate as much as units with more bedrooms (in percentage terms) yet have higher rental yields. This doesn't make sense at all to me. If you follow this statement through mathematically, eventually over time you reach one of two fairly silly possibilities :

1. it would be cheaper to rent two 1 bedroom units than 1 two bedroom unit OR
2. 1 bedroom units would be so positively geared that it would be nuts to consider buying anything with higher numbers of bedrooms
   [/list=1]
   I contend that the value of a unit must ultimately reflect it's long term rental returns.
   
   Anyone with solid historical information about any differences?

 

[duncan_m]

Re: Capital growth differences between number of rooms of units?

Sorry,

I dont know..

But I have this interesting situation.. I own a 1BR unit in Adelaide, in a block of 4.. very close to the CBD on a premium peice of land with the potential for great city views from a second story.. the combined market value of these units is LESS than the Land Value of the site..

I've been trying for years to buy the other 3. The owners are recalcitrant old fogies. Suggestions of development joint ventures with the other owners has proved fruitless..

I'm considering offering the unit for rental to a professional bad tenant. Someone with a really loud stereo system and a Harley

The other owners aren't owner occupiers, yet arent mature investors either.

Duncan.

 

[paulzag]

Originally posted by Braddon
Hi. I was wondering if anybody knew whether there was clear evidence that capital growth rates differ between units with different number of rooms.

That is, if the average rate of capital growth for the last 10 years of 1 bedroom units is X and the rate of capital growth for the last 10 years of 2 bedrooms is Y, is Y<<X or X>>Y or X=Y?

Yes it's true. bedrooms affect growth rates. But...

There is opportunity cost issues and comparative valuations so the market corrects. It's the same as looking at rental returns, we are currently in a low yield part of the cycle with differences between areas and bedrooms. Once an area gets out of median it represents an opportunity for stagnation or excess gain.

In 1988 cheap 1br units in Kings Cross NSW were selling for $40K-$45K renting for $110. Cheap two bedrooms were selling $90K-$100K renting for $150. By 1991 value on those 1br peaked at $130K and 2br peaked at about $160K. The market corrected to valuations based on rental yield and size.

Now if you bought in 1981 and sold in 1991 you had similar spreads. But if you saw the inequality in value in 1988 you had an opportunity for excess returns.

I contend that the value of a unit must ultimately reflect it's long term rental returns.

Anyone with solid historical information about any differences?

So yes the long-term trend is king. But money is made by buying around it.

Regards

Paulzag
Dreamspinner