Emerging Market Trends

From: Crispin Dobson

Happy New Year gang!
I've been reading in various newsletters and reports recently about a slowly changing demand pattern for IPs. In particular, the basic unit/apartment for 20-30 year old renters that has been popular with developers and investors over the past few years are likely to be in less demand (FHOG, demographic changes). Therefore, these type of properties are likely to see less sustained capital growth over the next xyz years, and rising vacancy rates. On the other hand, the baby boomers are now approaching the time when their kids are leaving home (empty nesters) and they want to move in to something in the same area, but smaller, less maintainance, high quality fixtures and fittings, close to transport, amenities etc etc.

I am looking at this from a prospective developer's point of view and wondered if anyone else would venture their views on profitable market niches such as mentioned above.

BTW - I saw Lord of the Rings yesterday - awesome!!

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Reply: 1
From: Donna Larcos

I have been reading the same articles.
What I have found interesting is not so
much the rise in the baby boomers, which
was expected, as the rise in the number
of "lone persons" making up households.
I have a friend with a 3-bedder and a
2-bedder which have no tenants but his
studio has had no problems. Neither
have my one-bedder or studios. It would
seem that small but quality or upper end
quality 1-2 bed max is likely to be the go
but not the families in the middle (2-5
bedders). The difficulties here are that
the banks don't like very small i.e. less
than 50 sq mtr and the upper end baby
boomer market properties, which are well
above median in Sydney (i.e. 600k-1m)
are not necessarily very affordable in
terms of rental return unless you are a
high income earner looking for growth.
Some singles and baby boomers may be
prepared to sacrifice immediate lifestyle
for coastal properties within a couple of
hours of Sydney where there will be
cheaper housing and more in the asset
kitty for quality time in the city.

I would have thought that one-bedders or
one plus study with a lockable garage/car
spot that has room for storage would be
good with outdoor space, either good size
balconies or courtyards. Surely there
must be a way of doing a panel lift door to
a car space but with meshing to separate
or something.

I think I'm moving into stream of
consciousness. Time to finish.
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Reply: 2
From: David Robinson

I have owned a some 1 bedroom units close to the Perth CBD for the last couple of years and have noticed a couple of interesting things.

The first one I bought, I paid 73k for in 1998 and then (over)spent about 15k renovating before moving in for about 12 months. The main things that attracted me to it were its proximity to the CBD (2km), a sectioned off backyard of 50sqm (which now is brickpaved and has a waterproof shadecloth covered pergola right to the back), the quiet nature of the street (which has since been converted to a cul-de-sac) and the fact that it was an end unit (only 1 neighbour).

The second one I paid 79k for in early 1999 with a tenant, but have not done any renovation on until the ones I am currently embarking on. It is in the same block as the first one and has the same size back yard (although does not have the paving or pergola)

The first one has had the same tenant for the last 2 and a half years paying 140\wk with no intention of moving out any time soon and I have not had to take 1 phone call from the tenant for repairs or maintenance. The second one rented for $115\wk, has had about 4 different tenants and has cost me a fair bit in advertising and maintenance.

Although the renovations performed on the first unit were a tad expensive, I got to live in an airconditioned, close to the city flat for the year and really enjoyed it. The increased rent will not cover the cost of renovations anytime soon but the peace of mind through getting a quality tenant and not taking calls at all hours of the days to fix leaky taps is great. Also, last year I refinanced while living in Sydney and the bank valued the first one at 95k and the 2nd one at 85k, giving me some breathing space come the time for another purchase.
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Reply: 2.1
From: Sergey Golovin

I agree with Donna,
Where she says that it would be either too small or too expensive to get max return or to get money borrowed.

Other point is - what is percentage figure of young energetic people with limited spare money (most of the income gets spend on entertainment) currently renting and trying very hard to save first deposit, 70% (?).

Now, how many, let say 50-60 year olds, who at the end of their working life with grown up kids and no commitments (except Xmas presents), with deposit (or probably full amount) comes from sale of previous/existing property and how many of them prepared to rent, 30% (?) or less. And how many of them still alive and well compare to 20 year olds, 1 to every 3?

Also remember that most likely they (baby boomers) will sell their existing house with block of land and buy into unit/townhouse/villa type property with minimum discomfort, meaning - all proceeds from sale must cover all expenses + something else left over to pay for relocation cost and well deserved holidays.

Would people borrow to top it up if they need too? Ofcourse, some of'm will. Only catch is - how do they suppose to pay it back, with their limited employment opportunities?
I hear you say - well, what about savings, super, other investment?
Yes, what about it. We all know too well that amount of super available to Australian population, as it is today $3,000 on average per head.
Investment? Yes certainly, but as we all know too well - 10% of population is in the game and only 1% knows what is going on and has sufficient income from it.

From developer point of view it is great - it is just another market, but from investment point of view...specially if developer depends on those investment money to some extent to push next project along...

Where does it leave us? I do not know.
Would be there any possibilities for us, ofcourse.

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