Long term serviced apartment lease and zoning

Hi there,

(first time poster, so pardon my ignorance :) ).

I am considering purchasing an apartment in the city of Sydney (v close to townhall station). It is leased to a hotel, where the lease is to 2014 with a further 5 year option. ie there is a lock in period until 2019.

Rental yields are reasonable, with annual CPI increases.

I have read various commentary on people's general negativity toward these types of investments. Some of the arguments are about exposure to the hotel industry, which is not true in this case in that rent is CPI-indexed. It is true about the difficulty in borrowing. However, I have sufficient equity elsewhere to borrow at 100%.

My main question is what happens after the 10 year lease expires. The property is zoned commercial. Does that forbid the use of the property for residential purposes after the lock-in period is over? This is where I am getting some differring advice.

What I am trying to determine is whether the market value for this apartment is depressed only because of the 10-year lock-in? ie if I am willing to hold for the long-haul, in theory I should be able to realise some capital gain after 10 years because the apartment's value should converge to that of a regular 1-bedder. (I'm thinking about my kids :) ).

However, if there is no provision for the use of this apartment as residential even after the lock-in period, then the property will perpetually be difficult to sell even after 10 years, in which case I would walk away.

Does anyone know what the actual guidelines are?

Thanks in advance,
Flee
 
Let me give you one major major major hint,
the 'value' of a residential apartment is determined by owner occupiers, not investors.

Remove owner occupiers from the equation, and you seriously remove the pool of suitable buyers when and if you decide to sell one day.

I periodically look at this sought of stuff, but i am looking for a gross return in excess of 10% because of the above reason.
 
Let me give you one major major major hint,
the 'value' of a residential apartment is determined by owner occupiers, not investors.

Remove owner occupiers from the equation, and you seriously remove the pool of suitable buyers when and if you decide to sell one day.

I periodically look at this sought of stuff, but i am looking for a gross return in excess of 10% because of the above reason.
Agreed - this is why I see it as a good long term investment IF after the 10 years is up, it can be sold as a regular residential property.

What I am not sure about is whether this holds or not, and hence the question about the zoning aspect. ie does being zoned commercial prevent a property being owner occupied (after the lease expires in 10 years).

Flee
 
Let me give you one major major major hint,
the 'value' of a residential apartment is determined by owner occupiers, not investors.

Remove owner occupiers from the equation, and you seriously remove the pool of suitable buyers when and if you decide to sell one day.

I periodically look at this sought of stuff, but i am looking for a gross return in excess of 10% because of the above reason.
How about apartments that are within a serviced apartment complex that can be owner occupied and don't make it mandatory to sign up for their management system? Anyone have views on these?
 
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