Why is there low capital growth in this suburb with a new train line/gentrification?

[nhan4769]

Hi all,

I was having a look at property sales in specific streets in North Ryde and Macquarie Park in Sydney, from 2000 to 2013. I wanted to observe the effect of a new train line opening (Epping to Chatswood Line in 2009) on property values at varying distances from the train line. I am using property sales data from onthehouse. To compare apples and apples I am looking at properties that have sold multiple times since 2000 so I can compare the individual capital growth of each property.

The street I am looking at which had limited capital growth (plenty of sales data) is Fontenoy Road in Macquarie Park. A street of old apartments, located approximately 600m - 1200m from Macquarie Park Railway Station. I find 26 properties that have sold before the train line opened in 2009, and resold after 2009. The average annual capital gain was 1.8%. This is in direct contrast to some streets in North Ryde which saw average annual capital gains of between 5-8% depending on the street (I have tried to exclude properties which have had renovations).

I would love to hear you opinion as to why properties in this street have not appreciated as much as properties in streets near North Ryde station (next station over) e.g. Parklands Road in North Ryde (~6% annual growth), Kent Road North Ryde, etc. While I understand property is very far from an exact science, I understand that several drivers behind capital growth include gentrification of an area (Macquarie Park Shopping centre was significantly upgraded in 2000) and new public transport (rail line). If I was ready to invest back in 2008 I may have invested in Macquarie Park at the time thinking that a newly opening rail line would appreciate property value and give me some quick capital gains - looking back now it appears that I would have made a poor investment (but this was not the case for North Ryde, literally 1-2 km away).

 

[JennD]

I just looked at Street View and how much nicer North Ryde's Parklands Road is compared to Fontenoy Road... with my owner occupier hat on, I know where I'd like to live comparatively!

Also, looking at the suburbs, 63.1% were renters in Macquarie Park according to last census data, compared to 21.7% in North Ryde. We're also looking at 83.0% houses in North Ryde, compared to 77.7% flats/units/etc in Macq.

Clearly not apples and apples here. Sadly, even if looking at just units in both on streets that are similar w/ what appear to be similar drivers, it's just not comparable - all about context! Really are both v different areas imo.

Quickstats - compare them on their different metrics, so different!!
http://www.censusdata.abs.gov.au/ce...11/quickstat/SSC11437?opendocument&navpos=220
http://www.censusdata.abs.gov.au/ce...11/quickstat/SSC11759?opendocument&navpos=220

 

[nhan4769]

I just looked at Street View and how much nicer North Ryde's Parklands Road is compared to Fontenoy Road... with my owner occupier hat on, I know where I'd like to live comparatively!

Also, looking at the suburbs, 63.1% were renters in Macquarie Park according to last census data, compared to 21.7% in North Ryde. We're also looking at 83.0% houses in North Ryde, compared to 77.7% flats/units/etc in Macq.

Clearly not apples and apples here. Sadly, even if looking at just units in both on streets that are similar w/ what appear to be similar drivers, it's just not comparable - all about context! Really are both v different areas imo.

Quickstats - compare them on their different metrics, so different!!
http://www.censusdata.abs.gov.au/ce...11/quickstat/SSC11437?opendocument&navpos=220
http://www.censusdata.abs.gov.au/ce...11/quickstat/SSC11759?opendocument&navpos=220

Some enlightning points thank you JennD. As you said 63.1% of the population were renters. So with gentrification/transport improvement would you expect rents return to improve, as opposed to capital growth? Similarly would you expect greater capital growth in an area with a low percentage of renters which was seeing infrastructure upgrades? I understand that it can depend on changing demographics, as well as supply and demand so the answer isn't always black and white. But I see many people on these forums saying 'so and so area has good capital growth potential' or 'this area is likely to see increased rental demand over xx years'. Just trying to wrap my head around these concepts =).

 

[nhan4769]

My last post was not worded very well, I'll give it another go :

Looking at 2006 census data for Macquarie Park the median rent for the area was $255/week compared to $360/week in 2011. This is an annual increase in median rent of 7.1%. Improved infrastructure in this area has seen a growth/return in the dominant investment type: i.e. renters? So to reword my question:
If I am looking for capital growth, should I focus my research on areas which have a higher percentage of owner/occupiers, with no planned apartment developments? Similarly if I am looking for positively geared properties, or properties that will see rents rise quickly, should I focus on areas with a high percentage of renters (and no planned apartment developments which will provide a flood of supply)?

My goal is to understand the underlying dynamics and drivers behind capital growth and rental return growth, to assist me in identifying good/bad areas/investments.

 

[slammindan]

I would love to hear you opinion as to why properties in this street have not appreciated as much as properties in streets near North Ryde station (next station over) e.g. Parklands Road in North Ryde (~6% annual growth), Kent Road North Ryde, etc. While I understand property is very far from an exact science, I understand that several drivers behind capital growth include gentrification of an area (Macquarie Park Shopping centre was significantly upgraded in 2000) and new public transport (rail line). If I was ready to invest back in 2008 I may have invested in Macquarie Park at the time thinking that a newly opening rail line would appreciate property value and give me some quick capital gains - looking back now it appears that I would have made a poor investment (but this was not the case for North Ryde, literally 1-2 km away).

My observations on why there could be a difference;

Macquarie Park is made up of mostly older style apartments and businesses. no village/community feel, no schools.

Where North Rye has lots of owner occupier houses, nice local shopping strip on Cox's Road, Lots of local schools. Has a village/community feel.

 

[see_change]

As with all things , I think it will change with time and that area is somewhere I'd be looking at buying if we weren't already fully commited.

Reason . Chatwood north up the North shore line you have to get up to hornsby to get comparative Value .

To Maquarie , it's the second station north of Chatswood .

at some stage people coming up the north shore line from the City , or working in Chatswood and travelling north , will start looking at the price differential in relation to distance travelled .

Those blocks aren't great at the moment , but they are close to the uni and lots of up market industry and I think it will change .

Maybe not next week , but certainly at some stage.

Cliff

 

[slammindan]

The problem I see with these areas, Macquarie Park in particular, is the number of new apartments coming onto the market, in the next 12 months and future planned developments.

Earlier in the year both areas were earmarked by the state gov as two (another one is Epping) of the 8 new Sydney precincts for high-rise apartment blocks, up to 30 stories. Time will tell and we all know governments make stuff up

However there is a chance the area could well become the new Chatswood, with great access to the city road/rail, significant improvements being made to Macquarie Centre. Area is also getting it's name as a business hub & obviously Mac Uni.

 

[nhan4769]

Very interesting points Cliff and Slammindan.

But I also can't help but think: "Is this (Cliff's argument for possible future growth) what some investors thought back in 2005-2008 when the line was being constructed? They bought property before the line opened, thinking it would (perhaps over 10 or so years) become the next Chatswood. However they have seen an average annual growth (in a street very close to the station, uni and shopping centre) of less than 2% over the past 5-8 years".

What I see here is an area ticking some capital growth boxes (better transport, better shops, other areas becoming pricey, etc) and yet seeing poor growth for nearly a decade. I just don't want to buy into an area in 6-9 months that ticks all those boxes above, and then behaves like Macquarie park has. While the area may grow in the next 5-10 years, I'd prefer to not wait 10+ years for my first IP to appreciate. I'm not talking 10% growth a year, but something decent like North Ryde around the 6-8% which will allow me to revalue and leverage to purchase future IPs.

As JennD mentioned, is it mainly due to the high percentage of renters? If Macquarie Park was actually 90% OO would you have expected it to perform more in line with North Ryde?

 

[see_change]

For me , the argument that it is still underperforming , when parts ( most of ...) of sydney are / is booming is a very good reason to consider buying there . But you need to have done the research into returns , vaccancies etc .

No one is going to put a sign on the ground saying this place will go up in the next 12 months , but if it hasn't moved for a while and the rest of sydney is booming ......

We've been lucky ( ie we've done a lot of research ... ) and had good capital growth within a short time with every IP we've bought . Every time I've bought , I've hoped I would get good short term growth , with the expectation I would get very good medium term growth.

Only place we haven't had short term growth so far are the ones we bought in Brisbane 1-2 months ago ... The one we bought about three months ago in Sydney is already about 100 K up .

I always like East Ryde , but it's more expensive . We've looked there several times , but never found something that came close to stacking up number wise.

Cliff

 

[slammindan]

As JennD mentioned, is it mainly due to the high percentage of renters? If Macquarie Park was actually 90% OO would you have expected it to perform more in line with North Ryde?

Hard to say whether 90% OO would have improved Capital Growth. If it was we'd probably be talking about a completely different Macquarie Park

It's important to buy the right property type that will appeal to the majority of buyers wishing to move into the suburb. Macqaurie Park is predominately made up of apartments & renters, where the region as a whole is mostly houses & OO families. e.g Marsfield next door is mostly houses and townhouses and I'm guessing it's CP matches, if not better, North Ryde.

How do Mac Park & North Ryde compare prior to 2002? Still a CP gap? If so what other driving forces in Macquarie Park other than a new train station would enable it close the gap with North Ryde?

 

[nhan4769]

It's important to buy the right property type that will appeal to the majority of buyers wishing to move into the suburb.

I see. So if I was putting on my detective hat back in 2008ish here is what I would be thinking:

I would see that Macquarie Park has a high percentage of renters indicating its not an area that people want to live in permanently (ie buy and live themselves). This is fair as I myself do not feel like there is enough there to want to settle permanently (yet). Therefore Owner Occupiers would be unlikely to be driving up prices. Thus IF capital gains were to occur it would be driven not by OO but by investors chasing good yields. They may be thinking "hmmm Macquarie Park is attractive to renters already, and when this new train line is built it will be even MORE attractive, better buy up!". If a large number of investors think like this, then demand is high and capital growth results.

However (is it fair to say) that investors chasing high rental returns are very driven by hard numbers. So while there may have been some increased buying pre-"railway line opening" most investors would have waited to see if more people looking to rent actually did flock to Macquarie park after the line opened. That is most investors would have waited to see evidence of increased rental demand before committing (e.g. waited to see increasing population (especially young-middle professionals), declining vacancy rates, no development applications for high rise property (so they know there wont be a flood of supply onto the market), etc.

While I definitely need to do more research, my hypothesis is that capital growth has been poor in Macquarie Park is because if there was actually high demand by renters, investors would have flocked and driven up property prices due to the attractive yields.

(This is where I will go off and test my hypothesis). But to all you more experienced investors, does this sound like a sensible line of reasoning? Or do I truly have no grasp of how the property world works in reality

 

[EN710]

Watching this thread anxiously.

My upcoming PPOR is a OTP unit in Macquarie Park/ University

I don't know about CG - don't think the area is for families, but more for a start up for young couples and professionals who like convenience, almost the same reason why I love Chatswood - I can't afford Chatswood unfortunately.

1. Convenience. Train is next door, 30-35 mins to city. Always get new train (a plus for commuters like me)
2. If you work with big old corporates, their offices are usually around Macquarie Park and North Ryde.
3. Macquarie Centre have everything you need, and I have high hope of increased convenience with their "world class" development. If not, I'll just train to Chatswood

No school around, but it's a train away from Chatswood and North Sydney.
61% renters - I think mostly students, as Macquarie uni is next door.

 

[nhan4769]

Watching this thread anxiously.

My upcoming PPOR is a OTP unit in Macquarie Park/ University

Could I ask you what street your development is on?

 

[EN710]

Could I ask you what street your development is on?

Of course you can ask. Just don't suddenly show up in front of my house

It's Macquarie Central on Herring Road. Bought it 2 years ago.

There's another development coming called Macquarie Village Park a bit up the road, but they say settlement 2017 which I think it's because the site is currently Stamford hotel (they might need to demolish it) - starting price is a lot more expensive than unit around, $465K for 1 bed and high $600K ish for 2 bed

 

[Scott No Mates]

You've discovered the basic fallacy of statistics nhan4769. That is, the median prices that you see reflecting the 5%+ pa growth are more often than not skewed by properties which are newly constructed (eg like the OTP purchase you have made) which skew the median and averages. Likewise, in areas where there are many resales of refurbished/extended properties, even on a like for like sale. In the case of units that you've been looking at, they are bread and butter rentals where the owners aren't spending any $ on refurbishments and upgrades but keeping status quo (or just sucking the returns). What you are seeing is closer to a true like for like resale not the headline making 'street record'.

 

[nhan4769]

You've discovered the basic fallacy of statistics nhan4769. That is, the median prices that you see reflecting the 5%+ pa growth are more often than not skewed by properties which are newly constructed (eg like the OTP purchase you have made) which skew the median and averages.

Yes I've read about this issue. This was why as part of my research I have been looking at individual streets e.g. for North Ryde I pick 3 or 4 streets and analyse the properties on that street, preferably looking at the capital growth achieved by individual houses (obviously this means there has to be at least two seperate sales for the houses I compare). I try and filter out houses that have had obvious renovations as that would skew the capital growth numbers.

My thinking is that this is going to give me a more accurate picture because:

• Your comparing a house in one year against itself in a later year (assuming no renovations have been done than you are literally comparing an apple with...uh... well the exact same apple )
• Newer properties will not skew this data. I'm not looking at individual house prices I'm looking at individual capital growths
• Similarly a shift in the mix of property types (e.g. sudden flood of apartments into the market which was previously dominated by houses) will not skew my growth numbers, whereas if I compare the median sale prices for the suburb this changing mix can artificially skew the median prices over time.
• When people I know have purchased property (OO not investors) they generally check what houses in the same street have gone for recently to get an idea of what they should pay. So looking at individual streets makes sense because it seems to be a benchmark that OO use when purchasing. I'm not sure but I think this is the right thing to do when looking into an area that is not appreciating due to investor interest but is appreciating due to OO interest? Investor appreciation (e.g. parramatta) driven by an area having high yields and low vacancies, while OO appreciation (e.g. North ryde) is driven by OO wanting to live there and thus willing to pay more to secure the house they want to live in?

A little time consuming, but for now I have the time. I might find in a month that this method hasn't actually taught me anything or shown any obvious patterns in which houses appreciate. In that case I will come up with another method of analysis