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Sydney apartments undervalued

Discussion in 'Real Estate' started by Jacque, 1st Feb, 2008.

  1. Jacque

    Jacque Team InvestEd

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    According to the latest Home Price Guide Housing Data report Sydney apartments are undervalued, when compared to other capital cities, and are forecast to rise nicely.

    http://www.homepriceguide.com.au/med...ies_DecQ07.pdf

    Must say that I tend to agree, especially in areas such as lower north shore, and yields are surprisingly rising, even more rapidly in some areas that anticipated. A recent example was for a client whom I secured a purchase for, with two rental appraisals @ $400 and $420 per week. He actually ended up getting $500 per week simply by replacing the carpet the day after settlement and giving the place a fresher look. Money well spent and increased the gross yield from 4% to just over 5%.

    I like the north shore area for units- the closer to the city and transport links, the better, in MHO. The better blocks are older, well maintained, and without costly items such as lifts and pools. Stick to streets that have appeal and are quiet for maximum value. You can still pick up 2bedders in some great suburbs for under $500K.
     
  2. perky

    perky Well-Known Member

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    In the RPdata newsletter last week, it stated that Pyrmont apartments had the highest unit yield in Sydney - at 6.8% .
    Going on that evidence , it would be hard to disagree.
     
  3. tropic

    tropic Well-Known Member

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    Last edited by a moderator: 4th Feb, 2008
  4. Jacque

    Jacque Team InvestEd

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    See if this attachment is any better for you :)

    Pyrmont is a great location, amongst many other inner ring suburbs but can be quite noisy, depending on exact location. There's been several new high rise blocks built over the last 10yrs and many new units in the marketplace.

    Traps/tricks of owning an apartment vs a torrens title property include:

    lack of control over strata fees (which can escalate sharply if building needs upgrading and sinking funds are insufficient)
    lack of control over renovations due to possible Owners Corp approval needed
    competition for lease/resale of several of the same product
    lessened opportunity to "add value" as it's just yours within the four walls
    Lower land value content
    Watch for serviced apartments and onsite management as these costs can blow out and reduce your cashflow

    There's also positives to buying apartments vs housing, which generally include:

    Lower maintenance costs
    Lower entry price so better location for your money
    Larger pool of tenants
    Cheaper to renovate :)
    Lower land tax (if applicable) due to reduced land value component of your property
    Strata manager taking care of common areas and funds, spending etc

    Terrace housing (attached and detached) is considered very popular in parts of Sydney where it's more prevalent eg: inner Eastern suburbs (Paddington etc) inner west and inner city areas. There's also some on the north side of the bridge eg: Crows Nest, but these areas are predominantly housing/townhomes/units and semis/duplexes.

    The beauty with torrens title is that you have total control (in accordance with local council DCP's naturally) and have the power to renovate/value add/knock down your property in the future, should you wish to do so. After all, the land that your building sits on is 100% yours.
     

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  5. tropic

    tropic Well-Known Member

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    Hi Jacque,

    Thank you for your reply.
    I've been thinking of getting an IP in Sydney.
    Something that has a good yield like 5%+ and low maintenance. Ofcourse I like to see a nice CG when I sell it. It's for 5 years + investment.
    I have increased my home equity loan just in case I see an IP that I like.
    Just need a little push to get it going.

    Also looking at some IP in Parramatta. For the same money I can get a house but will incur more maintenance cost and further away from the city.

    Because I live in Perth, a low maintenance property is a very important criteria.
    But a house in Parramatta most probably will increase more in value???

    Decision decision.
     
  6. Jacque

    Jacque Team InvestEd

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    Hi Tropic

    Only you can make the decision about what type of property to buy- based on your level of comfort, risk and budget.
    Be aware that freestanding housing in Parramatta is generally older and maintenance would be a consideration which you would need to take into account. There are also "good" and "bad" parts of Parramatta and surrounds, so do your homework in terms of area reputation as well. Attracting the right sort of tenant is the key to often maintaining your investment over the long term. Speak to a few PM's in the streets you're looking at, to develop a better idea of where NOT to buy.

    Also keep in mind that, generally, houses will return you lower yields. I'm not saying that 5% isn't achievable but it's far easier on a unit in high demand areas than housing, which tends to be priced higher on a median price level per suburb.

    As far as increasing in value, units have shown to perform just as well as housing in some Sydney markets, with some actually outperforming housing in recent months. Your budget is probably the best starting point- which is?
     
  7. tropic

    tropic Well-Known Member

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    Hi Jacque,

    my budget is 500K. But if I can buy a good IP for say 400K it would better.
    To be honest I have been quite concern with the current US subprime situation.
    I am looking for a property that will always be easy to let. Just in case the economic climate change, I don't want to be in a situation where it will be vacant for a long time.
     
  8. Jacque

    Jacque Team InvestEd

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    400K budget will get you a plethora of choice here in Sydney, ranging from a house in the outer suburbs to a nice 1bedder closer in to the CBD. If you select and purchase well in the right area (good past cap growth, high rental demand, proximity to amenities, preferred street position) your IP should have no problems being let out. I like to allow for 6weeks vacancy period in my calculations with costs, as it's a rare property that is fully let all it's life.

    Having said that, I have had two properties now that have had the same tenants in them since I purchased- but it's not common and so allowing for vacancies is recommended.
     
  9. tropic

    tropic Well-Known Member

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    Jacque,

    Thank you again for the reply.
    I will keep an eye on some locations close to the city and see how the interest rate increase will affect the prices.
    Now they are talking about another interest rate hike in a couple of months.
    Also the sharemarket has been hit quite badly in the last 2 months or so. Historically this will push property prices up with people moving money back into property.
    I am not sure if this is the case this time around with the talk of US recession and interest rate hike.
    But we like to be ready should Sydney prices decided to go up.
    I think I will concentrate on inner city apartments like Pyrmont.
    The aim is to invest on a well located property with above average yield, minimal maintenance and easy to let. Ofcourse would like to get a reasonable capital gain too. With this goal I think apartment will be choice for us.
     
    Last edited by a moderator: 20th Feb, 2008
  10. Glebe

    Glebe Well-Known Member

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    Those Pyrmont apartments have gyms, swimming pools and elevators, so keep an eye on the strata costs. I prefer the smaller, older style apartment blocks personally.
     
  11. Jacque

    Jacque Team InvestEd

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    I'm with Glebe on this one, but then each to their own. I do, however, like to maximise land value content and buy something that can have value added later down the track, if possible.
    Don't fall into the trap of only considering units close to the city either, Tropic. There are plenty of suburbs in Sydney that have had equally good cg over the last 10yrs as the inner ring suburbs (in some cases, superior) so look around the transport hubs as well.
     
  12. tropic

    tropic Well-Known Member

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    I like land too but unless it has a good house the yield is usually quite low. Especially now days you can't even get apartments that are CF+.

    Outside the CBD, do you think Paramatta area near a train station has a good future?
     
  13. Glebe

    Glebe Well-Known Member

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    If you can afford a house within walking distance of Westmead or Carlingford station I think you'll be looking good in the long term.
     
  14. Jacque

    Jacque Team InvestEd

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    I just bought a freestanding home in the Hills area in the $600-700K price range for a client, which is on a gross 4.7% yield with no work needed at all. Rents are definitely on the rise as demand outstrips supply. This house wasn't walking distance to rail, but within 3mins walk to frequent city buses and a 5-7min drive to two railway stations- Pennant Hills and Beecroft.
     
    Last edited: 29th Apr, 2008