Property Newsletter – May 2018

Applecross – The southern peninsula with a beautiful Perth City aspect

Famous for its Jacaranda lined streets and sweeping river and city views, the suburb of Applecross is one of Perth’s premium inner city suburbs lying on the river banks of the Swan River.

Applecross is located in the City of Melville, approximately 6 kilometres south of the Perth CBD and is the gateway to the Fremantle district.

It features a population of 6,887, making it a medium-sized Perth metropolitan suburb. The current median age is 43 years old, which is older than the Perth median of 36. The difference in median age is due to the higher amount of empty nesters in the area. Applecross is a destination suburb where the extravagant land values outprice a younger demographic.

With close proximity to the Perth CBD, recent ABS census data has stipulated that 35.6% of the population identify themselves as professionals and 20.0% as managers, which is well above the WA average at 20.5% and 12.0%, respectively.

Its neighbouring suburbs include Ardross and Mount Pleasant to the South, which are also largely family-based affluent areas. East of Applecross, across Canning Bridge, lies Como, another expensive family orientated property market. It is bordered by the Swan River to the North.

With high frequency bus transport down Canning Highway, and Canning Bridge Train Station servicing the eastern section of the suburb, public transport to and from Applecross is one of the main drawcards of the area. The Kwinana Freeway runs down the eastern periphery of the suburb allowing for easy access private transport to the Perth CBD as well as to the southern suburbs.

The median house price is $1,600,000 with the dwelling stock comprising of 63% housing, 25% semi-detached dwellings and 12% units, making the area a fairly mixed housing use area.

The high density housing is mainly focused around Canning Bridge, with future development to be prominent with the introduction of the Canning Bridge Precinct Structure Plan which aims at creating a satellite city at Canning Bridge as a gateway to the South. Low density housing of R12.5 – R20 is the predominant coding in the residential area with the lower coding predominantly in place along the river foreshore, where you can find large mansion-style dwellings.

The housing stock has no clear era as redevelopment of the existing housing stock has occurred continuously with 1940s homes being replaced by larger two storey dwellings. Some older 1960s apartments still exist scattered throughout the suburb while brand new apartments are being constructed nearby Canning Bridge.

The leafy family suburb has an abundance of amenity within the suburb and on the peripheries. Ardross Street Café Strip is always bustling with vibrancy, and the Canning Bridge Precinct is bringing more office, restaurants and bars to the area, including the historically significant Raffles Hotel. On the outskirts of the suburb is Garden City for retail needs, and further down Canning Highway is the large Fremantle Activity Centre.

Applecross’ proximity to the CBD and positioning on the Swan River are the two largest drawcards for the area, coupled with tree lined streets, good schooling and lively cafes and restaurants.  The suburb is one of the most expensive suburbs of Perth, with large plans to increase densification and vibrancy in the near future through the highly publicised Canning Bridge Precinct which has already seen the start of high rise development.

Diverse Commercial Investment Key to Property Success

Many investors are familiar with the strategy of diversifying their assets and spreading their wealth (and consequently risk) across multiple investment vehicles.  When it comes to property investment, many savvy investors recognise the need and the role commercial property play alongside an established residential portfolio; however given the usually high cost of acquiring commercial property, few investors have the financial capability or appetite to add multiple commercial investments to their portfolio. This prevents investors from realising benefits of growth and risk mitigation from investing across multiple industries.

Commercial property investment continues to play a crucial role in building a successful property portfolio for savvy investors as net yields for commercial property are typically between 7-9%, compared to residential of between 3-4%. However commercial property generally experiences lower capital growth compared to residential and can be heavily impacted by economic factors influencing industry segments. Longer vacancy periods, higher interest costs and higher deposits are all factors that can present significant risk factors to investors who may only be exposed to one type of commercial property.

For example, the end of 2017 saw significant differences in performance across the industrial, retail, office and medical sectors, with each segment subject to unique market factors at both state and national levels.  An overall flight to quality trend in the commercial space has seen many commercial investors creating more attractive spaces to incentivise long-term leases from tenants and secure cash flow.

While a diverse commercial property investment strategy is attractive to many investors, with quality commercial assets generally costing at least $2 million, with many great assets costing significantly more, this may not be a viable financial option for everyone.

Commercial property syndicates and funds can be considered by investors as an available and logical means to access investment across various commercial segments as they can have the added advantage of an experienced, and hopefully proven, acquisitions team and professional asset management which can better ensure optimum return rates.

When done correctly, investing in commercial property is a valuable asset in a successful investment portfolio and can provide cash flow security. Like any investment, there are several factors that must be considered before deciding if it is the right strategy for you and your goals, and professional advice for your situation should be obtained before making any decisions.

How to select property that outperforms the market

In good times, it’s easy to become complacent when choosing an investment property. The media’s full of hype, prices are skyrocketing, and people are in a scramble to buy. It’s not unusual in times such as these to think that anything you touch will turn to gold. But it’s not until things get a bit rocky that the market really starts to sort out the wheat from the chaff. Properties that never had the right fundamentals get hit hard, while the rest calmly weather the storm.

With the market turning upwards once again, I’m sure many of you are contemplating acquiring an investment property. If you are, learn from the mistakes many others made in the last boom and purchase wisely. You must always remember that not every property is the same. In fact, the potential for growth in each property can vary quite dramatically.

Let me explain. What would you say if I offered to write you a cheque in 10 years time for $75,000, no strings attached? I’m sure you’d jump at it. Well, buying a $500,000 property that experiences a 7% average annual growth compared to one with a 6% average annual growth will result in around $75,000 of extra equity. Even after only 5 years, the 1% difference will put about $25,000 extra into your pocket. It’s a simple example but just goes to show property selection is critical to maximising your wealth.

Selecting the best possible property often comes down to a number of factors. In this article, I’m going to focus on just one – supply.

Supply is just one half of the equation, demand being the other. If demand for houses increases faster than supply, then prices will go up. If demand decreases and plenty of supply still remains, prices go down. And naturally, if they are about equal to one another then prices will remain relatively stable. Not a bad thing, but not a good thing either if you’re looking to build your wealth as fast as possible. So if you’re looking to buy a well-performing investment, it makes sense to look for something in an area with relatively limited supply.

Areas with limited supply tend to be those that are well-established. If you buy a 3×1 in an area that is 30-40 years old not too far from the CBD, you know that supply of that type of property is unlikely to increase substantially as there is no more land available to build on. Assuming people hold a desire to live in that area and, better yet, you predict that desire to increase over years to come, then you can be reasonably confident your property’s value will continue to rise. But just buying in established areas close to the CBD is not necessarily secure for every type of property. Consider a 2×1 apartment just a short stroll from the CBD. If there is surrounding land ripe for development, or plenty of old buildings ready to be demolished for brand new apartment complexes, supply of apartments in that area could be plentiful. When researching an area, I find it valuable to contact the council to find out what plans there are for the area. Potential changes to zoning to allow more subdivision or demolishing of large schools or hospitals to accommodate new estates in the area, may all impact on your decision to buy whether for worse or for better.

Venturing out further from the CBD often leads to areas that are relatively new and perhaps starting or in the midst of development. Many are usually abundant in available land, both in their own suburb and in future areas surrounding it. Whilst I certainly believe there are some good buys in such areas (due to them possessing other key fundamentals), they can be risky due to excess supply issues.

Often supply needs to be considered in light of time. There may be enough land in the area to develop for another 10 or even 15 years, and if there’s a real chance you may sell in that timeframe, you may be caught fighting against a hundred other similar homes on the market at the same time. With plenty of competition, it’s unlikely houses in the area will be achieving significant price growth. In this scenario, you might find your money may have been better invested in another area.

On the topic of supply in outer fringe areas, there’s a phrase that I feel investors should be a little cautious of and this is “growth corridor”.This seems to be the latest catch-cry of a host of suburban fringe developments like the Beenleigh area in Queensland, the Truganina area of Victoria, or the far north-east area of Perth. I hear many investors pronounce what a great capital growth investment they’ve made because they’ve bought in a growth corridor such as these. I need to emphasise that “growth corridor” is not referring to capital growth, it is referring to population growth. And whilst the influence of population growth is another factor that can positively impact property prices, it needs to be considered in light of the overwhelming amount of supply that is almost a guaranteed feature of these corridors.

But sometimes supply is not always about what land or opportunities are around ready for development. A character home from the early 1900’s in an area with plenty of redevelopment going on, will still fare well. That is because character homes themselves are always in limited supply – what stands today is all that will ever be. No matter how much land is created in that area, you just cannot duplicate the age and real features of a character home that are much desired.

The concept of supply and its impact on price growth is actually quite logical but it’s something that many investors somehow seem to forget. Perhaps they get carried away with the excitement of buying, are won over by the beautiful décor of a place, or can’t resist a so-called “bargain”. This is why it’s so important when buying an investment property, to think with your head and not with your heart.

Capital City Dwelling Values Record Their First Annual Decline Since November 2012 While Regional Dwelling Values Continue To Edge Higher
National dwelling values nudged 0.1% lower in April, the seventh consecutive month-on-month fall since values started retreating in October last year according to the CoreLogic April home value index results out today.

Similar to previous months, CoreLogic head of research Tim Lawless found that the declines were concentrated within the largest capitals, while regional dwelling values edged 0.4% higher.

Capital city dwelling values were 0.3% lower over the month, driven by larger falls of -0.4% in Sydney and Melbourne and a smaller decline in Brisbane values (-0.1%).  The falls were offset by flat conditions in Perth and subtle rises in Adelaide (+0.1%), Darwin and Canberra (both +0.6%).  Hobart was the only city where dwelling values rose by more than 1% in April.

Index results as at April 30, 2018

On an annual basis, the combined capitals recorded the first decline in dwelling values since late 2012, with values slipping 0.3% lower, driven by falls in Sydney (-3.4%), Perth (-2.3%) and Darwin (-7.7%).  The only capital city to see an improvement in annual growth conditions  relative to a year ago is Perth, where the rate of decline has slowed from -3.0% last year to -2.3% over the past twelve months.

A reversal of longer term trends  Mr Lawless said, “At a macro level, the latest trends are virtually the opposite of what we have become used to over the past five or so years.  Regional areas are now outperforming the capitals and units are outperforming houses.  Also the most expensive properties are now showing weaker conditions than the more affordable ones.”

Regional areas now outpacing the capital cities  The past five years has seen combined capital city dwelling values appreciate at the annual rate of 6.8% which is almost double the annual rate across the combined regional markets at 3.5%.  The past twelve months has seen capital city dwelling values fall by 0.3% while regional values are 2.4% higher.

Unit values outperform house values  Similarly, capital city detached house values have recorded an average annual growth rate of 7.3% over the past five years, while unit values were up 5.5% per annum over the same period.  Mr Lawless said, “Despite the surge in unit construction over recent years, the past twelve months has seen unit values continue to trend higher, up 1.9%, compared with a 1.0% fall in house values.”

More affordable housing stock has been resilient to value falls  Across the most expensive quarter of the market, dwelling values have increased at almost twice the pace of the most affordable quarter over the past five years, up 8.2% per annum compared with 4.4% per annum.  As conditions have slowed down, it’s been the most affordable end of the housing market where values have remained resilient to falls, trending 1.9% higher over the past twelve months while the most expensive quarter of properties has seen values fall by -1.6%.

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