For more than 20 years I have keenly monitored the returns on all forms of investment real estate in the Eastern states of Australia. Obviously the topic is complex but if current opportunities are evaluated the following is a reasonable summary.
Sydney Residential is recommended above Industrial & Commercial all states because of the high vacancy rates, vague rent growth and at best a modest growth in demand: Retail all states because of an oversupply of retail premises: Queensland Residential because of a significant oversupply with abundant land resources and high vacancy rates associated with poor demand: Victoria/Melbourne Residential because of the impact of static or marginal population growth combined with a significant oversupply of strata apartments.
The unique features of the Sydney Residential Market are:
GENERAL RECOMMENDATIONS.
Budget less than $3000,000 - A one bedroom apartment or a
bachelor flat (studio apartment). Probable rent $220 per week and at
best a gross return on the purchase price of 4% - 5% per annum. The cost of
maintaining such a property, including all outgoings, would be 20% to 30% of the gross rent. An increase in the capital value of 2% - 5%
above inflation is a reasonable expectation.
Budget $300,000 to $450,000 - A modern two bedroom apartment in a prime suburb within 5 kilometres of the Sydney CBD. Rent returns would vary between $250 and $400 per week and the best return would be very close to 5% of the purchase price per annum. Rent demand in this category remains at a consistently high level.
Budget above $500,000 - Any residential investment in a single strata titled property above $500,000 cannot be justified as an investment simply because the return will be well outside the budget of the typical tenant. Good long term growth can be expected by purchasing a single residential house on a good sized parcel of land (700 sq metres for the prime inner suburbs), but purchasers should not expect more than 4% per annum rent return and should also allow for the significant costs of building maintenance. However a Torrens title house will almost certainly show excellent capital growth as available land for development becomes impossible to find.
Second hand or new? As investments, second hand properties easily outperform new projects. The reason is that Foreign Investment Review Board approval is easily obtained for new properties. As a consequence, for example, in the popular Lower North Shore suburbs of Chatswood, St Leonards/Crows Nest and North Sydney overseas buyers in recent years have pushed prices well above the established local market level.
SPECIFIC INVESTMENT EXAMPLES
Each week I suggest that you visit www.domain.com.au click on BUY (Property Search) and then filter 'studio' and '1 bedroom' apartments with an upper price limit of $350,000 in your favourite Lower North Shore suburb.
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Web Author: Maurice Nash Last Update 05 April, 2004
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