Area Size.. is it always a good thing?

Hi Guys,

Just something I've been wondering about.. Given the Gen Y (my gen) move towards smaller dwellings, does it still make sense to buy a 600 - 800sqm block? (since its like 900sqm to subdivide).
To me it just seems like a PITA gardening problem.. no offence to anyone who likes gardens. just not really my thing

What I'm wondering is; from your past experiences, does having a larger landsize actually have a positive influence on the rental yield / capital growth of your property?

 

Not on yield, but definitely on capital growth. I hate gardening too, but I still appreciate that the more land you can grab the better.

 

It does not really have a value effect, unless a block is subdividable, land size has little bearing on the value of a property.

When we value properties as agents we look at
Suburb
Equivalent building area
Condition of house

An extra room or bigger room will add value but a slightly bigger back yard does not usually.

 

So better off buying 2x400sqm 4/2/2?

 

Bigger blocks mean the houses are spaced further apart.
Some of the estates with 300sqm blocks have houses jammed together which will result in noise issues.
Marg

 

Depends what you're buying for?

We're gen y and just bought a PPOR. We bought a duplex with a small yard (200m2? I think?). Because we bought small, we were able to buy next to the CBD and there are far less maintenance costs and less transport costs. We bought cheap so less interest costs as well.

Over time these things add up and for us as a PPOR...it made sense.

However we also looked at some of the newer stuff further out. Detached houses, but on such tiny blocks that the duplex was a better deal and ultimately, more usable land. If you're going to be on a small block, may as well be in closer to the CBD.

That was our thought process anyways....

 

Generally the more land the better as it's the land that appreciates. With ongoing population growth most councils will aim to create density; hence lessen the planning restrictions. The exceptions are heritage areas and old money NIMBY areas, but that's what keeps prices at a premium.

 

Do not agree with this at all. Land definitely has a bearing on the value even if you are unable to subdivide

 

From my positive experience it doesn't make any difference, provided ( or ideally if ) the property is well-located and very close to major shops and a railway under construction. My place is on 327sqm. It has gone from $2,229 per sqm to $3,623 per sqm in 30 months.

There are townhouses nearby (300m away) on approx 220sqm blocks that would be at $4090/sqm.

( values above are completed dwelling including land and the building )

Edit - a 2-level versus a single-level dwelling for same block size can be a 31% difference in end-value of the property for the same/similar block size ( based on comparison with one of my single level neighbours )

 

In family areas that extra area is generally worth something - it's a an area for a pool, swing set, nude sunbathing
You'll find that in most areas there is an underlying value of land which does decrease slightly for bigger lots if they don't have subdivision potential. So if an area is generally $1000 psqm then it will mostly hold true no matter the size of the block but there may be a drop to $950 for bigger lots and up to $1050 for much smaller lots.
A suburb will not always need 900sqm to subdivide - if it's an area in an ring that is less than 15km from the CBD and the block is close to a shopping centre/local activity centre then it's likely at some time it will be rezoned to a higher density that may only need 600sqm. That's a long haul punt though.

 

good point Marg, didn't think of that at all. That said, apart from land banking. My takeaway so far is that there is an emotional aspect to it. Apart from that, It's mostly land banking? I'm looking at land size as part of a rental property. So in such a sense I guess it's not too important, although if i can secure a 700sqm or 800sqm that'll give the block some future development potential?

 

In my experience having a larger block reduces my rental yield but improved capital growth. But I have only bought properties with subdivision potential.

To answer your question you will need to do some market research. Have a look at the type of house you want, in the area you want and then compare the square metre rate selling price of similar houses on smaller and larger blocks. In some areas a larger (no subdivision potential block) attracts a price premium.

 

You would generally need 900sqm for R20.
In areas coded R30, you would generally need 600sqm to subdivide into 2 blocks.
In areas coded R34, you would generally need 440sqm to subdivide into 2 blocks.


Table 1: General site requirements for all single house(s) and grouped dwellings; and multiple dwellings in areas coded less than R40

https://www.planning.wa.gov.au/dop_pub_pdf/State_Planning_Policy_3.1-Residential_Design_Codes-P.pdf

 

The Gen Y move into smaller dwellings is borne out of necessity, if not desperation. But tiny apartments and outer urban fringe developments an hour or more from the city attract buyers because nothing else is affordable to them. If prices correct (and this rising rates this is very possible) quality, detached family homes will likely become more popular. Many families in particular want a decent yard - or at lest some yard, as if you live on a very small block it makes having kids or pets more challenging.

Looking ahead, I'd consider larger blocks for granny flat potential, too. This country, as my demographer wife likes to tell me, becomes an aging population in 2020 which is ridiculously soon. At this time, Boomers will quite rapidly begin to retire, and there are few taxpayers to replace them, which will almost certainly lead to reduced economic growth and may require a more realistic approach to aged care.

People with inadequate retirement savings could find independent living in a slow economy next to impossible (especially if a housing correction swallows up equity - bearing in mind many Boomers - the largest demographic investment group by far, and some of whom are very, very inexperienced at investing, have often bought at the height of the market and quite indiscriminately. A few older colleagues of mine own off-the-plan apartments and I just can't help cringing - one guy has four or five of these places leveraged off his PPOR. God I wish the poor bloke had diversified or noticed inner-city oversupply but I digress).

The wife (and many other demographers) thinks we're going to see a social shift not unlike what was common during the Builder's years and earlier - where aged parents downsized and moved into granny flats (or into homes) to reside with/near their children. State funded aged care will probably be economically unfeasible due to high demand - at least for those who aren't well off - and a lot of Boomers haven't got huge super funds. Granny flats could be in for a big comeback. (There's also a cultural aspect here - a lot of cultures, Chinese, Indian etc enjoy multi-generational living as the norm - in fact the idea kids should "move out at 18" and parents should retire as a couple in a large home is a relatively recent phenomenon, and it's probably not going to work for much longer).

 

There's another land size point some people seem to judge on - the ratio of purchase price to council land valuation. I've heard people say they look for land being 60-80% of the purchase price. Obviously this ignores the actual size in sqm and is based on the valuation (which is based on gawd knows what! ), but it may make the difference between two similar properties in closish proximity: go for the 80% instead of the 60% with other things being relatively equal.

 

I am Gen Y. I live in a small house on a small block because I hate gardening. I wouldn't mind if there was a bit less yard to look after.

 

Have not read all the posts, but its important to consider the area/suburb in which you are buying into as this could impact on resale and limit your market when selling.

If there is a demand for larger blocks because perhaps younger families buying in the area and this is where the demand is coming from then I would probably not consider smaller land component as a long term hold.

In terms of rental - and everything being equal if you are buying/building house on smaller land component this will probably provide a better rental return because entry costs will be lower than a new house on larger block. This is the formular @sash and others use when trying to achieve higher yield, search his posts.
Larger House - lower entry, more rent
Smaller land component - lower entry level

 

My rear garden. Automatic watering. Thick layer of mulch to keep the weeds at bay. Allows me to spend my weekends socially / actively and travel regularly without a worry.

 

I agree when I price land I add around $5k for a 30m deep yard over a 27 or a 27 over a 25m. that's on a circa $150k block of land.

 

I agree with this...

I'd just add to @MTR 's recommendation; if it's an investment, do some research on rents on realestate.com. Sometimes the price rental difference between a 3 and 4 bedroom house can be so minuscule in some suburbs compared to others.

For example, I found the extra $10-$20 rent each week probably wasn't worth the extra 60k it would cost to buy a 4 bedroom on a larger block of land. This depends on your strategy and goals though as from a development perspective, of course, it would be worth it.

Also, if it's an investment, keep in mind the suburb you are buying in (e.g. are tenants interested in larger or smaller homes) and whether you are happy to have a larger family potentially living in the property.

With a 4 bedroom house and a larger family with younger children, there might be more wear and tear of the carpet and floor boards, for example, so a 3 bedroom house might be more appropriate for attracting the tenants you prefer...