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CBD. Pros n Cons?

Discussion in 'Where to Buy' started by AdamPineapples, 24th Sep, 2015.

  1. AdamPineapples

    AdamPineapples Well-Known Member

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    Hi all

    I was just curious about getting people's different opinions on something. Buying in CBD?
    Pros and cons?

    Is it a bad investment? What are the pitfalls and downfalls of it? Did anybody run into unexpected trouble?

    Has anyone seen the good side of it and made a good investment? Keen to hear everyone's thoughts.
     
  2. C-mac

    C-mac Well-Known Member

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    Hi mate,

    In my experience, it depends on a number of variables, to answer your question properly; including (but not limited to);

    Current supply and demand in that CBD market (or/and, emerging future demand... For instance, Sydney and Brisbane CBD's and inner 3km rings are about to be swamped in the next two years by a glut of new apartments, this could affect supply and demand and thus values + rents)

    Then, you have the composition of the workforces of those CBD's (So, in major tier #1 capitals like Sydney and MMelbourne a highly CBD-centric workforce could be a plus for inner CBD residential property, but say some major Regional CBD's such as Newcastle and Townsville may have a more mobile or sprawled out workforce who dont actually work in the CBD and as such may not want to live in it either...)

    Other factors too such as transport links, aircraft noise, cost of living in a certain CBD etc.; all these variables must be considered and indexed in any assessment of viability for purchase in a cbd.
     
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  3. FireDragon

    FireDragon Well-Known Member

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    Last edited: 24th Sep, 2015
  4. House

    House Well-Known Member Premium Member

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    It's only ever a bad investment if the figures don't add up and you don't research properly.

    I'm not against CBD investing but like other posters, the main con for me would be the potential of oversupply as hundreds of competing stock can go up in one single building. Brisbane is a prime example of that with 2k+ of units going up in the next 2 years. Go further out to the middle ring and there's height and building type restrictions that help control the potential of oversupply.

    I've heard of a guy make $125k CG on an OTP in Syd recently so there can be a very good side but obviously quite a few factors come in to play and timing was the one that worked for him. In the long term I think CBD investing is generally good idea but definitely look around for other opportunities that could make better use of your $'s.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The Melbourne CBD is oversupplied, has been for years and is expected to fall in value. There have been some recent increases but this is the most volatile market in Melbourne, it hasn't performed well or consistently in decades. It might be possible to find something great, but odds are against it.

    The rental market is also oversupplied so yields are low and not expected to improve any time soon.

    A pain in the neck to finance. Most lenders won't forward more than 70% if anything at all.
     
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  6. sumterrence

    sumterrence Well-Known Member

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    I can see more cons then pros for investing in CBD, maybe one pros is easy turnaround if you run into cash flow issue and need to offload? Otherwise I always think 10km-20km outside of CBD is a better investment as entry is much lower and the overall target market is different.
     
  7. The Y-man

    The Y-man Moderator Staff Member

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  8. AdamPineapples

    AdamPineapples Well-Known Member

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    Hmm that's interesting. I've always heard quite the opposite off that when it comes to investing in the CBD. (I live in Melbourne btw)

    I've heard of good capital growth, just because it's in the city.
    Very good rental yields because the rental rates are always going up in the city.
    And I've always heard CBD property, especially apartments, are hard to sell off?
     
  9. AdamPineapples

    AdamPineapples Well-Known Member

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    I didn't even think of commercial? Thoughts on commercial??
     
  10. melbournian

    melbournian Well-Known Member

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    CBD apartments are easy to sell off (but gains are limited) and there not much growth in them anymore. It is more for someone who has them for lifestyle purposes - commute to work and convenience as majority of white collar jobs reside in the CBD. sydney market vs melbourne market are 2 different markets altogether for apartments.

    i would consider buying elsewhere from CBD.
     
  11. The Y-man

    The Y-man Moderator Staff Member

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    Melbourne CBD is a bit oversupplied on office space too.
    Owners are having to go to
    shorter lease
    incentives (fitout)
    etc

    However, that may mean some opportunities to pick up some space cheaper than at other times.

    The Y-man
     
  12. AdamPineapples

    AdamPineapples Well-Known Member

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    One thing Im hearing is to not buy in the CBD but something near the CBD like a 'blue chip' suburb. Or a suburb that's 20 minutes from the city and 20 minutes. Is any investment feasibility to this or is it just a real estate cliche?
     
  13. AdamPineapples

    AdamPineapples Well-Known Member

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    I would guess this means that this is a good time for city developers?
     
  14. gman65

    gman65 Well-Known Member

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    With Melbourne, Southbank and Docklands are with a walk/short tramstop away, and flooded with empty apartments. Every few months I'm there and there is more and more each time. This is always going to put a lid on anything in the CBD for a long while to come.
     
  15. The Y-man

    The Y-man Moderator Staff Member

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    Not sure................. not familiar enough with developing - just a view as a tenant

    The Y-man
     
  16. The Y-man

    The Y-man Moderator Staff Member

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    Yep - for melbourne, as a general rule of thumb avoid post code 3000, 3006, and 3008

    The Y-man
     
  17. Leo2413

    Leo2413 Well-Known Member Premium Member

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    [QUOTE"FireDragon, post: 69262, member: 2458"]Some problems that I can see are:
    • Oversupply, which may lead to slower capital growth.
    • High strata
    • Some lenders may only lend up to 70%
    • Subletting issues
    • Maintenance issues when the building gets old.
    I think @FireDragon mentioned some great points.

    Personally, I would buy in an older boutique place, with add value potential and low strata. If you do those things, you will not only save money from not paying a premium, but be able to manufacture CG with a cosmetic reno. Also buying in a complex with hundreds of units is a big no no for me. Not only strata is ridiculous but when you have your for sale or rent, you will be directly competing with many in your block. It only takes a few people to rent or sell at a stupid price and your nicely affected
    .[/QUOTE]
     
  18. JDP1

    JDP1 Well-Known Member

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    Certainly not just cliche and hot air...it's been a tried and proven strategy for long term wealth thru CG.
     
  19. AdamPineapples

    AdamPineapples Well-Known Member

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    [/QUOTE]

    Buy an older place and renovate it?
    Now see I was reading about this not long ago. People who bought a crappy unit. Put 30k worth of Reno into it and 6 months later it was revalued at 100k more.
    It really intigued me because this strategie frees up equity because of the revaluation. Have you done this before?
     
  20. House

    House Well-Known Member Premium Member

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    Perths office market is heading towards 24% vacancy next year :/