Concept of scarcity for apartments/units

Discussion in 'What to buy' started by Mogley, 6th Jun, 2017.

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  1. Mogley

    Mogley Member

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    So one of the fundamental pillars of picking a good IP is scarcity. Makes sense, scarcity of any limited resource restricts supply and leverages demand, whether it be a unique location or a one of a kind design.

    In addition to scarcity, a good IP apartment should have other qualities such as be in a desirable location close to amenities/public transport, N/NE aspect, low strata, be in a small well maintained block with a track record of good standing and be suitably configured for the demographic of the region etc.

    One thing I struggle with however is this concept that an IP apartment should be scarce to drive value. Of course, if one can find the perfect IP in an exclusive neighbourhood with limited future development then that is ideal.

    But for the most part, particularly where I am looking (Sydney), the inner city ring suburbs (<10km radius) which are in areas which I consider to be attractive areas in terms of amenities/public transport and proximity to CBD (e.g. Camperdown, Annandale, Stanmore, Surry Hills, Redfern) have no shortage of similarly configured apartments, driven in part by new development as well as existing apartment/unit dwellings.

    Given this I'm not sure I would consider an apartment in these areas as being particularly scarce, notwithstanding some apartments will of course be unique or set apart from others.

    But I still consider an apartment in these areas that otherwise meet the other IP criteria would still be a worthwhile investment - unless of course we are talking about complete over-saturation/over-supply of mega box new developments like those dotting Zetland, Waterloo, some parts of Alexandria and Camperdown.

    So really rather than saying an IP should be scarce or unique, is it not better to frame it as saying an IP shouldn't be a carbon copy box of 1000's of other similar apartments in an area? Because otherwise one may never find a suitable IP in any areas of demand in Sydney....
     
    Mogley, 6th Jun, 2017
    #1
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    Principals still apply.

    What is the owner-occupier to investor ratio in those inner ring suburbs?

    Pick a suburb. Look at rental listings on realestate.com.au or Domain. How many properties are currently available for rent in that suburb? Now expand the search to include surrounding suburbs. That is your competition for tenants.

    Keep an eye on those rental listings. How long do they stay before they are removed on average? That's how long it's likely to take you to get a new tenant if you buy an IP there (this time will change based on where we are in the cycle).

    Still, there are markets within markets - pick a suburb with a train station. The properties with the highest demand are those within easy walking distance of the train - convenience.

    But competition for tenants, and competition from other similar apartments if you want to sell - is always going to be an issue in most of these areas. Which is why you want to be very careful about buying an apartment.

    Is there room to add value? Can you make the apartment more unique internally than the others? If there's a large number of newer apartments nearby, then the scope to add value and uniqueness is very limited.

    There are plenty of reasons why many people prefer to buy houses rather than apartments.
     
    Simon Hampel, 7th Jun, 2017
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  3. 2020vision

    2020vision Active Member

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    If it was me I would pick apartments in small complexes(12 or under) that is well located. These units/apartments will be rarer as time goes on as developers are mostly interested in building high rises to maximise profit. There will come a time (if it is well located)when developers will come knocking and would want to buy the whole complex out. This scenario happened to us not too long ago and we decided to sell with all the other 7 owners.
     
    2020vision, 7th Jun, 2017
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  4. Xenia

    Xenia Well-Known Member

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    How are appartments scarce???
    They are the most difficult properties to move.
    (Sell or rent)
     
    Xenia, 7th Jun, 2017
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  5. 2020vision

    2020vision Active Member

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    Small complex(under 12) walk up units/apartments within 5km of the CBD in Melbourne or Sydney will always be in high demand to rent or to buy.
     
    2020vision, 7th Jun, 2017
    #5
  6. New Town

    New Town Well-Known Member

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    The areas you've mentioned, even those with huge development such as Zetland, Waterloo, and Alexandria, are great geographic locations. So there will always be some attracted to the location that will support the value. Would be more concerned that Syd overall is overpriced
     
    New Town, 7th Jun, 2017
    #6
  7. thatbum

    thatbum Well-Known Member

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    They would be scarce relative to the demand.

    And demand for inner ring Sydney property of any sort would be pretty high, as I understand it.
     
    thatbum, 7th Jun, 2017
    #7