(Inner City vs Burbs)

This was emailed to me today, reference included in doc

This is exactly what I am promoting to my daughters

Interesting trends to emerge in the past few years is the rise of the first time investor.
Younger buyers jumped property ownership and went straight to owning an IP.

In an expensive market where prices are rising, it makes sense to get in and build some equity. Once you’ve been in the market for a few years, you can use your equity to buy something you actually want to live in.

In the past, I think people just moved out to the outer-suburbs for a while. But these days, the outer-suburbs are a lot further out than they used to be. Unless people are willing to accept a long commute, they’re better off becoming investors.

And so in recent years we’ve seen a strong emergence of a first time investor class.

Digital Finance Analytics
In the orange line in the chart below, you can see the strong growth in first time investors.



If you add these estimates back to the official first time buyer data (the blue line), you get the yellow line – their estimate of actual first time buying.

And what it shows is that there’s no first timer crisis. First time buying is as strong as it’s been in years – at least since the grant induced spike in 2009.

Don’t worry about the kids. They’re ok.

And where are these kids buying. If they’re not in the market for a suburban block, what are they looking for.

Thankfully, DFA have had a look at this question as well. Here are the results:



Interesting results here. Almost no first time investors (orange bars) are looking at a house on the outskirts of the city, and very few are looking at suburban houses.

The big draw cards for young money are city-edge units and suburban units. CBD units also rate well. This isn’t too surprising. A lot of that will be driven by the cheaper price points that units offer.

Still, a lot of inner-city apartments aren’t that cheap in the scheme of things. Not really much cheaper than outer-suburban houses a lot of times.

So it looks like there’s a preference at play. I think younger buyers probably “get”, and lower maintenance costs can make units attractive.

There’s also probably a fall back play involved. If they fall on tough times, they probably figure they can move into an inner-city apartment if they had to. That’s probably not an option for an outer-suburban house.

A lot of this helps explain the popularity of inner-city apartments in recent times. They’re very attractive to young buyers.

 

Maybe the trend will change in a few years, but I've certainly noticed a preference within my social circles (mid 20s to early 30s mostly) for inner city apartments or CBD adjacent living. Even the ones popping out kids are scrounging to find the money to get a 2 or 3 bed, preferably 3, rather than moving out to the 'burbs.

Personally I've lived 'burbs, satellite suburb and I'm currently inner. I've got no plans on going back any time soon. There are so many lifestyle benefits that I don't currently think are worth sacrificing for a bit more space.

 

Lifestyle benefits are great.
Also think that perhaps inner city will also be a far better investment choice moving forward??

 

RE:

The big factor that gets mentioned among my friends in QLD is commute.
Say you live in Mansfield, which is zone 3 and pretty $$y by queensland standards. A median 3br house is $573k. within my social circles the "preferred spend" is low $400's for an apartment, high 400's for a town house or house.

Commuting to work via public transport is $4.66 each way.
($4.66 * 2) * 240 = $2,236.80 a year. Its also going to be about 1.5 hours a day spent on public transport.

The alternative is to drive, but "cheap" parking (book online + book in the valley & walk to work) is $14 a day = $3,360 a year. Before factoring in all the other running costs of a car. & about 1 hr a day spent driving and 20-30 spent walking to work and back.

I mean this only applies to people who live and work in the CBD (why would anyone live inner if they didn't though?) But when doing the math, most of my friends seem to be ditching the second car & living within 10-15 minutes of work. More $$ & less space, but the money seems to work out after cutting their commute costs & its normally worth it for the hour(s) they get back every day not spent commuting.

 

likewise. I live in an inner apartment and realistically could afford a nice house on decent block only say 2 km further out let alone 5 or 10km and even then I choose the apartment option.

for those who know perth until 8 months ago I was staying in a pretty nice half floor apartment in kings park for 18 months or so and for that money I could've rented a beautiful fully modernised and extended character home in Mount lawley with a pool and the apartment won hands down.

appeal of inner living is not just due to apartments being cheaper than houses, there are growing number in perth and many over east who prefer it regardless of price.

 

how would 2 small dogs go in an apartment, that's the only issue I would have?

 

I read a study recently that showed commuters spend at very bottom end 5k and top end 20km driving to work everyday, depending on distance, parking cost etc and that doesn't take into account depreciation of car, just finance Costs, maintenance, petrol, parking etc. if you eliminate the need for a car completely or go from 2 cars to 1 in the household the saving from that alone would pay for the additional cost to live closer to town.

this is especially relevant in perth where inner properties carry a much smaller premium than sydney and melbourne and so are a realistic option for a fair few people

 

a lot of apartment buildings allow dogs, often with certain parameters re size etc. if you choose a place near parkland eg Hyde Park or Langley Park it is pretty manageable and I know people who do it.

the pet issue is a potential deal breaker for some though but ultimately no option be it house, apartment, townhouse etc is ever going to be suitable for everyone out there.

 

I'm not sure RE investment choice. I think the "right" properties might do well (e.g. not in a mega tower that's constantly crowded), but my gut feeling is that houses are still going to do better from land value. Could be entirely wrong though.

That said, I'm seeing a lot of fear up here RE over supply at the moment.
As an example its not what I want (want a PPOR and its not quite right for me) but i've been watching a 2 bed, 2 bath, 1 car that's:

• 3km from BNE CBD
• Massive new public transport infrastructure project planned nearby
• Clearly motivated seller who isn't/wasn't an investor
• Listed below what they bought it new for less than 3-4 years ago (so plenty of depreciation left) & it will sell for probably $5-10k below that
• Low body corporate
• Small building
• 5.2% gross rental yield would be achievable IMO
• Well setup for housemates or a young family (bathroom etc is between the bedrooms so they don't share a wall)

And its just languishing on the market.. A property that with a 20% deposit should be I think CF+, meanwhile people from down south are buying up meth shacks in places like Inala for similar pricing... A suburb that is:

• Nowhere near the CBD
• Terrible yield
• Surrounded by new spots for development
• Expensive insurance
• Low quality tenants (people who can't afford to get out of Inala.)

I mean its got all the negatives, its a suburb where SBS want to film a season of Struggle Street.. Without from what I can see, any positives.

I mean maybe Brisbane will sprawl out some day like Sydney and Inala will be our Mt Druitt, but I'd hazard a guess you'd do better with a buy and hold somewhere better, with a better yield (less cashflow impact) while waiting for that to maybe happen.

This is purely anecdotal, but when I chat to agents it seems like most of that stuff is being bought up via southerners.

 

they're have to share a bed

 

This is exactly what a lot of my friends seem to be doing. We've still got the two cars, but we would now be doing under 5,000km / year combined, so having 2 is really a silly luxury & we will probably ditch one soon.
Personally I'm saving around $2,400/year just on fuel, so I imagine my actual savings once we ditch it will be more like that $5k/year number.

The real saving for me though is time. I never realised how much of an impact sitting in a car 1 - 1.5 hours a day was having on my mental health.

 

Same i save $1500-$2500 in transportation costs yearly and walk to CBD for work (free tram zone once you in the CBD). you save money and exercise. i probably only use my car once a week purely for property inspections.

 

you have a Westie, so do I, cute

 

What do you find to be the main attraction for apartment?

Most of my friends who likes inner apartments prefer the city buzz and low maintenance. They are also usually single or childless couples.
As for me, it is the low maintenance and security (who want to rob your apartment on level 5 is there are 10 others right on ground?). Convenience currently is a plus with 5 mins walk to station and bus, however a nice house next door would still have the same benefits.Strata turns me off though, plus smokers here and there and some OC members that hate dogs

 

I'm not Sanj, but the big ones for me are:

• Security. I travel for work a bit and my partner feels safer "home alone" when we are several storeys up, cameras everywhere, minimum 2 swipe card points to get in and to our level, thick fire door to the corridor.
• Convenience. I can walk to shops, bars, work etc in 5-30 minutes. My social life is so much better here & I imagine this is what it was like back in the good ol' days before we realised how bad drink driving was and how many people it was killing. even $$y cabs are only $10-15 to get to wherever you want to go.
  
• No maintenance hassle, body corporate sorts almost everything.

I've never really had any issues with smokers or neighbours. Had one neighbour who liked to have a few to many glasses of wine and belt out show tunes from their balcony, but I'm pretty sure they were politely asked to stop.

I think it really varies by building though & big buildings from what I've seen tend to be a bit worse, especially ones where they allow blatant overcrowding, 5 students in a 1br time scenario.

 

At what price point does a city transform to an apartment-city like Singapore and HK where only the super rich live in standalone houses? For Perth, I would say another 20 to 30 years. Probably a bit sooner for eastern states.

In 10 to 15 years, current low rise walk-up apartments on big blocks will end up being 20 or 30 storey complexes. I don't see a supply issue for units anytime soon, land however ...

I think it has more to do with price point and people still disillusioned by price growth for units during the boom and thinking that is the norm. The next few years will stunt unit price growth.

The other thing is that young buyers/investors are so attracted to these overpriced brand spanking new units - they are missing the whole point of "investment"

 

nowhere near that being remotely possible within 20/30 years unless major and drastic changes occur.

we've had state govt infill targets of 47% for nearly a decade now and yet still we barely go over 25% or so, ie 75% of new dwellings in perth are built by pushing the boundaries out further and further and the majority of this 75% are detached dwellings.

 

You are lucky
We are in medium size complex, many of the renters smoke. Up down left left right. We can't open our balcony or windows without smoke coming through within one hour. Politely ask? Neighbour be damned as it is their "rights" to smoke in their lot, and then you have these people throwind buds to unit downstairs without considering the occupants

The smoke and the pets rules is the reason why we are moving to house next year. If this doesn't work maybe i should find acreage!

@JohnPropChat Singapore has limited land hence apartments, it also has great transport to support apartments slightly far away. Australia....need better quicker transport. If teletransportation machine got invented today, i bet city prices wont be that crazy

 

yeah an old standalone house on 2000 odd sqm of super prime land in singapore just sold for around A$120m. singapores another planet entirely,

 

Agree. Singapore/HK was probably an extreme example. I should have said predominantly apartment living where the average Joe won't even consider a standalone house simply because they are too expensive. This oversupply of apartments is also worrying as to how it'll affect the overall housing market.