Problem of investing for re-zoning potential?

Hi everyone,

Often hear a lot about buying a house in middle/outer ring suburbs with potential of rezoning, preferably from low density to medium to high density dwelling zone.

However, this article I just read

https://www.rba.gov.au/publicatio…/…/2018/pdf/rdp2018-03.pdf

says that when a neighborhood has a high amount of medium to high density dwellings (such as Townhouse and Unit), this will keep a lid on the growth of land and house price. (compared to nearby suburbs with similar fundamental).

This is because more people can pay less for "the right to live in the suburb". Even house is always desirable, they are at least given other affordable choices of dwelling. And this will affect rental and sales market.

My understanding is:

*Immediate effect* of rezoning - when the area is just rezoned to higher density area, the land and house price can experience a decent growth,

that is because the land can now have a higher potential rental income, when the rezoning open up possibilities for things like development, subdivision, demolish and conversion (to townhouse or apartment), granny flat, dual occupancy.

**But in long run** - when the place is totally transformed into a congested neighbourhood full of NEW townhouse and apartment (or NEW small house), the house/land value growth will start hitting a plateau for a long time, due to the following reasons:

For house buyers, they would walk away because the ideal house they prefer should be in a quiet and spacious neighbourhood, without neighbours' peeking.

For renters, they might find the house cannot offer the level of privacy it should has, when the house is surrounded many medium density dwellings. So why bother to pay a premium of rent when there are plenty of afforable townhouse.

In conclusion: only buy somewhere with potential of rezoning. But when that place has been rezoned and "redeveloped" for a long time, and seen a surge in middle - higher density dwelling supply, be careful!

Is this understanding flawed or biased? Appreciate any thoughts.

 

I don't really see it as a "problem". Basically what you're saying is that long term growth after a rezoning has been well and truly realised won't be as much as when it happens - to which I would say "duh".

There would also be a considerable window of time between the two events or phases of suburb development, so I can't see how there's any risk of missing the boat unless you fall asleep under a rock for 10 years at a time.

 

Sorry for the ambiguity.
My question is what usually does it means by "considerable window"? would it be fair to assume 5 years for an outer ring surburb?

I mean, it seems whenever the council announces any redevelopment plans, you could notice immense amount "hype" and investors go into a frenzy. Price level go up quickly for a few years before staying still for a long period of time.

And long before you could "see" the total transformation in the surburb, all the price growth is already "priced in".

So how does an investor discern how much unrealised growth ahead of the market that has yet to realise?

 

But this should be obvious for anyone that's keeping even a cursory glance at the market or property. That's why I say you would have to be living under a rock for a decade not to notice and miss the "window".

You discern how much unrealised growth in the same way you did when you first bought in - knowledge of the market and the property.

I really don't understand why its an issue or problem. Its not like a moving train where you have to jump off at a certain time or lose everything. If you don't sell at the optimal time, its not like prices will fall to below the baseline all of a sudden.