The effect of new developments near your property

When a new residential development goes up near your own apartment, is the net effect on your investment good or bad?

The new development increases the value of the area in general and invites further commercial development; conversely it makes your own apartment look a little shabby in comparison and all that that entails.

I'm currently looking at a renovated apartment in a building constructed in 1988. Across the road a new residential complex is underway and due for completion in 2020. Could really benefit from some PCers wisdom and experience!

 

In the current market dynamic, it's more likely bad than good. It increases your competition (too many similar assets in the area) and these new developments are often being bought high by inexperienced investors on lower incomes (people who want to buy/invest yet can't afford a house in a desirable location). With lending tightening, rates trending up, possible settlement issues, oversupply - it's a problem. If developers can't sell these assets and they discount, you will then be competing with that discounting. Obviously, this won't apply everywhere and it's hard to know without the details but generally speaking, development isn't going to help you.

In Ireland, new developments made up the bulk of price falls and a lot of investors lost out trying to compete with oversupplied assets and developers who slashed prices when things got difficult. On the other hand, good assets in good suburbs performed well and were reasonably crash proof, or at least recovered fast. I'd consider reinvesting in another asset elsewhere e.g. a house in a good suburb dominated by existing owners. Avoid development-heavy areas as more buyers in these areas will be vulnerable to any economic shocks, few have paid off the mortgage, they're often lower income earners etc.

 

It really depends on many factors and what timeframes are involved.

For older apartments, it's bad in the short term as there will be a lot more choice for perspective buyers and tenants. In the long term, more population will be a good thing and if your area starts attracting apartment dwellers segment, you may be benefit.

Honestly I wouldn't spend too much time thinking on those lines while evaluating a perspective purchase.

 

Too many variables here to say conclusively. If your horizon is longer term and the new devt is not too similar to yours, then it can be a good thing as new developments bring population, gentrification, small business yo service the anticipated higher population etc...
On the flip side, if it competes directly with yours and you are looking to sell, then it may he bad news.

 

I have a couple of older flats in a good part of Sydney - Marrickville. There is a lot of new stuff being built in the vicinity. I'm expecting when they all come on line the value of my places will drop and it will be harder to get tenants because of the increased supply - the owners of the shiny newer flats will need to start with low asking prices to get tenants. A year or two down the track, it will all work itself out because it's a good area.

 

I cant vote because it will dependent on what is built/product

MTR

 

what if it is 5 storey apartments?

 

Smaller city older apartments that look tidy, presentable, are brick and have less than about 20 units will benefit greatly from new developments especially if it is less than 15 minutes from the city centre. What happens is because the new apartments will be a lot more expensive than the older apartments then this will effect average sale prices in the area. Rent prices will also be more expensive in the new ones so this will piggy-back the older apartment rents. The older apartments will not see rent increases initially but after a year or so they will rise and be piggy-backed by the new apartment prices. Rent prices seem to fluctuate more than sale prices though and can be affected by a number of elements.

Sale prices for the older apartments though can greatly magnify in 6 months+ after the new apartments are sold even if still been built. This scenario is magnified if there are other developments going on in the street or nearby area for property and commercial. I'm not sure if this would be the same in Sydney and each suburb there is different but I would assume it would be similar. I know this as I have experienced this myself.

 

Was originally going to vote good, however I thought it was "new development" land release or similar. Not enough info to go on about the rest of the suburb and surrounds.

Other comment is the under construct development must be huge. Completion more than 2 years away is a long timeframe.

 

Thank you all for your great comments. To answer those of you who don't have enough details to go on:

This is the apartment: 日吉 Linda 1415 - 東京のデザイナーズ・リノベーション・おしゃれな賃貸ならR-STORE
The asking price at today's exchange rate is AUD$667,000.
30 minutes from central Tokyo, you can see why Tokyo is considered cheap compared to other cities.

The good
– The apartment is in a popular area of Yokohama Japan called Hiyoshi, 20 minutes by train from Shibuya Tokyo.
– The apartment is a 10 minute walk from the station.
– It's on the top floor of a large 14 floor building. The listing says there are 250 units in the complex.
– It's been freshly renovated.
– Strata fees are surprisingly low.
– A new shopping centre is being constructed a stroll away.

The bad
– A new multipart, 20 storey urban complex is going up across the road. See the included photo.
– It will rise above and remove the views to the horizon on the east side of the 14th floor apartment. and adversely affect natural light.
– Despite the renovation of the unit itself, otherwise the building feels old.
– The two-lane road that separates them is a major congestion problem. Yokohama city has been backflipping for years on how to overcome the issue. They can't widen the road in this section, no easy solution.

I inspected the apartment last Monday. The ceilings are lower and space tighter than it appears in the photos (always the case but surprisingly so here). The congestion problem on the road was evident to the degree that the exhaust fumes were quite bad and I was reaching for the Japanese face mask. With all the developments going on (residential, supermarket, retirement home, primary school all in the next three years on the same road) it's going to get worse. There is a lack of green space too. Personally I wouldn't be keen on raising my children here.

There are a lot of things going for this place, even if it will be the poor cousin to the one across the road. Would you buy?

 

@JDP1 @MTR @BarneyRubble @standtall FYI I've clarified some details above.

 

Another reason small complexes will do well is the building to land ratio is usually good (more than 50% land) where as the newer style apartments are usually much higher density and therefore a much smaller land allocation per unit holder. Land goes up and buildings go down in value over time.

 

good point, that is something worth noting and I never thought about before but yes it does make sense now thinking about it.

 

Plus it has a TV in the bath!

 

It's really is a house sized apartment, ceiling is a bit low though.

 

Especially true in Japan, where the homes are only built to last 30 years. It's a combination of living in a country plagued by earthquakes, and the cultural need for the pure and new over the old and used. On Friday an agent here said to me "Buy new. Renovate in 10 years. Knock down in 30." Very different to, say, the UK, where a well maintained 100 year old home can have more value than a newly built one.

 

It depends. The new buildings / apartments can be much worse (smaller, no swimming pools, gardens, tennis courts, gym, security, closer to the main roads/railway (noise), etc.), so in this case the old one may look much better and win the competition.