Zoning and Capital Growth

G'day guys!

If you aim for strong capital growth over time would you only consider suburbs that are zoned for houses and townhouses?

My understanding is I should avoid areas where zoning would allow construction of apartments due to over supply issues. For Perth specifically, does it mean I shouldn't consider suburbs above R40?

I'm just trying to figure out how to factor in suburb zoning in my DD.

Many thanks!

 

@Realist3 In melbourne, areas zoned for apartments would be priced more due to the fact the return on the development is higher. They rezoned many parts of port melbourne making many owners who held to those properties multi millionaires. There was an example recently of a place in glen waverley in melbourne which sold 1+ million more in one year highly due to the rezoning.

Properties zoned for apartments in suburbs do are not necessarily mean you should build apartments as it allows higher heights in the dev, many developers just add another storey and add an extra townhouse or more making the return higher.

 

So if you focus on capital growth, and want to buy a detached house, does zoning even become relevant? Should this form part of my research?

My strategy is just simple BH.

 

Redevelopment of areas, new highways or extensions of shopping malls or new shopping malls normally will trigger new rezoning of areas.

For me I read updates on council websites discussions papers on growth etc and updates on new commercial re-development as buying a property that is likey to be rezoned could mean a jump in capital growth in a very short period of time

 

Its extremely important because it affects the value of the underlying land. The development value of the land itself might be the highest and best use - which affects the growth (and buy-in price) in the future.

 

Thanks a lot.

So you would mostly focus on new infrastructure and developments rather than on the current zoning?

 

But that's only if you plan to develop/subdivide, right?

Also blocks of land that can be developed/subdivided are more expensive so that's out of my budget anyway.

 

I think if u can find land or properties earmarked to be rezoned

 

Cool, thanks.

I was looking it from the wrong perspective by now. I thought I needed to focus on LMR areas, where only houses or townhouses can be built.

 

....but you are buying to land bank basically, if there is over supply of apartments today so what you are not developing the land today right? in 10 years time it may be irrelevant. If you purchase a property where you can add value due to the zoning you will always be able to add value, the trick is timing when the market is ready for the product

 

Yes, you can........ we went through this in WA recently 2013/14 where there was State housing land in areas close to the city which was earmarked for rezoning and basically values went through the roof during this period as investors started jumping in.

 

Not really. Land with development potential can experience strong capital growth. You can buy in a downturn and sell in an upturn and get a tidy return. Development sites in City of Belmont in Dec 14/Jan 15 were selling for crazy prices. Much higher than non development sites

 

Buying land with the ability to add value due to zoning is a very good strategy, the problem is if its a land banking exercise it is likely it will be negatively geared property so you need deep pockets. IMO if you can buy and develop straight away or put together a DA and on sell to the builder you are way ahead.

Another option to try to source land that is earmarked for rezoning and this will require more work ie phoning councils etc. and the risk is it may not happen.

MTR