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Sydney’s top suburbs for terraces

134 Riley street, Darlinghurst 1

FOR SALE: 134 Riley street, Darlinghurst, Sydney

Sydney residents have had a long love affair with terrace houses from the early days. It is warm and comforting sipping tea in a courtyard and leaning over the wall to exchange notes about what’s on the dinner menu with a neighbour.

Many older style and dated terraces in some Sydney suburbs have since been transformed by owners who have a knack for clever home designs, small renovations and refurbishment. Period features are being replaced with the latest modern conveniences and state of the art TV and sound systems. The result for these carefully planned upgrades are often spectacular ~ modest from the outside due to limiting restrictions in changing the facade but with “wow” factor interiors.

Selected Sydney terrace suburbs by median prices as at April 2010 are as follows:

Rank

Suburb

Distance from Sydney CBD

$

1

Paddington

3

1,235,000

2

Glebe

3

850,000

2

Surry Hills

3

850,000

4

Alexandria

4

780,000

5

Redfern

3

752,500

6

Leichhardt

6

700,000

7

Erskineville

5

670,000

8

Darlinghurst

2

595,000

Source: Australian Property Monitors, April 2010

Comparing statistics from a year ago, selected Sydney terrace suburbs by median prices as at April 2009 were as follows:

Rank

Suburb

Distance from Sydney CBD

$

1

Paddington

3

1,230,000

2

Bondi Junction

6

900,000

3

Darlinghurst

2

865,000

4

Surry Hills

3

792,225

5

Glebe

3

770,000

6

Darlington

2

705,000

7

Redfern

3

700,000

8

Newtown

5

650,000

Source: Australian Property Monitors, April 2009

What I like about terraces

  • Personally, the close proximity to Sydney CBD for most of the top terrace suburbs is the key attraction. From an investment point of view, a good quality terrace in a top Sydney terrace suburb has experienced strong capital growth and will continue to do so in the future due to its scarcity factor. Rental yields will not be high due to the price factor but over the long run, capital growth will more than compensate rental returns.
  • Terraces appeal to a wide spectrum of owners and renters alike, especially in Sydney as these dwellings allude its own character and charm. The profiles of these occupants include young professionals, Sydney’s vibrant gay community, people who work in the arts and creative industries, food lovers, high-fashion followers and hospitality professionals who enjoy inner city living for its array of notable cafes and restaurants, shopping and convenience of commuting to work. For investors, there is rarely a shortage of quality tenants for this type of dwellings.
  • Some terraces are old and dated and herein lie enormous hidden opportunities to upgrade and add significant value. Astute investors can significantly create new equity by carrying out well-designed renovations which appeal to its target market.

What I dislike about terraces

  • Most terraces do not come with car space and being located so close to the city, parking can often be a nightmare although certain suburbs have resident designated street parking. Even then, most terrace suburbs have very limited parking and streets can sometimes be narrow and extremely congested with vehicles which affects the streetscape of the suburb. It is best to always find a terrace with at least 1 car space which is usually a lock-up space within the external compound.
  • Terraces are not free-standing dwellings and some investors will never commit their investments to these type of housing. Those who invest in terraces are usually owner-occupiers who “fall in love” with terrace living and the lifestyle factor. From an investment point of view, the price of a terrace can usually offer alternative investments in free-standing dwellings with ample car space and a huge backyard in good suburbs and locations.
  • The long rectangular layout plan for most terraces means living areas are usually separated as opposed to the feel of an open concept that a house with a large backyard can offer. However, clever floor design can sometimes integrate living spaces to overcome this constraint. Staircases and corridors can be very narrow and it is not uncommon for bedrooms to be located over 3 levels. The size of backyards and courtyards can be small and usually further reduced and compromised by the secured car space.
  • Some terraces only come with 1 bathroom and toilet. Moreover, this facility may sometimes be located on the first or second level and is not ideal for the convenience of guests and may affect the privacy of occupants if guests have to wander upstairs. On the other hand, if this single bathroom and toilet is located on the ground level, then it also affects the convenience and privacy of the occupants in the event bedrooms are located on the first or second levels. This kind of layout may not be suitable for families or occupants of more than 2 people and limits the potential tenant market for investors.

How to find positive cashflow properties


House on Sedge street, Braybrook

3 bedroom house by the Maribyrnong river valley in Mebourne

With rising interest rates, it is obvious that positive cash flow properties will become more scarce. Buying into a positively geared properties has the key advantage, apart from having a positive cash flow, is its ability to shield the investor from the ups and downs of the property market. When the economy or the property market is soft, a cash flow positive investment property does not add additional burden to the investor because it is more than paying for itself.

A combination of the following factors can achieve a positively geared outcome for the investor:

  • Low interest rates. It is obviously easier to find positively geared properties in a situation where interest rates are low. However, it doesn’t necessarily mean that these type of properties will disappear altogether.  The astute investor will need to make certain assumptions about where interest rates are trending in order to make informed decisions on whether to fix their interest rate on a mortgage in order to minimise the upward exposure on mortgage costs. Read accurately, a good interest rate strategy can turn properties with negative cash flow to positive cash flow even in rising interest rate regimes because the astute investor has fixed his/her mortgage cost base.
  • Potential growth suburbs within capital cities. Every major city has suburbs which have gone through a process of transformation and gentrification. Picking these suburbs involve looking at neighbouring areas which have experienced good capital appreciation whilst property prices in the surrounding (growth) areas have yet to move with the market. As long as these surrounding areas have good public amenities with good access and are located strategically close to the CBD, they are more likely to experience similar growth in the future like their neighbouring areas did in the past.
  • No land tax. A modest property which is within the threshold for land tax could potentially save the investor thousands of dollars each year.
  • No strata levies. Some investors are more partial to buying landed property over apartment units for this reason. Imagine the amount of savings that can be made over the course of holding an investment property which is free from strata levies.

Among some selected areas identified by experts to  experience good capital growth over the next five years and hence increase the chances of properties being positively geared and give investors an opportunity to refinance are:

  • Chippendale and Darlington in Sydney, New South Wales
  • Maidstone and Braybrook in Melbourne, Victoria
  • Thebarton in Adelaide, South Australia
  • Clontarf in Brisbane, Queensland
  • Victoria Park in Perth, Western Australia
  • Glebe in Hobart, Tasmania


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