Top investment strategies for Sydney’s growing urban trend

Din Tai Fung restaurant at World Square in Sydney

Din Tai Fung restaurant at World Square in George Street, Sydney

“The mother of all evil is speculation” – Gordon Gekko, Wall Street, Money Never Sleeps

As major capital cities in Australia become ever more densely populated, many urban dwellers find they are spending more time in traffic jams, hustling for car space in shopping malls, prefer to eat home rather than battle a restaurant crowd and buy groceries at odd hours to beat the weekend rush.

Being time poor, many residents are now choosing to live close to or even right where these amenities and public conveniences are located. In recognition of this growing trend and preference of urban residents, many property developers are now constructing residential projects known as “integrated developments” or “mixed use development” – apartment units that come with all the modern conveniences such as reverse cycle air-conditioning, gymnasium, swimming pool, security, concierge, secure parking AND the added convenience of retail shops, cafes, restaurants, cinemas, banks, post office and yes, a big Coles or Woolworths all conveniently located within the same development.

The obvious appeal of this type of development is the absolute convenience for time poor residents where saving a half hour hunting for a car park just to bank a cheque is proving irresistible.

You can post a letter in an instant and treat Coles, the local butcher and green grocer as your private fresh food pantry that is accessible at any time of the day. Don’t feel like cooking tonight? Catch an elevator from your apartment and walk into an endless array of food outlets and restaurants.

Brand new Dee Why Hotel at Dee Why Grand - why drink and drive when you can walk 30 metres home to your apartment

Strategies to investing in mixed use developments

Before rushing into the next mixed use development even if it appeals to your specific needs, I would suggest doing research in the following specific order:

1. Understand the entire demographics of the suburb where the mixed use project is located

2. What is the reputation and experience of the developer?

3. Are there local attraction apart from the mixed use development itself?

4. The composition of the mixed use development

5. The type, position and floorplan of the apartment

6. Does the apartment have a secured car space and external storage?

7. The price of the apartment

Lets examine each element in turn:

1. Understand the entire demographics of the suburb

An understanding of demographics include the profile of current and would-be residents. Will this project appeal to families, young executive market or will it likely attract the entire population of students from a nearby university? This issue is important because it determines and may eventually dictate rental and capital growth trends of the project and in some cases the entire suburb. Some apartment developments which are close to the CBDs attract a very high majority of transient occupants.

Although it may prove difficult to predict occupant profile, using a good dose of common sense such as observing the profile of existing residents, the type of commercial businesses in the area, local attractions such as parks, beaches and prestige schools will provide an indication of the type of resident that would be attracted to living in the area. Other important factors will include the history of the suburb – does it have a strong capital growth record and attractive rental market for investors?

Stockland Group's The Village in Balgowlah, Sydney

Stockland Group's The Village apartments and shopping centre in Balgowlah, Sydney

It should also be observed that some suburbs may have a chequered past where there is a history of crime, lower-end businesses and “old and tired” housing. A landmark project can have incredible transformation powers to completely gentrify the entire area, fuelling the onset of new cafes, restaurants, trendy shops and attracting a whole new generation of investors, residents and visitors. Therefore, a savvy investment strategy can include trying to determine the effects of a mixed use development on an existing suburb which may be lacking in a local attraction or amenity. Getting in early can eventually mean having the benefit of both upside in capital growth and strong rental demand.

Top Ryde City Apartments and Top Ryde City Shopping Centre, Sydney

2. Reputation and experience of the developer

The skills and experience of the developer is paramount for mixed use projects because it is more than merely building a few hundred dwellings to cater for housing needs. The developer must have the skills and experience to do extensive research in understanding supply and demand statistics of the location and suburb, local council requirements and likelihood of approval, traffic logistics and investor profile.

It is wise to check and examine similar projects undertaken by the developer, the location of these projects, the quality of its finishings, the on-going effectiveness of its management of the apartment complex, their occupant profile and whether these projects were successful and well-received in general.

Pacific Square, Maroubra junction, Sydney

Apartments at Pacific Square Shopping Centre has transformed Maroubra junction, Sydney

3. Local attraction apart from the integrated development itself

It is important the mixed use development has its own appeal and self-sufficiency. This factor is important where the is a genuine lack of amenities and local attraction as mentioned-above where this single development may (or may not!) spark the entire gentrification process. However, if the project is located in an area where there are other attractions such as beaches, cafes, restaurants, parklands, schools, hospitals and shopping malls, these local attractions will also help in making the integrated development more appealing.

Dee Why Hotel in its former glory

BEFORE: Dee Why Hotel in its former glory

Personally, I tend to look for the single-most important influence of the suburb. For example, if the development is close to beaches, then it must cater to the profile of locals and those who want to live the beach and surf culture. Developments which are close to CBDs must have good public transport links to cater for people who are attracted to living closer to their workplaces.

Dee Why Grand, northern beaches Sydney

AFTER: Dee Why Grand - set to transform Dee Why's business and commercial precinct along Pittwater Road

4. The composition of the mixed use development

Having identified the mixed use development to invest, it is important to understand the following information:

  • How many residential apartments in the entire development in total?
  • How many blocks of apartments in total?
  • What is the ratio of 1, 2, 3 bedroom apartments and penthouses in the entire development?
  • How many retail shops and commercial outlets in the development and the type of businesses?

The information above will provide an indication of the qualitative and quantitative aspects of the development, that is to gauge both occupant profile and living density of the development. Smaller developments can have less than 100 apartments while larger ones can have up to 500 apartments. More importantly, it is also to estimate dwelling supply in addition to existing housing in the suburb when the project is eventually completed.

Rhodes Shopping Centre

Global ICON - IKEA has put Rhodes firmly on Sydney's map

Some new skyscraper projects in Melbourne’s CBD consists of a majority of studio and 1 bedroom apartments. These projects will appeal to younger occupants and a more limited market.

Having decided on the mixed use development, the type of retail and commercial businesses are the most important factors in determining its success because they will not only cater for the residents of the development but also to the public. Strong brands such as Coles, Woolworths, Harris Farm, Telstra, Optus, Westpac, Commonweath Bank to name a few not only indicate confidence in the development from corporations which would have done its research before signing on multi-million dollar leases but also a sign the developer has effectively done its due diligence. Retail and commercial tenancies provide a strong indication of the level and type of public appeal for the entire development.

5. The type, position and floorplan of the apartment

Type of apartment

Due to rising construction and marketing costs among other things, new apartments in general are becoming smaller in living areas. Depending on whether one is buying as an investment or owner-occupier, choosing whether to invest in a 1,2,3 bedroom or penthouse apartment is important. Smaller apartments are easier to rent than 3 bedroom apartments and penthouses which are more likely to appeal to owner-occupiers.

Position of apartment

The position and aspect of an apartment in relation to others in the development is of paramount importance. Fronting a busy and noisy street or facing serene district views, having the favour north-east aspect, quiet courtyard and high-rise living all have different appeal and price factors.

Floorplan of apartmentApartment floor plan

Apart from size, good floor plan takes into account good use of space and design which all contributes to the comfort and convenience of occupants. Generally, it is good to stick to conventional layouts and to avoid unusual and impractical shapes.

6. Does the apartment have a secured car space and external storage?

Some one bedroom apartments in newer developments do not come with a secure car space. Depending on the location of the project, one may be able to get away with tenants who are indifferent of a car space. Personally, I never invest in apartments that do not have car spaces irrespective of how much it has been discounted. External storage is a great facility to avoid clutter in increasingly smaller apartments, especially those in the CBD areas.

7. The price of the apartment

Many investors look at the price of the property and make decisions based on this criteria. To me, price is the least important and should only be considered when all the other boxes above have been ticked off. In short, if criteria 1 to  6 are unsatisfactory, there is no point in even considering the property no matter how reasonable price may appear. A “cheap” price to me signals danger and there may be hidden flaws that is not immediately obvious. Even before researching on price, investors should understand the largest single on-going cost of the chosen apartment – strata levies. Mixed use developments with its array of added conveniences and facilities may attract higher maintenance and administrative levies and these should all be considered and factored into the asking price.

To assess reasonableness of price, I generally use dollar per square metre of living spaces (internal living area plus balconies, courtyards etc but excluding car spaces and external storage) as a guide for comparison between apartments. Try and work out this measure for different suburbs to get a feel of how much an apartment cost, remembering that price is only relative whereas the dollar per square metre is a more absolute measure.

Some of the newer developments in Sydney’s CBD are asking for up to $10,000 per square metre while developments in suburbs which are further away but remain popular have significantly lower prices.

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Note: All views, comments and opinions in this article are general in nature and do not constitute legal, investment or financial advice.

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