When the R-codes were changed 18 months ago, only a few savvy investors knew of the effect it would have on investment property in Perth. The R-Codes were changed to provide multiple dwelling approval for apartments built on properties that were close to amenities and transport and zoned R30 and above.
The more savvy of investors immediately started buying up properties zoned R30 and above that qualified for higher density development. The sellers had no idea that their properties were worth as much as they were, so many investors bought property that had been zoned for a duplex or triplex and obtained approval for 6-8 apartments on them.
In other words, those who got in early made a lot of money. Some saw returns of 40% or more and many have seen even higher returns since prices began to uplift.
Nothing That Good Lasts Forever
Of course, no deal this good lasts for very long. This one actually lasted longer than many thought it would. The prices began to rise even as many real estate brokers didn’t know what they were sitting on. They used comparable pricing to set higher prices on many properties, not knowing the full extent of what they were selling.
Now, the prices have finally stabilised for most areas. People who buy an investment property around inner Perth that can be developed into 6-8 apartments are paying a premium price for that property.
This is raising the prices of such properties and pricing smaller investors out of that segment of the market. For the most part, if an investment property is in the inner Perth area, close to transport and amenities, less than 15km out and eligible for higher density, it is going to cost a lot more money.
That effectively shuts out the small investor who doesn’t have the financial resources to develop the property to its fullest, because the initial price will cut into the profits of someone who can’t develop it.
The main effect we see, verified by our buyer’s agents and property managers, is that there will soon be a lot more apartments in Perth suburbs such as Bayswater, Maylands, Cloverdale, Victoria Park and Riverdale.
Apartments in Perth?
Perth buyers weren’t ready for apartments 5 years ago, but they are beginning to change their minds. A villa was a much better investment property than an apartment in the Perth area but rising house prices and less time for gardening have made many Perth residents decide to fully embrace the apartment lifestyle.
Luckily, instead of the high-density monstrosities that are going up in the eastern states, Perth still prefers 12 or less units per apartment building. This keeps strata fees and common areas to a minimum.
The Current Market for Small Investors
Those who want investment properties but who can’t afford to develop 6-8 unit apartments are, indeed, shut out of many Perth properties. However, this is not all bad news for them. Those who want to develop smaller properties such as duplexes or triplexes simply have to find them in outer areas where people still favour villas over apartments.
Did Large Investors Miss Their Chance?
No. There are still some good bargains. You just have to look harder and invest more. Nobody is going to turn 40% right away, but there is still money to be made.
Jarrad Mahon is the Director of Investors Edge Real Estate. Their property managers and buyer’s agents specialise in investment properties in the Perth area. For more information, call 1300 472 427 or visit their website: https://www.investorsedge.com.au/.