#127: The A to E of property success: "Area" and how location is key, "Bungalows" and other period styles that Australians love, "Capital" growth is key, "Dirt" and how the value is in the land, & how to make the most of "Equity"


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In this week's episode Dave, Cate and Pete take you through:

Market update
1. Handicaps for ‘subject’ to clauses
The Property Buyer shares how agents are getting creative when dealing with a pool of buyers who don’t want to submit unconditional offers. One particular agent is sharing a ‘handicap list’ for ‘subject to’ clauses. For example, his agency could factor in an additional $5,000 on top of the purchase price for a building and pest inspection, $10,000 for an extra 60 days before settlement, etc. The trio discuss the merits of this approach.

2. House prices have fallen in 7% of Australian suburbs
During the March peak rate of growth, only 1.4% of suburbs posted a decline in values. This has sharply risen to 7%. Mining towns and some regional markets have reflected some of the largest drops. However, markets at the higher end have also weakened. During the three months ending in October, house prices in some unexpected prestigious Melbourne suburbs of Armadale, Mont Albert and Blackburn posted declines of 0.5%, 0.4% and 0.1% respectively. The trio discuss whether this may be due to high rise building releases or lack of attention from foreign buyers while overseas travel and international migration is on hold.

The A to E of Property Success
A – Area (location is key)
Picking a great location is critical! You can change the size of the block and the dwelling on top of it, but you cannot change the location. The trio discuss the features to target if capital growth is your aim. Although the pandemic has changed the way we do business, the CBD will offer the much-desired amenity and being close to a source of water and having a nice view can also increase capital growth prospects. We can’t under-estimate people’s love affair with their city reigniting as things open back up either.

B - Bungalows (and other period styles)
The trio discuss the pre-war properties that Australian’s love and can’t get enough of. They are in limited supply and have highly desirable features such as high ceilings, big rooms, timber floors and are solidly built. The scarcity factor drives competition and growth for these properties, and also makes them very difficult to place a ceiling value on. It is for this reason that many of these period stunners fetch record high prices under competition.

C – Capital growth is King (or Queen)
When it comes to residential property, most people make more money from capital growth than from yield. The power of compound growth means that a difference in 2% capital growth could equate to a $3M differential over the course of a full working lifetime for your retirement kitty. If you are looking for rental return, commercial property could be an attractive option. However commercial property is not as resilient to economic shocks as residential property, this is because people always need somewhere to live. We may see a shift, particularly in the CBD and other centres where commercial will convert to residential.

D – Dirt (the value is in the land)
The appreciating component of the property is in the land and as the trio discussed in episode 125, it's not about the size of the land but the value of the land. If you’re looking at a development, you need to consider features other than size, like frontage and heritage overlays, (among many other facets).

E – Equity (use it!)
The power of capital growth is that the equity built up in your asset can then be used to leverage into further investments, whether that be purchasing another property or shares. Unlike rental return, which could be squandered with bad spending habits, capital growth cannot be spent!

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