I am not a great fan of apartments in the CBD for major capital cities like Sydney
and Melbourne. There’s nothing wrong with them and it’s perfectly all right
for investors looking at prime city locations, close to shops, shopping
etc…however, it may not exactly be the best of investment you have made…

To put it simply, ask yourself whom you will be renting your properties to?

Most developments right in the city centre are high-rise, often 25 stories or more.
The facilities that come with it, gym, spa, lap pools, etc often attract high
body corporate. Most tenants do not necessarily use the facilities and I can
understand why…pardon me for saying this but what can you do in a 25m lap pool
where you cannot swim with more than two or three people at the same time? Make
sense to you?

I have looked at developments on a large scale closely. Most of the time when the
development has more investors than owner-occupiers, there will be short term
situation where many units will be out in the market for rental at one time
after settlement. The enormous number of units available meant that the rentals
could not stack up as previously appraised by property managers. Potential
tenants come along and pick the one with the cheapest rental, often below the
appraised market rental. When that happens, all the other property managers drop
their rent jus to get a tenant. I am sure you can quite figure out what happens
to the cashflow of these properties afterwards.

Boutique developments, when chosen correctly, can help boost your portfolio
exponentially. Usually between 30-80 units, these developments can be really
attractive if location is right in a cul-de-sac and the absence of facilities
within the development meant lower body corporate fees, which returns a higher
rental yield. The locations of such developments may not necessarily be less
desirable.

If these developments are within minutes drive into the city or located near to
cafes, shopping, restaurants, and most importantly, near to private schools and
colleges, they will have tremendous capital growth potential.

Take Melbourne for e.g., most of the eastern suburbs have done very well in the past.
The presence of private schools, coupled with excellent transportation
infrastructures meant that the areas are highly convenient for commuters and
highly desirable for raising their kids. Like what my President of Rotary Club
always says, ‘it CANNOT GO WRONG.’

I wouldn’t give two hoots about a location near to Casino in Melbourne. Why
bother? It is a place for foreigners to lose their dollars to the gambling
house. I cannot see how it has a correlation to capital growth and how
Australian tenants will want to raise their kids there…

I invite you to post your comments.

Next posting: Why Australians rent?