While many investors might view further development in an area as a good outcome, leading to improved amenities and facilities and generating higher prices, the reality is that high density unit development or new land or house and land subdivisions can have very different outcomes.
It depends on who these dwellings are marketed to as well as their comparative price and quality compared to existing stock in the area.
New developments marketed to owner/occupiers can lead to the rejuvenation of entire localities if the new stock is substantially superior to existing stock, such as in the refurbishment of older inner suburbs in major cities.
On the other hand, they can cause a degradation of prices if the new stock is inferior, such as loft and studio apartments in inner urban areas, or single bed retirement villas in coastal resorts.
New developments marketed off the plan to investors can lead to oversupplies of rental properties if they are marketed to investors and the rate of new rental stock on the market exceeds the rate of demand.
This may not become apparent where and while rental guarantees are provided by the project marketers, but once the rental oversupply emerges it leads to the potential for both rent and price falls as frustrated and even desperate investors try to sell, often many at the same time.
You need to ascertain the numbers to see whether there is any possibility of an oversupply occurring due to the sheer weight of new stock numbers, which can easily occur because:
- Developers often work without the benefit of reliable predictive demand data for housing and so tend to rely on past performance to select the best areas for new housing and use recent price and rent growth to promote their developments to investors.
- It takes housing developers years to work their way through the various development stages such as project assessments, budgets, finance approvals, development applications, environment impact statements, tenders and contracts, rental demand in a mining town or dormitory town may be falling just as a supply of new housing comes on the market.
- Many of these developments are sold off the plan, before work has been completed or even commenced, so that the properties may not actually be occupied for several years after they have been purchased.
- They are often project marketed to investors with ‘sweeteners’ such as rent guarantees built into the sale price which means that the oversupply may not become apparent for some time.
Whenever oversupplies occur, the possibility of lower rents and prices becomes very real.
Examples such as the collapse of the Gold Coast high density unit market from 2008 to 2015 show us that while it is essential to analyse and estimate potential demand, forecasting future supply is equally important.
Because of the above, you should ensure that your selected suburb is not a candidate for overdevelopment by checking its development potential for land subdivision, house and land sales and medium or high rise unit development using these three research techniques:
1. Drive or walk around the suburb to check whether there are large vacant unused land areas, roads ending abruptly which are obviously intended to go further in the future, vacant shopping strips on main roads with no to let signs or blocks or groups of vacant, even derelict terraces or houses in an area with medium to high rise units.
These are all signs that developers own the land.
2. Look up on-line listing sites for new or off the plan house or unit listings in the area that you are researching.
What often initially appears as one listing on the real estate listing site may reveal a potential development of several hundred units or land subdivision.
Go to the developer’s or project marketer’s site to see their plans for future development of the project, including the number and type of dwellings proposed and the timeline for both sales and occupation.
3. Check with the local council for any development applications in the area, the number and type of dwellings proposed and the timeline for both sales and occupation.
If there are significant numbers of new developments underway or proposed in a suburb or locality, you need to check the developer’s and project marketer’s websites to see who they are being marketed to (overseas investors, local investors or owner/occupiers), the comparative quality of the new stock compared to existing stock (compare listings for new stock to those for existing stock of similar types of housing) and also the asking price of these dwellings compared to existing stock in the area.
This analysis will enable you to make a much more informed decision based on the likely impact of future stock coming onto the market and will also give you a more accurate insight into the prospects for housing price changes based on what you discover as you conduct your own on the ground research.
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