Should people be opposed to higher density?

Under the planning framework, Directions 2031 and Beyond, the WA government has set a target for almost half of new residential development to occur in established urban areas.

If Perth is going to accommodate a rapidly growing population, which increasingly wants to live near work and amenities, we simply can’t afford for the urban sprawl to extend indefinitely. We need to embrace infill development regardless of the challenges it might bring about.

Perhaps the biggest of those challenges relates to planning and rezoning, specifically, the opposition from local residents who don’t want to see housing density increased in their suburb.

This is not just a challenge for Perth but for cities around the world. In fact, this type of opposition has become so prevalent that there are a number of acronyms used to label its proponents.

The most well-known of these is NIMBY (Not In My Back Yard). There is also the broader CAVE (Citizens Against Virtually Everything), and the extreme BANANA (Build Absolutely Nothing Anywhere Near Anything).

Understanding the opposition

Every citizen has the right to protest against change, especially if they believe it will adversely affect their personal situation.

In the case of those who are against development in their area, protests are generally sparked when residents of a particular area believe their normal suburban lifestyle is under attack by plans to increase housing density.

The cause is typically fronted by resident groups, who can garner significant suburban media attention and put significant pressure on the local council to protect the status quo.

Interestingly, it is the residents in wealthy suburbs that tend to be most vocal and most persuasive on this matter.  They have the financial means, political influence and the organisational ability to go about protecting their cherished lifestyle.

What are the groups afraid of? One of the major areas of concern is the fear that infill development will disrupt the cohesion of their neighbourhood. They don’t want to see beautiful, tree-lined streets ruined by unsightly apartment complexes or other developments that are out of character with existing properties.

Clearly, it’s not just about how developments will change the look of streets, but how they will impact on things like privacy, traffic, parking, access to sun and even the environment. While some might not admit it, there is probably also a fear that ‘the wrong’ type of people will move into their suburb.

Impact on property values

While it can be a complex issue,  ultimately it boils down to one thing: the fear that proposed changes will negatively affect local amenity by making the area less desirable.

You can’t criticise people for wanting to protect their financial security and way of life, but I’m unaware of any evidence that shows properly planned infill development causes property values to decline.

In fact, there are many suburbs in Perth that have recently seen property values increase considerably on the back of zoning changes. In some cases, individual properties have gone up by more than $100,000 after being rezoned for higher density.

Affordability, choice and the fringes

One of the impacts of people and councils limiting development in their area is that it merely moves development elsewhere – generally to the fringes of the city.

Fringe development might be good for car manufacturers, but it often requires enormous taxpayer-funded expenses for the roll-out of necessary infrastructure.

There is also the impact on affordability. Locking up land reduces the opportunity for affordable housing in established suburbs. And ironically, it is the children of those opposed to development that often suffer when, like other first-home buyers, they are forced to move to distant areas where essential services are inadequate.

By opposing infill development, advocates are also limiting housing diversity and this can reduce their own opportunities to downsize within their current suburb.

The traffic conundrum

Often a major concern for groups is the fear that higher density housing will increase local road traffic and there is some validity to this argument.

However, ‘protecting’ suburbs can sometimes have unforeseen consequences. By pushing people to the fringes, this can actually create local traffic problems as desperate commuters try to find ‘local routes’ to beat the peak-hour traffic. We’ve all seen how normally quiet residential streets can become major thoroughfares at certain times of the day.

The traffic argument also fails to consider the fact that infill development can actually take cars off the road when it is concentrated around public transport nodes and jobs.

Conclusion

The views of groups opposed to development can’t and shouldn’t be ignored. The worry, however, is that overly fierce ‘protection’ of our suburbs will ultimately undermine any chance of delivering the affordable and diverse housing we desperately need. As is often the case, what makes sense on an individual level can be a recipe for disaster on the larger scale.

Is Lenders Mortgage Insurance a friend or foe?

Lenders Mortgage Insurance (LMI) is generally seen by investors as a costly expense to be avoided. But this view isn’t entirely accurate. Sophisticated borrowers understand that LMI can, in fact, be a valuable tool.

If you’re not familiar with LMI, it essentially involves a one-off insurance premium paid by the borrower to protect the lender’s interests in case the borrower defaults and the sale of the property does not cover the loan balance.

The premium varies depending on the size of the loan, the loan type and the level of deposit, but it can add up to thousands of dollars. Luckily, the amount can often be capitalised (added to the loan).

So how can such a thing be advantageous to an investor?

Firstly, with LMI you can borrow a higher percentage of the property value, beyond the normal 80 percent limit. So, if you haven’t accumulated enough of a deposit, LMI will help you to get into the market sooner than you otherwise could.

In a growing market, getting in early can be a real advantage. Capital growth can quickly cover the expense of LMI and put you thousands of dollars ahead.

LMI could also help you to buy a better quality property than you otherwise could or allow you to buy additional properties with the same amount of equity.

Instead of paying a 20 percent deposit on the purchase of one property, you could potentially buy two properties paying a 10 percent deposit for each.

Whether or not LMI provides an advantage depends on your plans, circumstances and how quickly you want to build a portfolio. But in the right hands, it’s certainly not the ‘evil’ it’s often portrayed to be.

Bear in mind that the mortgage insurers regularly change their policies, so it’s best to check with your mortgage broker about current requirements and lending criteria.

Seven reasons you should aim low when investing in an apartment

It’s easy to understand why some investors are attracted to apartments, with their low maintenance appeal, strong rental returns, and relatively affordable entry price.

When it comes to apartments, as with any investment, numbers matter. And one of the numbers that can play a major role in determining investment success is the number of apartments in the complex.

High-rise complexes, which often contain hundreds of apartments, can sometimes provide good investment opportunities, especially when there are scarce views on offer. But as a general rule, investors are better off investing in low-rise or boutique complexes. Let’s look at why.

1. Scarcity and future supply

Low-rise complexes are typically in areas with strict height planning controls, reducing the likelihood of any significant future supply that could dampen capital growth. High-rise towers, on the other hand, are typically built on converted land in and around the CBD and can quickly shoot up in clusters.

2. Competition

If you own an apartment in a complex with hundreds of almost identical properties, you will always be in competition for tenants and buyers. This will increase the chance of vacancy and restrain value growth.

3. Land value

Apartments in a low-rise complex typically have a higher land-to-value ratio than their high-rise counterparts. This means they generally have a better likelihood of achieving capital growth, as it’s the land that appreciates.

4. Owner-occupier appeal

Low-rise complexes are typically targeted to owner-occupiers, which ironically makes them a better proposition for investors. Owner-occupiers tend to take pride in their home and are less likely to sell up when times are tough.

5. Unfavourable comparisons

In high-rise complexes, which are mostly investor-owned, distressed sales happen more frequently. This is bad news for the value of comparable properties, as it’s easy for valuers and buyers to make comparisons.

6. Strata Fees

High-rise complexes typically have more amenities and facilities, such as lifts, pools, and gyms. This is great if you are a tenant, but it often means higher strata fees for the owner, which can quickly erode rental returns.

7. Control

Property investors like to be able to control their investment as much as possible. As the owner of an apartment in a low-rise complex, you have greater control over the actions of the strata company as your ‘voting share’ is greater than with owners in a high-rise.

Eight tips on managing the pain of a rent reduction

The Perth rental market isn’t particularly strong at the moment and, for landlords whose property has recently become vacant, securing a tenant may involve accepting a rent reduction.

This may seem like a backward step, particularly if you have experienced rents moving in only one direction. But don’t despair. Here are eight tips to help manage the situation.

1. Remember to consider the drop in context of all the gains you’ve had in recent years.
2. Focus on the bigger picture. Is the drop going to make much difference over the long term? Rental income is certainly an important part of property investment but the ultimate prize is capital growth.
3. Vacancies can be expensive. You are generally better off reducing the rent to attract a tenant quickly rather than holding out for more money. Consider how a $10 per week drop compares to an extra few weeks of vacancy.
4. When a property is first listed on an online real estate portal, it tends to go out as an email alert to a database of potential tenants. You don’t want to miss this initial burst of activity by pricing your property too high.
5. When setting a new price for your rental property, consider the price brackets that potential tenants will search within. Your property manager should be able to help with this.
6. You don’t want to play ‘catch the market’. If you price your property too high at the beginning of a campaign and the market drops, you’ll need to make a disproportionally large drop to catch the market.
7. The rental market can be quite seasonal, with some seasons better than others, so try to time your leases accordingly, which may allow you to later increase the rent.

If you’ve followed the real estate market over many years you’ll know that a turnaround is always around the corner. All you have to do is be patient.

Should you build on your subdivided lot or just sell the land?

Small subdivision projects have become a popular wealth-creation strategy for many everyday investors. The impetus has no doubt been the various planning changes occurring throughout Perth’s suburbs allowing for higher density housing.

One of the questions commonly asked by these developers is whether, following the subdivision process, they are better off selling the lots or building on them before selling.

Every situation is unique and so it’s impossible to make a blanket statement one way or another. However, a good start is to understand the major pros and cons of each option.

Selling the land

For the developer, selling the subdivided lots means an immediate cash injection and the potential to quickly move on to another project. This is assuming, of course, that the lots can be sold without too much difficulty, which certainly isn’t a given.

It’s possible to make a reasonable profit using this strategy, however, most success stories involve the developer holding the property for some time before developing.

Anyone who has sold land knows that it can be difficult to get top-dollar because it’s relatively easy to compare one lot with another and buyers will probably be looking to make a profit themselves.

Selling the subdivided lots works better in areas where there is a scarcity of land and higher density living is common.

Creative strategies may involve selling the land with approved plans and permits in place, or by working with a builder to advertise the property as a home-and-land package.

Building and then selling

On the surface, building is a riskier option in the sense that the developer must fund the cost of construction. There is also the added hassle and longer time-frames to consider.

The profit, however, will generally be greater than when selling the land on its own, partly because the building process often adds value beyond the cost of construction. Plus, it’s easier to achieve a strong price when selling a beautiful brand-new home to an emotional buyer.

Building also creates additional opportunities. If, for instance, it becomes difficult to sell the completed homes, there is the potential to hold the properties and benefit from the strong rental income and depreciation allowances.

Conclusion

Determining which option might suit your particular circumstances involves detailed calculations involving the likely end values and various costs involved, while also taking into account the risk and effort involved.

Critically, there are also many tax implications which may dramatically affect the decision. Therefore, you should talk to your accountant and other professionals before doing anything.

Accessibility is the key for this small suburb

Bedford is a Perth suburb located six kilometres from the Central Business District and part of the City of Bayswater.  It is bordered by Inglewood to the south, Dianella to the north-west, Morley to the north-east and Bayswater to the east.

Bedford is a relatively small suburb, less well-known than its neighbours, which is why its residents consider it a little suburban secret.

Homes in the area have plenty of character with many being built in the 1940s and 1950s and sitting on large blocks. However, there is also a spattering of newer duplex and triplex developments.

The median house price is around $650,000, almost $200,000 less than neighbouring Inglewood, and the median rent is $460 per week.

With its central location and largely suburban nature, Bedford is all about accessibility. It has direct access to Beaufort Street, with its many shops and cafes, and is just a short drive to one of Perth’s largest shopping centres in Morley.

It contains few major amenities itself, consisting mostly of tree-lined residential streets, but Bedford’s proximity to  Mount Lawley, Inglewood, Bayswater, Maylands, Dianella and Morley provides for a host of options, making it popular with couples and families.

While there are no significant developments or improvements planned for the suburb, there is plenty of redevelopment and rejuvenation activity happening all around the suburb, including the nearby Morley Activity Centre. This will, over time, be of benefit to Bedford.

Thank you – we won!

Thanks to all our clients who voted for us at the Business News Rising Stars awards.

Momentum Wealth was voted by the judges as one of the top 10 Rising Star businesses in WA and voted the number 1 Rising Star business by the public!

To be recognised by the judges as one of the top 10 fast-growing businesses in WA was a great honour but to be voted by the public as the number 1 business was thrilling.

Thanks to all our clients who supported us and thanks to our fantastic team at Momentum Wealth who work hard to build your property wealth.

View the full list of winners here

RBA leaves interest rate at 2.5%

The reserve bank has kept the cash rate unchanged, stating dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently.

“Monetary policy remains accommodative. Interest rates are very low and for some borrowers have edged lower over recent months. Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses”, governor Glenn Stevens said in a statement after the July board meeting.

AMP Capital’s Chief Economist, Shane Oliver, stated one of the reasons that the RBA decided to keep the interest rates the same was due to the most recent budget “that had a negative impact on confidence, and that’s thrown a bit of a spanner in the works, and we’ve got relatively low inflation. So on the one hand the economy hasn’t picked up enough to justify a rate hike, and inflation isn’t a problem either, on the other hand the economy isn’t collapsing – justifying rate cuts – so we’re literally in a holding pattern.”

So what does this mean for you? Another month of lower interest rates for your investment portfolio but keep in mind that this may not be the case the long term.

This newsletter is provided by Momentum Wealth.