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24/09/2019

Investors warned to avoid capital growth black zones

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Investors warned to avoid capital growth black zones Nila Sweeney Reporter Aug 22, 2019 — 4.40pm

Property investors looking to ride the housing market upswing are being warned to avoid new greenfield housing estates due to poor capital growth prospects caused by oversupply and insufficient demand.

These "capital growth black zones" are generally located in the outskirts of the capital cities - touted as the next growth corridor where population is forecast to surge due to new infrastructure going into the area.

While population growth boosts housing demand, new estates tend to have a large supply of land that can be developed and added to the existing stock said Select Residential Property research director Jeremy Sheppard.

"Supply is the enemy of investors seeking capital growth," he said.

https://www.afr.com/property/residential/investors-warned-to-avoid-capital-growth-black-zones-20190819-p52ify

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24/09/2019

Investors warned to avoid capital growth black zones

Capital growth is expected to be slow in Sydney's Marsden Park due to oversupply issues. Supplied

"As a general rule, investors should avoid markets where there are a large number of new developments."

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One of the worst cases of oversupply and potential for more is in Sydney’s west, in the suburb of Marsden Park, said Mr Sheppard.

Located in the Blacktown local government area, Marsden Park is currently exploding with new developments.

Mirvac has a 153-hectare rural site rezoned for residential development there and Stockland has been selling the bulk of their 279-hectare sites in the suburb.

One of the clearest signs of oversupply - vacancy rate - is sitting at 10.5 per cent according to SQM Research.

"This shows that right now Marsden Park is oversupplied," said Louis Christopher, director of SQM Research.

"It was undersupplied right up to mid-2015, then supply started to be added on.

There's a lot of dwellings that are vacant right now."

There's potential for the oversupply to get a lot worse in the future in Mr Sheppard's view.

"Approximately a quarter of the suburb’s area is currently being developed and there’s little in the way of parks, reserves or waterways to stop the remainder from being developed, too," he said.

The number of dwellings in Marsden Park is forecast to increase by about 40 per cent each year until 2021 according to the Blacktown Council and https://www.afr.com/property/residential/investors-warned-to-avoid-capital-growth-black-zones-20190819-p52ify

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24/09/2019

Investors warned to avoid capital growth black zones

cent each year until 2021 according to the Blacktown Council and forecast.id.com.au website.

In Mr Sheppard's calculation, this is more than 20 times faster than the long-term national average housing supply rate.

"This kind of oversupply is great news for first time house buyers looking for a cheap entry into the real estate market, but I wouldn’t expect any reasonable increase in property values for the next decade at least," he said.

It's this lower entry price point that lured investors Jay and Suzie Pearce to buy their investment property in Marsden Park - a $564,600 house and land package.

Jay and Suzie Pearce are expecting their house and land investment in Marsden Park to do well. Supplied

"Marsden Park is an up-and-coming location and we really want to secure a property here before prices go up," said Mr Pearce.

"It's extremely hard to buy a house with land in Sydney for under $700,000."

The couple who already own an investment property near Ipswich in Brisbane are planning to live in the property for a year before renting it out.

Mr Pearce said despite the current oversupply, he's confident there will be a large demand for their home when it's time to lease it.

"Our buyer's agents showed us their research indicating that population will grow strongly over the next few years because of the airport and other infrastructure coming into the area.

"Buying now is like buying near the city 10 years ago - that’s how I look at it.

"Yes there’s currently some oversupply issues, but in five years, I doubt there will be enough houses available for people who want to live here." https://www.afr.com/property/residential/investors-warned-to-avoid-capital-growth-black-zones-20190819-p52ify

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24/09/2019

Investors warned to avoid capital growth black zones

Mr Christopher agreed the supply will get soaked up eventually but investors need to be prepared to ride the cycle which hasn't played out yet.

"Vacancies are still rising and likely to continue to rise because we haven’t reached the peak of dwelling completion yet," he said.

In Victoria, Clyde and Clyde North located on the far south-east edge of the greater Melbourne metropolitan area are also in the capital growth black zone due to oversupply.

There are around 700 houses currently for sale in these two suburbs -representing around 8 per cent, which is more than eight times higher than what would be considered normal.

Vacancy rate shot up from 1.8 per cent in 2016 to the current 9.4 per cent - a sign of poor tenant demand in the area.

In Brisbane, Park Ridge, south of the CBD, has been flagged as another oversupplied new house and land suburb.

Big houses are being squeezed onto small blocks in a couple of greenfield estates that are starting to open up in this area.

There are over 300 houses currently available for sale, representing 13 per cent of the total house count in the suburb.

Mr Sheppard said that so far, only a few sections have been chosen for subdivision, but there’s a lot of room for more development in the future.

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Nila Sweeney writes on property from our Sydney newsroom. Email Nila at nila.sweeney@afr.com.au https://www.afr.com/property/residential/investors-warned-to-avoid-capital-growth-black-zones-20190819-p52ify

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Investors warned to avoid capital growth black zones

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