Hundreds of viewers tuned in to what RWC’s latest Between the Lines webinar, where a panel of experts discussed the markets for blocks of units.
Ray White head of research Vanessa Rader hosted the webinar and was joined by RWC Western Sydney director Joseph Assaf and Ray White Special Projects Queensland executive James Hanley.
Ms Rader said the block of units market had become particularly interesting in the last few years with population growth and the housing crisis, with the western Sydney and south east Queensland markets seeing an increase in demand for these assets.
“We’ve seen prolonged long term low vacancies, the rental growth has been really quite outstanding, and capital appreciation of product. So a lot of people have jumped back into the residential asset class, and blocks of units are quite an interesting and lucrative way of going about it,” Ms Rader said.
While unit blocks are commonly made up of four to six units in south east Queensland, the eight to 12 range was more common in western Sydney.
“In Brisbane they are typically very defensive assets suited to a super fund, a private investor or a mum and dad type investor, someone looking for more than just a unit or a house,” Mr Hanley said.
“We’ve more recently seen a big influence in the developer market trying to buy these properties for future pipeline control.
“So that might be a two to five year hold where they get the benefit of strong-holding income, they get to clear a very well positioned site, they can get their approvals through while they have the income.
“They have very little risk profile from a banking perspective because of their strong returns.”
Mr Assaf said they were seeing some interest from developers as well as investors.
“We’re seeing a lot of interest from high net worths and a lot of syndicate groups, they’re seen as quite favourable as a secure and risk-averse investments, especially with the low vacancy rates,” he said.
“When you buy a unit block you own the whole block and therefore benefit from future rezoning for the property as well. You get the benefit of that uplift.”
Ms Rader asked if refurbishing unit blocks had become a trend for developers, which Mr Assaf confirmed.
“With the rising cost of construction, developers are now favouring refurbishment rather than developing, so they can control the costs and be less exposed.
Mr Hanley said the replacement cost was a huge factor for purchasers at the moment.
“They’re looking at what it would cost to buy the land and build even a pack of six, it just wouldn’t be feasible,” he said.
“So to pick up an asset like this, say a six by two in a great location, it just makes commercial sense before you even look at the modelling behind re-renting, gutting, and all those things.”
Mr Assaf said you’d normally expect about a 20 per cent discount for buying an entire unit block, but because of the current housing shortage that discount is down to approximately 10 per cent, because of the surge in demand generated from both investors and developers.
“Investors are cross checking the strata value as a future exit strategy,” Mr Assaf said.
Mr Hanley said he has seen a lot of interstate interest for blocks of units in Brisbane.
“The Sydney investor is a huge proponent of the buyer pool for blocks of units in Brisbane, particularly post-Covid and post the announcement of the 2032 Olympic games,” he said.
“Which makes sense, they obviously saw the growth experienced with the 2000 Sydney Olympics.”
Mr Assaf said the market in his area was seeing mostly local enquiry, with the majority of interest coming from local Sydney-based buyers.
Mr Assaf said boarding houses had become a growing asset class.
“The current definition of a boarding house has really changed, think modern, self contained, common facilities and parking. The standard has really been raised,” he said.
“We’ve seen an increase in the number of boarding houses, and a lot of that is due to the permissible zoning by council.”
“They are quite attractive, but one disadvantage can be the high turnover of tenants. We are seeing more leases from housing providers who are leasing the whole building at one time, under a head lease.
Mr Hanley said boarding houses were also a strong part of the Brisbane market at the moment.
“There is typically a bigger management proponent to a boarding house, whereas a unit block is fully self-contained and there’s no interaction between the tenants inside their front door,” he said.
“In Brisbane we have a class 1B rooming accommodation facility, which is five tenants under one roof with partial shared accommodation, and it’s a really strong part of the market at the moment”.
