Western Sydney sees a lower impact from COVID-19: HTW residential
The residential investment market is currently in uncharted territory with the Corona-virus pandemic hitting many households, according to the August Herron Todd White (HTW) residential report.
The valuation firm took a look at investor activities across the nation.
The report notes whilst state and federal government initiatives have helped keep some calm in the market, there is a lot of speculation from property professionals that the longer this pandemic goes for the more stress there will be on both tenants paying their rent and investors paying their mortgages.
As a result this potentially could see an array of properties hitting the market within a short period of time which could put downward pressure on property prices.
"However, at the time of writing, Western Sydney has experienced a lower impact from COVID-19 in comparison to other areas of Sydney such as the inner suburbs which have a higher apportionment of renters and unit supply," the valuation firm said.
In the greater west, a popular investment option comes in the form of a house and granny flat which can provide a second rental stream and depending on the location, potential for longer term capital growth.
An example of this is 1 Kipling Drive, Colyton (pictured below), located nearby to St Mary’s which is set to be a major transport intersection linking the existing
rail line to the Western Sydney Aerotropolis at Badgerys Creek.
The property is a partially updated 3 bedrooms, 1 bathroom on 632 sqm of land. Detached at the rear is a 2 bedroom, 1 bathroom, self-contained granny flat.
The property sold in May for $659,000, with a combined rental potential of $700 per week, calculating to a gross rental return of around 5.5%.
As seen in other parts of the city, new units can quite often sell below the previous purchase ‘off the plan’, even after several years, the report noted.
An example of this is 725/1-39 Lord Sheffield Circuit, Penrith (pictured below), a two-bedroom, two-bathroom unit which sold off the plan in February 2017 for $584,000 however re-sold in March 2020 for $505,000. The off the plan purchase was unable to be supported even in 2017.
The investor market across the South Western Sydney suburbs, in particular the Liverpool LGA, is generally very active as it offers a range of investment opportunities across a variety of asset classes, the report suggested.
"The rental market is very competitive which has seen rentals stagnate and in some areas fall," the valuation firm said.
The capital growth in property that has historically driven investor interest is no longer prevalent with some asset classes’ showing a decrease in value from the peaks of the 2016 and 2017 period.
Currently on realestate.com.au there are approximately 99, modern two-bedroom two- bathroom units available and approximately 160, three-to-four bedroom homes available for rent within the Liverpool LGA.
"The entry level of the investment market is driven by affordability and low risk. This is where you typically find your Mr and Mrs Citizen well represented as they are looking to park their savings into the property market rather than in a low interest bank account," the valuation firm said.
Popular investment opportunities for this market are modern units in the sub-$600,000 range, a single house in one of the modern estates in the sub-$750,000 range, or a house and granny flat set-up. All three property types achieve reasonably safe returns and can come with some tax benefits as well, the report noted.
Notwithstanding the below examples, duplex pairs and small unit blocks provide additional investment opportunities however they require a larger capital outlay.
A two-bedroom, two-bathroom unit in 12-14 George Street Liverpool sold in March for $460,000, with an assessed gross yearly rental of $20,650, representing a 4.5% yield.
However the previous sale in March 2016 was for $519,000, meaning an 11% decrease in value over four years.
A modern four-bedroom, two-bathroom house in a new estate in Edmondson Park sold in April for $730,000, with an assessed gross yearly rental
of $26,400, representing a 3.6% yield.
"Whilst the rental return is not as strong as a unit may be, this type of property traditionally will show superior capital growth," the valuation firm said.
A recent sale of a house and granny flat in Lurnea in June for $835,000, would likely achieve a gross combined annual rental of $38,400, representing a 4.6% yield.
Moving away from your traditional investment classes, the rezoning of land in the South West, particularly in designated Growth Corridors and the Aerotropolis Precinct has seen property prices skyrocket.
For the broader residential market you have most likely missed the boat, but for those lucky enough to have owned land prior to any hint of rezoning taking place, developers are paying well above what could have ever been imagined for these traditionally rural areas.
Nowadays these areas are occupied by developers and established land bankers, the report noted.
A recent sale of a one-hectare site in Austral, sold in April for $2.625 million. The previous sale of this property was back in 2014 for $1.855 million, a 41 per cent increase in six years.
Another property in Bringelly sold in May for $2.3 million. The previous sale was back in 2015 for $1.15 million, a 100 per cent increase in five years.
"Western Sydney is currently considered the best place for returns, given the varied properties to invest in. We believe a well located house and granny flat provides a great option for their higher yields and depending on the location, future development potential given the land component.
"In other parts of Sydney, investors can look to play the long game and bear the short term loss of rents, for the ability to secure a property at a discount, and also take advantage of current low interest rates. There is value across all levels with strong medium to long term capital growth opportunities," the valuation firm said.