Assessing capital growth potential: Scarcity factor

Assessing capital growth potential: Scarcity factor
Assessing capital growth potential: Scarcity factor

When you've been attending a number of open homes, you quickly realise what is and isn't unusual for a property in the area. "Unusual" isn't always a good thing to associate with your investment property, but a desirable, scarce and highly valued difference can ensure that your property is in good stead for future growth.

This concept comes up consistently from a number of investment professionals. Yesterday evening, at WBP Property Group's ‘Property Investment Symposium’ event, which Property Observer attended (you can read all of the tweets from the event, and some reader questions, via #propertyobserving) this concept was heavily talked about.

Disputing the myths, WBP Property Group's property adviser, Phil Manning, stopped at a slide that said 'Location, location, location' and said that the reason we say it three times isn't because location is important enough to be mentioned thrice. In fact, it's because we should be looking at three location factors when it comes to a property:

Location in the suburb

Location in the street

Location in the block

He later brought up an example of a property that they purchased. He noted that it had several 'scarcity' aspects to it, that ensured it would stack up. Not all of these would have been apparent to someone looking at the properties - and not all of those in the block would have had the same result.

For instance, it had views of Melbourne's skyline that could not be built out due to a heritage overlay. Those on the ground floor level would not have this view, and so would not be considered as having investment grade scarcity. It also had a pull down ladder to storage space in the roof - something very few units have, which counters many buyers' concerns about the difficulties of storage in apartments.

For this reason, apartments in large towers may not be the most preferable asset choice for investors with this strategy.

The concept of scarcity ties in nicely with supply and demand, in that it is a scarce type of supply. However, it's a little bit more difficult to determine. Without regularly viewing properties in the area, it can be hard for an out-of-town investor to know what is common within a property and what is not, and which factors are desirable. For instance, buying a weatherboard house in a primarily brick area, something Manning refers to as buying property that is anomalous to that in the area, could be to your detriment.

Monique Sasson Wakelin previously told Property Observer that scarcity applies to both houses and units. "The same criterion applies to apartments. With apartments you want anything from 1930s through to about the 1970s. Those are the assets that really confer and satisfy that criterion of scarcity value," she said.

"When it comes to houses we like to choose investments that are anything from the 1880s probably to about the 1940s or 1950s."

For the reason of scarcity, Manning also said that you shouldn't go into every purchase leaving your emotions behind. Remember, the next buyer down the track will likely be an owner occupier buying based on emotion and you want to be aware of how they may feel towards a property, and how it suits their lifestyle.

Be emotional when you enter - see whether it has a feeling that appeals. Is the bay window, or fireplace, or similar, that you don't see much in other properties, that you could easily see an owner occupier paying a premium to have? Is it the view? Is it the slightly larger garden? See how it is located to desirable factors e.g. bike paths, recreational centres, and similar.

Where you don't want to be emotional, he said, is with the price you pay.

{module Do you consider scarcity value when considering investment properties?}

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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