How to: Access capital gain from a new apartment

How to: Access capital gain from a new apartment
Nicola TrotmanDecember 17, 2020

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Off the plan apartments are generally offered at a cheaper rate and provide investor incentives such as tax depreciation benefits and stamp duty savings.

However, for most buyers, the big picture goal is capital gain, so assessing the return potential of a new purchase from day one will help ensure success. Here are some key things to consider to get the most capital gain from an investment.

The first red flag? An oversupplied market

When a market becomes oversupplied, values can drop sharply, as can rental rates. New South Wales-based property investor Cameron McEvoy says high market penetration occurs when too many large-scale development applications are approved by a council and are completed a few years later, resulting in an oversupply of housing stock in an area.

To avoid investing in a soon-to-be development jungle, investors should talk to local councils or visit the department of infrastructure website in their state to find out about projects that are underway or in the planning stage.

Heritage listed sites are a bonus

McEvoy says heritage listed sites are great things to look out for as heritage dwellings are not going to be bulldozed any time soon, therefore potentially making a desired apartment block as rare as hen’s teeth in that area.

“This in turn could result in your dwelling holding its value or increasing in value faster,” says McEvoy.

Get a demographic snapshot of the area

Understanding the population growth and job opportunities in an area is also an important tool in assessing capital gains, as it can give a snapshot of how an area is changing.

Principal of Sydney-based buyer’s agency 37 Property Group, Dean Berman, recommends comparing an old Australian Bureau of Statistics census against the most recent census to get a snapshot of how an area is changing.

Berman says to consider historical trends of vacancy rates and rental yields to gauge an understanding of the market.

“Investors could look at how vacancy rates have performed over the last five to ten years and that, sub two percent, is a good benchmark,” says Berman.

Owner-occupier appeal

Property Searchers managing partner Scott McGeever says a good investment needs to appeal to the owner-occupier market rather than the mass investor market.

“This will generally be done by investing in a larger floor area in a smaller complex, rather than a smaller one-bedroom unit in a high rise complex,” McGeever says.

One-bedroom units in high-rise complexes will fall into the trap of competing against a hundred other similar apartments in the same complex, which appeal to the same market.

Remember…

Before investing in an off the plan apartment, research is integral in assessing whether the development has the potential for capital gain. As mentioned, things to look out for include: avoiding an oversupplied market, a larger floor area in a smaller complex is better than a small space in a highrise development, and having a demographic snapshot of the area and its potential for change is crucial.

Off the plan apartments, like any other investments, are more likely to result in a positive investment if due diligence is taken in the research phase.

Nicola Trotman

With a penchant for the written word, Nicola has built a career doing just this – now Creative Director at thriving Melbourne-based PR agency, Greenpoint Media.

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