Is it Worth It? How Developers Pick Their Suburbs
Sydney residential property developers profit from acquiring the best land to develop into contemporary homes and selling them for a higher return.
The sums seem simple on the surface, an undervalued property in a sought-after location combined with residential property development equals profit.
However, there’s a lot more nuisance to choosing profitable suburbs for development, especially in city like Sydney which has experienced exponential growth in recent years.
In the Greater Sydney area alone during the 2018/2019 financial year, 48,491 building approvals were given, 984 of which were residential building approvals.
With so much competition in the real estate industry and the complexities surrounding the construction process, property development isn’t something you can just jump into.
The key to success as a property developer? Like all careers in real estate, property development requires a keen eye for detail, a willingness to learn and most importantly, an understanding of the Australian property market and its nuisances.
How To Find Investment Properties
A successful property developer must understand what will yield the highest return upon the development of a site.
Knowing where to invest in real estate, particularly in the modern property market like Sydney where recently property prices have been fluctuating on an almost a weekly basis, is a complex task that not every person has the stomach for.
It takes experience, persistence and to an extent, intuition.
What Drives Housing Prices?
In Australia, and especially Sydney, housing prices are affected by a number of factors such as population growth in the area, the desirability of school zones and public transport accessibility.
The value of housing, and therefore the price a property developer may pay for the land, can change from week to week. This price fluctuation could be the difference between a healthy profit and a marginal success or an unsuccessful deal.
Land With Benefits
When searching for a parcel of land, the available services and amenities, and future access, is key. Although it may cost the developer initially, the value of the completed project to potential buyers will go beyond the quality of fittings and fixtures.
Key local features that boost buyer interest and land value include:
- Abundance of shopping and entertainment districts such as cafes and restaurants
- Proximity to well-regarded schools
- Local parks and recreation facilities
- Access to healthcare and hospitals
- Availability of public transport
- Street appeal
Know Your Demographic
As well as knowing what services and amenities are nearby, understanding the target market is crucial to a successful development.
Property developers must know what kind of buyer is interested in this location, what does their family look like and what can they afford.
These details will inform so many aspects of the property development:
- Price Point
- Home size
- Number of bedrooms
- Property inclusions
- Parking spaces required
Let’s give an example: Sydney property developer Bella Ikea’s recent development in Homebush was carefully designed to cater to the local market. With 51.6% of the suburb renting, and 35% in a family without children, plus 51.7% living in 2-bedroom units, the contemporary styled Loft was ideal to meet the current market demand.
This contemporary and functional residential development featured 1- and 2-bedroom open-plan apartments each with balcony space and an abundance of natural light for a more spacious feel.
This residential development was designed for a more private and secure style of living with intercom access, internal laundries and ample storage space throughout. All conveniently within walking distance to local schools, shopping, dining, and public transport.
Similarly, Bella Ikea found the market at Cronulla ideal for a luxurious apartment build.
The beachside suburb of Cronulla is known for attracting lovers of refined elegance in spacious 3-bedroom homes with a fully-serviced kitchen and large family size rooms, bathrooms, and balconies.
With features such as a car stacker park, American oak timber floors and unrestricted views of Mt Hacking, this boutique development is perfect for a young family.
A simple case of supply and demand?
The majority of movement within the Australian property market comes down to supply and demand.
In Australia house prices have more than doubled in the last twenty years while interest rates, the marker for mortgage lending, fall. Simultaneously with incomes increasing, the Government has also introduced significant tax concessions aimed at encouraging home ownership.
However, with a rapidly increasing population, there’s still a greater demand than there is supply, pushing affordability to a low point for a large number of Australians.
Choosing the right development location then becomes a more complex process, requiring property developers to find undervalued sites that can be built out to suit local demand but also turn a profit.
The New Factors
As those who follow the real estate market closely will know, these principles of supply and demand get murky in modern-day property markets.
Housing prices are now seen to rise and fall over shorter cycles than more traditional periods of economic boom and bust.
Unlike in traditional economic cycles, Australia now must deal with new factors that impact on property prices.
One of these relatively new phenomena’s is credit card debt. With the introduction of contactless payment options, Australians now have a habitual reliance on credit cards for everyday spending and transactions.
The decline in the use of cash has contributed to overspending, with many of us lacking financial awareness to curb spending habits and manage debt. As a result, Australian credit card debt has risen to an all-time high.
This rise in personal debt has restricted the borrowing power of many Australians who now face a large debt-to-income ratio and have compromised their ability to qualify for a home loan.
While variable home loan rates may be low, many savvy investors are aware that even slight increases in interest rates affect their affordability to repay large home loans and other forms of creeping household debt.
Another major change to the property market is the entrance of the Millennial generation. This generation of Australians is still a large unknown for most property developers. Will this tech-savvy generation be willing to invest in property, especially considering the need to save for a large deposit?
Research shows the Millennial generation is more concerned with maintaining their lifestyle with trends shifting towards more shared living spaces and renting in order to afford travel and other major life experiences.
Complex Decisions For Profitable Outcomes
The decision of where to pick a suburb to build a development is no longer as simple as supply and demand.
With years of expertise, knowledge of the real estate market, and a thorough understanding of the local area, a skilled property developer can build a quality residential property ideal for the suburbs target market.
Bashar and Laura Ibrahim at Bella Ikea Developments have expertise in residential property development, creating successful property investment opportunities in Sydney for over ten years.
Talk to the team at Bella Ikea about their turn-key investment properties and buying off the plan apartments in sought after Sydney locations.