By Herron Todd White
North Central Property Updates
Generally speaking, most local Queensland investors are not driven directly by yield on the Gold Coast. No doubt their investment decisions will involve an assessment of property price versus income less outgoings but largely indications are that they are more inclined to be driven by decisions of location and amenity. Interstate buyers have a quite different approach. Local real estate agents report that the magic gross yield rate currently sought by interstate investors is 6%. Generally speaking, agents will not get any marketing traction on properties when this minimum yield cannot be demonstrated.
The lower end of the local market (say $170,000 to $350,000 price range) in the suburbs of Labrador, Southport and Biggera Waters is currently quite weak with sales volumes down and values falling 5% to 15%. Local property managers are reporting higher vacancy rates and in some cases a drop in rent is required to secure new rental agreements. We also note that local property managers are reporting that there has been a surge of tenants who are exiting their rental agreements in order to buy their own properties in response to the very low mortgage rates now on offer.
A circa 1990, two-bedroom, one-bathroom conventional strata unit, situated on level two of a three-level, nine-unit walk up complex on a concrete footings and slab, floating concrete slab foundation with brick walls, tile roof and one car garage. The property has fair external condition, fair internal condition and fair presentation. Areas: Living – 89 square metres, Outdoor – 10 square metres and car – 27 square metres. The subject property has a north-westerly aspect with no significant views. Ancillary improvements include concrete driveway, partially enclosed yard, concrete paths and moderate landscaping.
Estimated Rent: $290 per week
Gross Yield: 5.97%
The family home market (say $550,000 to $950,000 price range) has been the strongest performer, albeit this is a very stable market segment with steady demand and turnover in most locations. This market is not typically driven by yield.
An interesting strategy has been for some investors to convert family style homes into student style accommodation. A typical four-bedroom, twobathroom dwelling will be modified to become seven or eight bedrooms. The laundry may be converted to a third bathroom and the garage partitioned to form say, two bedrooms. The kitchen and main living area is utilised as common area. Rentals on these are reported at circa $150 per bedroom. A $625,000 outlay for a property may return as much as $50,000 gross per annum (allowing for vacancy) reflecting a gross yield of 8%. We caution that many of these operations may not strictly be council approved and lending policy will value or assess these properties on typical residential use only. The suburbs of Southport and Parkwood are popular for this practice.
A Parkwood dwelling converted from four bedrooms to an eight-bedroom, two-bathroom floor plan is currently rented as student accommodation.
The higher end or prestige market is not driven by yield rates. Rental rates typically fall considerably at this end of the market.
A two level, circa 2016, modern style, rendered fibrous cement sheeting, four-bedroom, twobathroom, dwelling, with colorbond roof and two-car garage. Areas: living – 232 square metres; outdoor – 28 square metres; car – 42 square metres; other – 5 square metres. Dwelling is located on an easy sloping, regular shaped, inside lot situated slightly above road level. Canal views with western frontage to the canal. Ancillary improvements include: exposed aggregate driveway; partially enclosed yard of rendered brick construction; aluminium pedestrian gate with manual access; concrete and paved paths; established landscaping; concrete in ground pool, featuring frameless glass pool fencing; and pontoon jetty. The property has good external condition and good internal condition. Land area – 570 square metres.
Actual rent: $1,200 per week. Gross Yield: 3.67%
Central Gold Coast Property Updates
In central Surfers Paradise, agents report variations in rates of return to investors. Older high rise units close to the beach have a high underlying land value component and are subject to higher council rates, which themselves are variable. For example, if the owner is an owneroccupier, there is a lower rates level. If the unit is let on a permanent basis the rates level is higher, and if it is holiday let, the rates level is higher again. This is just the rates themselves, not including the water rates which stay the same regardless.
However, if the property has an efficient water usage rating, it is permissible to pass on the water and sewerage rates to the tenant, which increases the return to the investor.
The Chevron Renaissance development is a modern circa 2004 three tower development comprising a total of 714 units plus retail and office use.
A leading agent active in this development reports that investors are happier if they can achieve over a 4% net yield. This agent sold unit 2066 for $308,000 on 15 May 2009, being a two-bedroom, one-bathroom high-rise unit on level six within the holiday letting pool. The unit receives a guaranteed rental of $26,500 per annum from on site management. After outgoings, the net return is $14,746, showing a net yield of 4.78%.
In addition to the above return, the owner is also entitled to 14 nights personal occupation of the unit for their own use subject to terms and conditions.
This agent also reports that the expected return on three-bedroom units in the development reduces to around 4% as the purchase price is much higher.
These higher returns are made possible by the higher expected occupancy rates achieved by the managers. This building is reportedly currently achieving around an 85% occupancy rate.
The Beachpoint development is an older circa 1978 development comprising a total of 142 units situated opposite the beach in central Surfers Paradise.
A one-bedroom unit on the tenth floor with a southwest aspect and restricted ocean views is currently under unconditional contract for $260,000, with settlement due in less than two weeks. This unit is tenanted on a 12-month lease at $360 per week. Outgoings including rates, water and sewerage rates, and body corporate fees at $152 per week total $10,439 without landlord insurance which leaves $8,281 net income showing a net yield of 3.19%.
This lower return is typical for older unit buildings with slightly lower occupancy rates and a higher underlying land value component per unit.
The agent selling the above property reports typical returns for this style of unit generally range between 2% and 3%.
Further away from the beach in Carrara, a leading local agent reports that investors in cluster unit townhouse complexes aren’t stating what return they are chasing, but are very interested in the potential or actual rental return and want to know what the outgoings are including body corporate fees, rates and water charges and then they work out the net return themselves.
Anecdotally he feels they are seeking over 4.5% and for nothing to require repair for the first 12 months.
Northern Gold Coast/Lower Logan Corridor Property Updates
The northern corridor of the Gold Coast is popular with investors, both local and interstate.
There are many established and developing estates that comprise a high number of standard dwellings designed and built for investors. Of course, there is also a balance proportion of owner-occupiers in this region because the new homes are affordable for first home buyers and for those upgrading to larger homes. A typical four-bedroom new house on a 350 to 450 square metre block can be purchased starting from $400,000 to $500,000. Also in this region are many townhouse complexes catering to investors and the demand from renters for such dwellings continues to be good. Rental levels have been steady with weekly rents falling between $400 and $480 per week for a typical four-bedroom house that is relatively new whilst rentals for units which usually offer three- bedroom accommodation are slightly less, most being between $370 and $400 per week. Rental levels have risen in tandem with prices over the years, thus the net yields have been relatively stable at between 3% and 4% per annum. Yields are generally commensurate with the level of expected risks, thus a higher yield would be expected for older properties and those located in areas with lower quality tenants, such as those who don’t pay their rents by the due dates or who don’t look after the property they are renting.
In some areas, relatively high rents in comparison with the purchase price have resulted in positive gearing, however capital expenditure may be required in future to maintain the standard of accommodation provided.
Speak with a Gold Coast Mortgage Broker today.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.