Wollongong August 2017

The month in review: Wollongong

By Herron Todd White
August 2017

We see a few different investor types who look to invest in residential property. One is the mum and dad style investor who is either using spare cash or their self-managed superannuation fund to invest in a single residential property. This can either be a dwelling or a unit and their price point can be anywhere from $350,000 through to $1 million depending on the amount they have to invest. Another type is a local investor who has multiple properties generating income for them. Most of their properties are lower end units or dwellings (typically purchased for sub $750,000) and they can often include properties converted to allow for multiple tenancies. The last investor type is a more prominent individual or group interested in cash flow and their portfolio will comprise larger unit blocks held in one line. They can be either local, from a capital city such as Sydney or from overseas and the price points for their investments are often in the $1 million to $3 million range.

The investor market has been particularly active in the past three to four years throughout the Illawarra. Changes to self managed superannuation fund regulations and historically low interest rates have been the driving force behind this along with rising property values allowing mum and dad investors to use the equity in their owner occupied property to invest elsewhere. Residential rental prices have not been increasing at the same proportion as property values and therefore yields have dropped during this period. Some examples of recent larger style unit block sales in the Illawarra and their gross yields are as follows: ten x 2-bedroom villas in Bomaderry recently exchanged for $2.35 million and at an estimated market rental of $275 per week per villa, the sale price shows a gross yield of 6.1%. In Corrimal, a complex comprising five x 3-bedroom townhouses recently exchanged for $2.27 million and this shows a gross yield of 4.9% at the assessed weekly rental of $2,150.

We understand that investors are significant players in the residential property market and are contributing to rising property prices and the recent boom in construction of unit complexes in Wollongong. As new units continue to be released to the Wollongong market (along with more on campus accommodation at Wollongong University) there is a real threat of an over supply and heightened risk of vacancy rates rising. As always we would recommend that investors complete proper due diligence prior to purchasing and understand the rental history of their potential purchase along with any surrounding development or infrastructure changes that may impact.