The month in review: Newcastle

By Herron Todd White
September 2015

Units in Newcastle are so hot right now. There have been a number of recent projects that commenced in 2013 and 2014 and have been recently completed. It’s instructive that prices agreed at the time have increased significantly. This is the holy grail for many of the off the plan purchasers. (The speculators at any rate. For those who purchase with the intention of inhabiting, it’s just a bonus). It should be noted that this is not always the case in Newcastle and only comes around during the growth phase of the market. Speculators who purchased units off the plan in 2006 and 2007 had to wait for quite a period before there was capital growth joy. A recent conversation with a leading local real estate agent revealed all but several units were pre-sold in a 90 plus unit complex with 10 purchasers on a waiting list should any initial purchasers wish to cash out prior to completion of the complex. This highlights the strength of the unit market, especially towards the more affordable end of the market.

If we were to look at the smaller unit development market, the mums and dads level of undertaking, it appears that activity in this sector is up from previous levels significantly. Anecdotally the number of valuations we have completed where development approval has been granted for three to five units is up significantly from 12 months ago. Generally speaking the level of pre-sales being achieved is considered strong which locks in a certain level of surety into the process and subsequently lowers the risk profile of the project. It is interesting to note that various banks are reviewing their loan-to-value ratios of these projects and moving forward it will be interesting to see whether this has an impact on developers’ appetites to continue to actively operate. Especially coupled with banks changing their interest rates for investors which may impact upon the potential purchaser. It could be a double whammy. Watch this space.

Another sector which has seen an explosion in recent times is the humble duplex property. This is where a single lot is improved with two similar quality dwellings, whether attached or semi-detached. In the past 24 months, this type of development has increased significantly in popularity and a higher density prevails as a result. This is seen as providing the owner with an increased cash-flow and a potentially minimised investment risk with a dual cash flow as opposed to a single cash flow property. It’s interesting when valuing properties of this type. Often the owner adds up the individual component prices and adds them together to arrive at an estimate of value. What is often not factored in is the in one line discount which can sometimes be in the order of 10%.