Ur­ban re­newal an in­vest­ment win­ner

Run­down ar­eas close to the city of­fer bet­ter re­turns when com­pared to ar­eas fur­ther out, Sue Wil­liams re­ports

The Weekend Australian - Review - - Landmarks -

DES­O­LATE ar­eas up to 15 min­utes’ drive from city cen­tres, scarred by past in­dus­trial use and ear­marked for de­vel­op­ment as ur­ban re­newal projects, of­ten of­fer the best re­turns on high den­sity res­i­den­tial in­vest­ment, a new study has found.

Early bird in­vestors across Aus­tralia have en­joyed an­nual in­creases up to 27 per cent on the price of apart­ments over the first two years of their out­lay, usu­ally far above the sin­gle- digit growth of neigh­bour­ing ar­eas.

But there are some caveats — in par­tic­u­lar, don’t pick an area where a rash of apart­ments will all be built at the same time.

The study from Res­o­lu­tion Re­search, com­mis­sioned by agency DTZ, looked at me­dian prices of apart­ments in ur­ban re­newal ar­eas in Bris­bane, Syd­ney and Melbourne, and com­pared them to av­er­age re­turns in the cities gen­er­ally.

It found an­nual re­turns above 27 per cent in the first two years of the Dock­lands de­vel­op­ment in Melbourne, 26 per cent in New­stead in Bris­bane and 23 per cent in Syd­ney’s Pyr­mont.

The find­ings have pro­vided a wel­come boost to both de­vel­op­ers and lo­cal coun­cils proac­tively pur­su­ing ur­ban re­newal poli­cies.

‘‘ To be hon­est, those high rates of growth were some­thing I was to­tally sur­prised by,’’ says Diana Howes, man­ag­ing di­rec­tor of Res­o­lu­tion Re­search. ‘‘ For those ar­eas ex­am­ined, that means some­thing like 50 per cent growth in two years. I thought it would just be half that.’’

De­vel­op­ers, how­ever, are heart­ened by the re­sults, say­ing they jus­tify their faith in such projects.

Queens­land- based Prop­erty

Solu- tions, which spe­cialises in ur­ban re­newal, says the fi­nan­cial re­turns are only half of the pic­ture.

‘‘ When you’ve been in busi­ness for 30 or 40 years, you don’t do it any more just for the fi­nan­cial gains,’’ says found­ing di­rec­tor Kevin Miller.

‘‘ You also do it for the chal­lenge of trans­form­ing a site that is heav­ily run down, has so many is­sues and whose po­ten­tial has been to­tally over­looked, into a place where peo­ple want to live, work and visit.’’

One of the best show­cases is James Street in Bris­bane’s For­ti­tude Val­ley, which is to­day a lively precinct of shops, cafes, bars, an art- house cin­ema, food mar­kets and units.

When Prop­erty So­lu­tions took it on in 1995, it was an old in­dus­trial area dom­i­nated by the Coca- Cola bot­tling fac­tory, with land priced at $ 250 a square me­tre. By the time they sold out in 2005, it was $ 2520/ sq m.

‘‘ With ur­ban re­newal projects, you get an op­por­tu­nity to change uses, which is where you dig out the land’s value,’’ says Miller. ‘‘ But you need de­cent- sized sites that be­come a real cat­a­lyst for change.’’

Bris­bane, the sin­gle largest lo­cal gov­ern­ment author­ity in Aus­tralia, has be­come the pi­o­neer in the field. An­other good ex­am­ple is New­stead, a sub­urb to­day re­garded as one of the city’s most liv­able.

Af­ter Bris­bane City Coun­cil be­gan its ur­ban re­newal ini­tia­tive there in 1994, New­stead ex­pe­ri­enced strong apart­ment price growth of 26 per cent per an­num for the next two years.

In com­par­i­son, apart­ments in the greater Bris­bane area achieved av­er­age an­nual me­dian price growth of only about 7 per cent over the past 15 years. New­stead’s pop­u­la­tion growth was much higher too — 14.2 per cent a year in the 10 years from 1996, com­pared to 3.5 per cent for in­ner Bris­bane over the same pe­riod.

‘‘ It’s been a pol­icy that’s been hugely suc­cess­ful for Bris­bane,’’ says Alison Quinn, chair of the lo­cal ur­ban re­newal task­force which started out iden­ti­fy­ing sub­urbs such as New­stead, For­ti­tude Val­ley, New Farm, Tener­iffe and Bowen Hills for re­newal ini­tia­tives. The area now set for new de­vel­op­ment has nearly dou­bled in size to more than 1000ha. The coun­cil es­ti­mates the private in­vest­ment dol­lars in­jected into projects de­vel­oped and de­liv­ered within the Bris­bane ur­ban re­newal ar­eas is $ 5 bil­lion.’’

Else­where, ur­ban re­newal ini­tia­tives have de­liv­ered equally well for in­vestors. In the first two years of the late 1990s ur­ban re­newal strat­egy for Melbourne’s Dock­lands area, prices of the area’s apart­ments grew by 27 per cent per an­num. Over the past 10 years, me­dian prices in Melbourne’s apart­ment mar­ket gen­er­ally rose by 10 per cent a year.

In Syd­ney, the same phe­nom­e­non was recorded in the early days of Pyr­mont’s re­de­vel­op­ment. Guided by the Syd­ney Har­bour Fore­shore Author­ity, the ur­ban re­newal pro­gram be­gan in 1992 and saw me­dian unit prices leap 23 per cent in the first two years. In the greater Syd­ney area, prices in­creased by 7 per cent per an­num over the past 15 years.

‘‘ The key point here is that in­vestors had to get in early for the best gains,’’ Howes says. ‘‘ Th­ese high rates of price growth were also in projects that didn’t seek to de­velop too many units.

‘‘ The ceil­ing limit would be about 200, no more, in one build­ing or one de­vel­op­ment or one stage. Over that vol­ume, you wouldn’t re­ceive those gains. The vol­ume of stock would start erod­ing the gains, as it did later in Dock­lands. Large de­vel­op­ments like Jack­son’s Land­ing in Pyr­mont also didn’t en­joy those gains — they started prior to the ur­ban re­newal pro­gram. They were too early in the piece.’’

In­de­pen­dent prop­erty re­searcher Ad­viser Edge’s Louis Christo­pher agrees that ur­ban re­newal ar­eas can of­fer good rates of re­turn.

‘‘ They can po­ten­tially be a good in­vest­ment op­por­tu­nity — there’s no doubt about it, par­tic­u­larly in this cur­rent cy­cle where there’s been a short­fall in con­struc­tion,’’ he says.

‘‘ But in­vestors should still check sales in com­pa­ra­ble ar­eas to make sure they’re not over- pay­ing.’’

Tim Lawless, re­search di­rec­tor for RP Data, says the strong re­turns don’t sur­prise him ei­ther. The projects stud­ied were good ones, and the price rises came in the early years of ground­break­ing projects.

‘‘ They were built when the mar­ket was strong too, be­fore prices be­came flat­ter,’’ he says.

The pro­grams have shifted in em­pha­sis over the years, too, with mixed de­vel­op­ments — in­clud­ing res­i­den­tial, com­mer­cial, re­tail and em­ploy­ment op­por­tu­ni­ties — now in­creas­ingly be­ing favoured.

They’re also be­ing placed more around ex­ist­ing trans­port cor­ri­dors, be­com­ing known as Tran­sit Ori­en­tated De­vel­op­ments, or TODs, in or­der to more eas­ily cope with sus­tained pop­u­la­tion growth.

In Bris­bane, for ex­am­ple, new ur­ban re­newal ar­eas along th­ese lines are now be­ing planned for Nun­dah, Al­bion, Mil­ton, and Wool­loongabba.

‘‘ While peo­ple al­ways want to drive cars, we’re find­ing their car use does fall when they have the op­tion of pub­lic trans­port,’’ says Paul Bar­ratt, di­rec­tor of project mar­ket­ing at real es­tate com­pany DTZ.

‘‘ As a project mar­keter, we’re in­volved in projects that we call ‘ ex­press sub­urbs’ which are far enough from the city cen­tre — per­haps 15 min­utes — so they’re not in a high- den­sity en­vi­ron­ment, but they are close enough to en­joy all the ben­e­fits in a con­ve­nient lo­ca­tion.’’

Nun­dah is the ma­jor mixed use project now be­ing de­vel­oped by Prop­erty So­lu­tions on a 2.5ha site fronting Nun­dah Sta­tion.

Stage one, al­ready de­liv­ered, is a ma­jor re­tail con­ve­nience cen­tre. Plans for fu­ture stages in­clude 300 res­i­den­tial apart­ments, with a ma­jor com­mer­cial of­fice com­po­nent, fur­ther re­tail, pub­lic plazas, a re­gional li­brary and a re­fur­bished her­itage- listed pub.

Yet the higher than av­er­age re­turns that can come from th­ese ar­eas is prob­a­bly the best ed­u­ca­tor pos­si­ble.

Howes cer­tainly be­lieves this, as a re­sult of her re­search.

‘‘ Ur­ban re­newal in­vest­ments are the most fail­safe that you can make,’’ she says. ‘‘ Just as long as you get in at the right time.’’

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