Why investment property in the Perth suburb of Stirling could see a huge decline in value if the council has its way.
If some members of the council of the City of Stirling have their way, many investors who own property there could sustain huge financial losses, thanks to a new proposal. The council is seeking to limit multiple dwelling apartments at densities less than R60. This will cause many owners of property zoned R30, R35, R40 and R50 to lose their rights to develop apartments.
Background on R-Codes and Multiple Dwelling Development
In 2010, R-Codes were changed to allow multiple dwelling development (apartments) in areas rated R30 and above. This increased the potential of an 800 sqm property from two dwellings to five or six apartments. Savvy investors immediately began looking for properties that fit the new criteria for their enhanced development potential.
At first, development returns were as high as 35-40% but they have decreased to around 10-15% at this point. This falls below the 25% mark that we see as acceptable risk.
Oversupply on the Horizon?
In some areas, such as the City of Belmont, developers have constructed so many apartments that they are in danger of oversaturating the market by creating too much supply. When a large number of developers complete their projects in the coming 6-12 months, I predict a major oversupply of apartments. Unfortunately, this will probably cause a 1-2 year stagnation of rents and sale prices for apartments in oversaturated areas.
Restricting Apartment Development
Stirling was the first Council to propose limiting development to codes R60 and above, but they may not be the last. Unfortunately, this will have a huge negative impact on properties zoned R30, R35, R40 and R50, with possible price drops between $50,000 and $200,000.
The City of Stirling has said that their reason is that they want to “focus multiple dwelling developments to our existing activity and town centres, where residents have better access to services, infrastructure and facilities.”
While this sounds good in theory, they will be costing property owners a lot of money and preventing many otherwise perfectly suited properties from being developed to provide more affordable new housing in the area.
Balance is Needed
Our experience in the City of Belmont has led me to be in favour of some controls to prevent oversupply. However, we don’t think a blanket indictment of all properties zoned less than R60 is the right answer.
Western Australian Planning Commission (WAPC) Proposes Different Restrictions
The WAPC has taken a more conservative approach, proposing that multiple dwellings be restricted to properties zoned R40 and above. This is a blanket approach, but at least it only affects R30 and R35.
The proposal would make multiple dwelling development on properties zoned R30 and R35 subject to the same site area requirements for Single House and Grouped Houses. Typically, the owner of an 800 sqm block would only be able to build two dwellings or apartments instead of five or six apartments. This would result in those owners maximising their properties by building two villas or houses on them and not apartments.
What Does the Future Hold?
I spoke to planning officers at WAPC who told me that the change will take at least six months to implement if it goes through. Any change in R-codes has to go through a long process to be approved, including council, minister and industry approval.
What We Suggest
If you have a property zoned R30 or R35 anywhere in WA, or any property between R30-R60 in Stirling, we recommend getting approval for building apartments right now. This approval will be good for two years. It will enhance the value of your property greatly. If you want to “flip” the property, here are your potential numbers. You will spend between $15,000-$25,000 for approval but your property will likely hold its value by between $50,000-$100,000.
If you have questions or need more detailed advice, call Investors Edge: 1300 472 427. Don’t leave thousands of dollars on the table.
