Myth: The larger the land, the higher the value

November 22, 2017

 

There is a shared idea that large blocks of land trump smaller blocks for growth prospects. It stems from the mindset of the Baby Boomer and the definition of the “Great Australia Dream” - to live in a detached house, on a quarter acre block, surrounded by a garden with room for a big barbeque area.

 

This notion has passed one generation to the next. As a result, some investors instinctively favour large blocks of land with a house, rather than a 2-bedroom apartment; because they believe larger land correlates to stronger growth prospects. Fifty years ago, if one neighbour owned a larger lot than the other, it was valued higher, but, times have changed, and so have the aspirations of Generation X and Y.

 

With affordability strained, after Australia’s unprecedented property price increases, there was an uptick in demand for smaller dwelling types such as apartments and townhouses. What followed, was a surge in the construction of apartments and townhouses. Australia’s total number of flats, units, apartments and semi-detached townhouses increased from 23.5% in 2011 to 25.8% at the most recent census (an increase of 320,233 dwellings). This shift in supply and demand is due to the lower entry cost of these dwelling’s and their superior location - closer to employment nodes and amenities. This has pushed the value of these smaller blocks of property up, dramatically.

 

In Corelogic’s blog post “Does land size matter?”, the author reviewed the value of suburbs, in various affluent areas in Melbourne, based on their price per sqm. They found areas with the largest land content, were not of higher value. Melbourne’s most expensive suburb Toorak, boasted an average land size of 823sqm which translated to a cost of $3,187/sqm. On the other hand, Albert Park had an average land size of only 209sqm, but was valued at $6,274/sqm, due to it’s location.

 

The old principle, that the bigger block has greater value, is not necessarily valid in today’s market.  When undertaking due diligence to purchase a property, do not limit yourself to unsubstantiated “golden rules”, because you may miss out on better opportunities. There will be markets in which units outperform the value of houses, because the demand and affordability will be stronger for that type of dwelling. The Great Australian dream has changed, and investors must adapt.



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ABS

http://blog.corelogic.com.au/2014/07/does-land-size-matter-melbourne-victoria/

 

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