Mark Armstrong is a director of ratemyagent.com.au, Australia's number one real estate agent rating website.

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Mark Armstrong

13 August 2013

How the single storey villa unit became a highly prized investment: Mark Armstrong

When I first started analyzing the property market more than 20 years ago the poor old villa unit was viewed as the ugly duckling of property. The drab 1970’s units were primarily the domain of old people who were one step away from a nursing home.

But this opinion has well and truly changed as many buyers now view them as a highly prized investment.

There was an extraordinary result last weekend when a villa unit at 15 Grandview Grove Hawthorn East (pictured below) sold for $676,000.

 

hawthorn_east_aug_14

The last sale in the block sold just 5 months ago for $595,000. This property (pictured below) was virtually identical and has achieved almost 14% growth in less than 6 months.  

hawthorn_east_aug_14_two

A huge crowd turned up to the auction and given the previous sale the reserve was correctly set at $600,000 on the day. Once this price was reached the property was announced on the market and the bidders did the rest.  

Sometimes you see an auction result that is a spike in the market meaning two buyers get emotional and bid to irrational levels. In this case however the property was extremely well supported with around 10 bidders in total putting their hands up throughout the auction. In fact there were still multiple bidders competing in excess of $650,000.  

Many buyers walked away from this auction shaking their heads and I am sure a few of them cursed the agent for under quoting but when a market begins to move it is very hard for anybody to pick where it will stop.  

In this case it was the diversity of the buyers that pushed up the price and there were three kinds of buyers in the crowd:

 

Baby boomers - The oldest baby boomer’s turn 67 this year and the majority of them started their families when they were around 24 years old which means their children have now well and truly left home. Many baby boomers are now empty nesters looking to downsize.  

These buyers are cashed up from the sale of their family homes and the villa units in Grandview Grove are exactly what they are looking for. Low maintenance, ground floor units close to family and friends.  

Investors - Savvy investors view these properties as solid investments. The location is within walking distance to shops, transport and restaurants, which means they are highly sort after by tenants.  

Further these properties have very good underpinning land value. This property sits on a block of land of around 1500 m2 yet only has 8 units on the block. This ensures the investor with more reliable capital growth outlook.  

Home investors – These guys are a relatively new breed of property buyer. Traditional homebuyers searched for their dream home right from the outset and stayed there until their kids were grew up.  

Today home investors see things a bit differently. They focus on property that will give them the lifestyle they need now but will also be a springboard onto bigger and better things. They compromise on the size of a property to ensure they get into a better investment location. Although these guys tend to be equity poor they are cash flow rich and want to use this cash flow to generate tax-free wealth.  

The culmination of these buyers has created a very powerful property market force. Properties that appeal to all these groups will continue to be star investment performers in years to come.  

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and homebuyers.