Smart investors buy properties with a high
land-to-asset ratio.
That doesn’t necessarily mean a large block of
land, but one where the land component makes up a significant part of the asset
value.
And while it’s true that land appreciates in value,
it’s not really as simple as that.
Not all land is made equal and not all land
appreciates at the same rate.
There’s lots of land (ample supply) in the outer
suburbs of our cities but much of the demand there comes from a small segment
of the market – first home buyers (restricted demand).
This keeps a lid on capital growth and makes these
areas poor investment prospects.
Even worse…the land component, the bit that
appreciates, usually makes up less than half of the total value of the property
(in other words a low land to asset ratio.)
However, in the inner suburbs, the proportion of
the land value to the total property price is usually considerably higher.
Remember it’s the scarcity of land that causes property
values in these locations to keep rising and currently there is strong demand
from a wide range of owner-occupiers for properties in our inner suburbs.
This trend is likely to continue as more of us
choose trade space for place and chose to live close to our workplaces in
locations that offer better access to infrastructures like public transport,
shopping, and entertainment facilities.
As demand looks set to outstrip supply in the
middle ring suburbs of our capital for many years to come, these areas are
where successful investors will buy for long-term capital growth.
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Jason Gwerder
Tuesday, 22 February 2022
