Buying Home in High Density Zoning

Hi all,

I've been looking at houses in the area of Upper Mount Gravatt Brisbane for my first investment property and have noticed that the council has rezoned some areas near Garden City Shopping Center as Medium to High Density.

What is everyone's opinion on buying property in Medium to High density zoned areas? Is it a good investment? Have you done this very thing and what was your experience?

I would imagine that it could go either way. If you house is surrounded by massive concrete apartment blocks then you property doesn't look appealing. However on the plus side your property my be desired by developers. Ultimately I think if the property is large enough to develop on then this is an really good bonus as developers would particularly desire such land.

I would most interested on everyone's thoughts and opinions on this.

Thanking you all
Dean

You are going to need a pretty big block for it to have the potential for an apartment block. Any block that size would normally have a redevelopment price premium. The idea is to buy before it gets rezoned.

I agree with Boomtown. If the block isn't conducive to future development - I'd be hesitant to purchase a house in area swamped with high density living.....just as I'd be hesitant to purchase an apartment in an area that's predominantly filled with detached homes.

Cheers

Jamie

boomtown said:

You are going to need a pretty big block for it to have the potential for an apartment block. Any block that size would normally have a redevelopment price premium. The idea is to buy before it gets rezoned.

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Jamie M said:

I agree with Boomtown. If the block isn't conducive to future development - I'd be hesitant to purchase a house in area swamped with high density living.....just as I'd be hesitant to purchase an apartment in an area that's predominantly filled with detached homes.

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Hi Boomtown and Jamie, thank you so much for replying. I would agree with you both that if the area was already swamped with high density living then it would not be wise investment.

But how about this scenario. Suppose the area you are looking in constitutes of approximately 98% of houses. So basically there is only about three unit blocks. Each house sits on about 550sqm. Obviously too small to build a unit complex on. So developers would have to purchase two next to each other to build even a small complex. The location of these houses are good because it is within walking distance to a shopping center, expresses bus service and live style amenities like gyms, cinema and restaurants. Would you still consider investing in the area considering that it was recently was rezoned to medium to high density? Or would you be concerned that over time the property would be surrounded by apartment blocks?

I'm interested in hearing your thoughts?

Many thanks
Dean

Developers like to buy property dirt cheap. It's not sounding compelling so far unless you are taking a very long view and prepared to wait for the rest the area to be built out because there is no scarcity from the developers pov.

At a guess from your description you are referring to Lutwyche or similar burb on a new busway.

There may be other reasons to buy but redevelopment doesn't sound like one.

You need to be aware that lenders and valuers look at zonings and apply different restrictions and valuations accordingly.

Low density residential 1 is the highest form of residential zoning.

Many pro-development areas are now MUX/MUZ or Mixed Used Zoning. Some financial institutions will restrict lending in these areas to 80% LVR or even in some cases 60% LVR. This creates a problem for you when looking to sell in the future as it lessens your buyer market.

Valuers also get more conservative in higher density areas and often look at the lower end of recent sales in a block. With regards to buying a house within a H1 zone valuers get very conservative due to the lack of compatible evidence. This means you'll never achieve above expected results when it comes to bank vals.

Buy something unique... but not as unique as a house among sky scrapers.

boomtown said:

At a guess from your description you are referring to Lutwyche or similar burb on a new busway

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Thanks for the reply,

Actually I am referring to Upper Mount Gravatt. The area surrounding Garden City has been planned to rezoned for medium and high density residential. Which is what got me thinking whether it is a good idea to buy a house in these areas.

Jake @ infolio said:

Many pro-development areas are now MUX/MUZ or Mixed Used Zoning. Some financial institutions will restrict lending in these areas to 80% LVR or even in some cases 60% LVR. This creates a problem for you when looking to sell in the future as it lessens your buyer market.

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Thanks Jake, that is some awesome information. Since I intend to implement a buy and hold strategy it might be in my best interest to pass on houses in these areas that about to be rezoned.

Dean1337 said:

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Thanks for the reply,

Actually I am referring to Upper Mount Gravatt. The area surrounding Garden City has been planned to rezoned for medium and high density residential. Which is what got me thinking whether it is a good idea to buy a house in these areas.

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Ok thanks. Not an area I know anything about so cannot comment.

Thanks very much Dean.

Just to add, I'd avoid buying in pro-development areas if you're starting off a portfolio. With that said, the surrounding areas may be an idea as they'll rise in value due to the ripple effect. The influx of population/income nearby will flow over somewhat.

Honestly though if you've got the budget try and purchase your first few properties in an established "blue-chip" suburb. This way you're buying in areas that have stood the test of time and will act as a strong foundation to build upon and gradually increase your risk profile.