Investing in Unique Property Developments

updated 15th October 2016

Unique properties

Upsides

  • Rarity factor may attract premium rental rates
  • Potential to generate solid capital growth
  • Limited supply

Downsides

  • Too niche for many buyers
  • Difficulty in benchmarking market performance
  • Limited market appeal

“In a marketable sense, the bread and butter property is probably going to appeal to more people. But I’d think that the one which had the quirkiness would attract a better rent” Curtis Field, national development director for Colliers PRD

“Standard properties usually only offer standard growth, while more unique offerings have the potential to generate exceptional capital growth” Caroline Selka, Move Property Agents

While unusual properties can sometimes seem a riskier investment, if the right person shows an interest at the right time the rewards can be unprecedented!

Unique assets

Standing out from the crowd is vital when it comes to attracting investor interest, and unique properties are more marketable than most. But while church conversions and eco-developments give real estate agents more to shout about than your average identikit unit, do they also run the risk of being too niche? Jane Howdle finds out

Unique property can be hugely profitable. Not only does a point of difference attract added interest, but it can also place an emotive hold on buyers, encouraging them to pay more for what they may consider a once in a lifetime opportunity.

With unusual property, the sky really can be the limit in terms of resale value, which is great news for any investor.

Rare opportunities

The primary advantage of investing in unique property comes from finding something that can’t be replicated that will be in future high demand. Your gain will come from capital growth and increased demand as time goes by. The price you achieve at a later date will be brought about by competition for the property at auction or the sale of others that are similar in the development.

The chance to re-use converted buildings such as churches and warehouses is attractive for developers as it enables them to access the kinds of locations that may otherwise be out of reach because of council red tape.

“Developers get the opportunity to create apartments in areas where normally you wouldn’t be able to do it by virtue of zoning laws,” says Curtis Field, national development director for Colliers PRD. “From an investor’s or buyer’s point of view, you’re getting the opportunity to buy in a location which normally just wouldn’t be there.”

Older isn’t always wiser in the investment stakes, however, and as Primrose warns: “Brand new properties generally attract higher rentals and lower vacancy rates and there are more likely to be maintenance issues which will add to the cost of the investment [in older properties].”

However, it’s hard to ignore the many perks of difference. L.J. Hooker CEO Warren McCarthy says that being unique can be a major selling point because “it creates a lot of interest. Something that’s different will stand out from the crowd; therefore it’s going to turn on some desirable juices from the purchasers.”

A consequence of this more emotive response means that putting a price on a unique property can be tricky – by its nature it’s a one-off and you won’t have a great deal of comparatives.

“There may be a benchmark provided by similar properties in the same development,” says McCarthy, “but when there’s been no sale for some time it can be hard to establish precise worth. The value component then is about the level of demand at that point in time – it’s very much an inexact science driven by a person’s desires, often the heart ruling the head.”

McCarthy therefore recommends owners sell unique properties at auction in order to maximise profit. “You’ve got to sit back and say ‘well, let’s see what the market at this point in time is going to present to us’,” he says. “There won’t be much of a guide other than a gut feeling because of the lack of comparative sales analysis. People’s emotions can deliver all sorts of outcomes with value.”

A case in point

McCarthy recalls attending the auction of an unusual two-level 1950s building in the Sydney suburb of Cronulla, which was valued in the region of $700,000 – and ultimately fetched $1,110,000. “A local man desperately wanted it for his daughter so that her business practice was downstairs and her living area upstairs,” says McCarthy. “That’s a certain personal desire that you could never have read, but he had this emotive requirement. How do you put that into a percentage level? It’s impossible. And that’s why auction’s so beautiful in both heritage and unique properties to determine best value at the time.”

The case is true when it comes to establishing the potential capital growth of unique properties, as by their very nature they’re all different and subject to a range of individual factors. “I don’t think you’ll ever get a formula that suggests it’s going to be worth X% more,” says McCarthy.

Causes for concern

As with anything that’s a little different to the norm, owners of unique properties run the risk of alienating potential tenants or purchasers; while it may always have been your dream to live in a house shaped like a cat, not everyone will share this aspiration.

“People go, ‘Ah, jeez, I like the idea but I don’t know if I could live here’,” says Field. “Something can be very stylised and too down a certain track and very limiting in terms of its market appeal.”

Before investing, ask yourself if the development translates into a liveable project – neutral colours and design features may not be exciting, but they widen your market by offering potential purchasers a safe, blank canvas on which to place their own ideas.

“By and large, creating unique properties is not necessarily a good thing,” warns John Moore, president of the Property Investors Association of Australia (PIAA). “You’re appealing to a very small market. There’s significant risk involved.”

McCarthy advises the owners of unusual properties not to be surprised if they’re not inundated with interest. “Sometimes because they’re unique they may take a little bit longer to capture that person that’s looking for that,” he says. “Ultimately, I think values are held pretty well with that type of property. But it won’t be everyone’s cup of tea.”

Field agrees, pointing out that in a marketable sense, “the bread and butter property is probably going to appeal to more people, but I’d think that the one which had the quirkiness would attract a better rent”.

Future prospects

If you’re buying not only for the rental income but also for capital growth, “something unique is going to appreciate better than the chocolate box down the road,” says Field. “With identikit developments, there can sometimes be too much of a good thing.”

Caroline Selka from Move Property Agents agrees. “Standard properties usually only offer standard growth, while more unique offerings have the potential to generate exceptional capital growth,” she says.

“More savvy investors recognise the relationship between a more abundant investment property product offering an average rate of growth and less abundant, more sought-after properties generating better capital growth due to their limited supply,” she adds. “This is particularly the case over the medium to longer term.”

Primrose agrees, saying that, ultimately, it all comes down to supply and demand. “The thing with large multi-story developments is that there are always plenty to choose from,” he says. As a consequence of this, “the prices achieved are usually proportionally lower than that of a unique boutique development.”

This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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