What Type of Property Should You Look For? (Part 2)

Property Development and Investment Melbourne – Understanding Demand

As mentioned in part 1, selecting the right property to develop is primarily about what people need, or the ‘demand’, plus a few other reasons. Assuming that there is no immediate personal need for a particular property type and you don’t already own a property with development potential, we then need to look at what type of property development in Melbourne is in demand, or what does the market need most? Why do I ask this, well the higher the demand, the better the chances of selling or leasing your developed property to someone that needs it.

There are two ways I look at demand, and that is immediate (now) and constant (over time), and suggest the property development strategy should suit.

We already know that there is additional wealth unlocked by developing a site instead of buying something completed, so let’s focus a little on the investment side of things to make some comparisons.

Constant Demand = Develop and Hold

Building wealth through property investment is reliant on long term capital growth. It also relies on rental income to minimise ongoing maintenance costs, so the more constant the demand is over time, the more stable it would be as an investment.

The same general principles apply regardless of the property type, but my preference is for residential property development. Don’t get me wrong, you may already own other types of real estate and have already realised some great benefits, but commercial and industrial property can be more sensitive to economic changes.

For example, If business and the economy slows, you could find yourself without a tenant for a while and making up the income shortfall with your own funds, so your pre-investment assessment becomes a little more complicated as you would need to think about what type of business would be least affected by economic downturns.

In contrast, those who are familiar with commercial and industrial property might even find that those investment types can perform better than residential property, but MOST people are generally more familiar with residential and the funding is also more affordable than other property types.

Putting it another way, residential property development could be considered more essential than non-residential. Businesses come and go over time, but people always need to have somewhere to live. There is much more property in Melbourne that is zoned for residential occupation relative to other uses, so not only does it support the notion of greater constant demand, but also provides you with more choice.

Immediate Demand = Develop and Sell

There are always exceptions though, and one is if I had a personal need to run a business (refer part 1). I would also consider an opportunity in a particular area that is clearly in immediate need of a property type other than residential, with a view towards selling rather than holding for the same reasons explained above.

Seasoned commercial and industrial investors might suggest otherwise, and that is all well and good, but if you aren’t quite sure and prefer to have a more passive investment, residential might be a better option.

Whichever property type you are looking for, developing is the key to unlocking that extra wealth. If you have any questions or want some development advice, please give me a call on 0438 028 194 or email domenic@landeq.com.au.