In the world of property investment land is usually the most important criteria to worry about.
In Melbourne it’s often the property on land with excellent redevelopment potential that does really well and that trend is set to continue over the next ten years.
The excellent performance of such investments comes about in the current economic climate where land values are rising much faster than building costs.
The low interest rate environment is keeping those building costs low and making it a profitable exercise for many investors to knock over something old to build something new.
Mal James from James Buyer Advocates says property owners with unencumbered land are at increasing advantage over those with apartments, townhouses or heritage-restricted land.
“If you have got good unencumbered land, you are still on fire,” he told Domain.
The most important factor for buyers here is commonly whether or not the house on the land can be demolished and replaced.
Domain Group chief economist Andrew Wilson told domain buyers these days are unlikely to overcapitalise by knocking down an old property and starting again with a new one.
“Building as a factor of the total cost of the property is declining as a proportion,” he told Domain.
“It’s why it’s quite feasible to buy a property and just knock down the house. You are buying something for $1.5 million or $2 million and the house on it is virtually worthless as a proportion of the property’s total worth.”
“You can’t over capitalise by putting a very nice $300,000 to $400,000 house on it.”