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Peter Rogozik Property Consulting

The Block – you would have to be a block head to buy one – for investment

Your Buyers Advocate Newsletter

It has been reported that over two million Australians own residential investment property. The quality of many people’s retirement is tied to having made an astute property selection.It is therefore important that powerful media outlets provide accurate and balanced commentary on the property industry.

The popular Australian television show known as “The Block” is a case in point. The one way positive spruik regarding the investment potential of The Block properties from Fairfax Media and in particular  their property magazine  “Domain” was dangerously one-sided.*

The Block properties can be a perfect fit for a purely lifestyle purchase however invariably they are low grade investments.

In a recent article in Domain magazine headed “Star-studded investment” a series of inaccurate assertions were made in promoting the investment quality of The Block’s recent project situated in Fitzroy Street, St Kilda.

The article claimed “many investors are drawn to new properties because of the attractive depreciation schedules available”. The fact is that tax benefits should always be a lower order priority when buying residential investment property. Benefits to investors through tax deductions are far outweighed by capital growth potential.

The speed of capital growth determines the success of a residential investment property, not tax deductions.

The article goes on to state “Due to their positioning as high end executive residences, the luxury fit out and inclusions make up a large portion of the value of The Block apartments.” Land value based on quality of location should make up a large portion of the value of a premium investment not a luxury fit out and inclusions. Luxury fixtures and fittings depreciate over time and should not be a high priority for property investors.

The article also made the following assertion about rental yields. “The yields are higher in The Block properties simply because there are several hundreds of thousands of dollars’ worth of furniture included.”

An investor will be millions of dollars in front in a twenty year period by focussing on capital growth, not yields. Residential real estate is a growth asset; yields play a secondary role as to the quality of the investment. Capital growth should always be the number one priority as it underpins rental growth, not the other way around.
 
The Block’s Fitzroy Street, St Kilda apartments sold for in excess of $2,000,000. This outlay is substantially too far above St Kilda’s median price to make it a viable investment.

A fundamental of sound investing is to make sure your investment property purchase is within close proximity to the suburb’s median price as this is the price point that represents the largest pool of buyers.The intensity of demand is greatest at this price point. It ensures a level of demand even during downturns.

Also, investors with a financial capacity of over $2,000,000 would be well advised to diversify into several high quality assets. This will allow one property rather than the entire portfolio to be sold should the need arise.

The recent merger of Fairfax Media and Nine Entertainment will further muddy the waters when it comes to providing balanced commentary on financial matters. Having a concentration of print, digital, radio and television media in the hands of too few is not good news for property investors and Australian investors in general.

One corporation controlling multiple major property advertising mediums is a recipe for self-interest being placed in front of accurate commentary. It increases the probability of collusion at the expense of balanced commentary.

The merger of Fairfax Media and Nine Entertainment has made an already bad situation worse.

The fact that the banks were able to scam their customers for so long was not only a failure of regulators, it was also a failure of investigative media.
   
Property buyers should be wary of commentary by media corporations on investment matters.Their opinions are likely to be influenced by who is lining their coffers with advertising dollars.

Always seek genuine independent advice from a property professional before making any investment decision.

* At the time of writing this article Fairfax Media owned a 60% stake in real estate portal Domain
 
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