August 8, 2018 by Dymphna

Govt hands lucky investor $160K!

This is how to play government changes

There’s a saying in property that ‘they’re not making any more land.’

The idea is that land is a fundamentally scarce commodity, and that’s why its value grows and grows over time. And with it, dwelling prices.

Except it’s not entirely true.

For example, you could say that amount of land within 10mins of the CBD is fixed. That’s true at some level.

But it’s not true at another. For example, in 1900, before cars, 10 mins from the CBD was a reasonably short distance. After cars, that reach got a lot a bigger.

And then today, now we have too many cars, the circle is shrinking.

So the amount of land “10 mins from the CBD” is in flux.

The point is that technology can have a big impact on a piece of land’s relative value.

And in that context, this story last week is a classic case of how technology and amenity can impact land values. It’s from the ACT, where a new train line has seen an explosion in values.

Next month, the first passengers will board at the new $600 million Mernda station, one of three new train stations being built as part of the South Morang line extension.

Since work began on the project in April last year, land prices have skyrocketed. Some parcels have been flipped for more than double their purchase price, including a 252-square-metre block which fetched $300,000 in March this year, just under 11 months after it was purchased for $140,000.

House prices have also increased in the suburb, with recent Domain Group data showing 25 per cent growth in the median house price in the past year, taking it to $575,000.

Herron Todd White senior valuer Warwick Thomas said property prices had increased across the outer north, but not to the extent they had in Mernda.

“This growth has outstripped the neighbouring areas in that outer fringe – across at Wollert and Kalkallo and other growth corridors,” Mr Thomas said…

Mr Thomas said property prices in Mernda did not start to pick up until the first sleepers were laid, partly because people were sceptical about whether the project would go ahead.

Not a bad deal that one. Purchased for $140,000. Flipped 11 months later for $300,000. That’s sweet.

As the valuer says though, playing government infrastructure can be a bit of a gamble. There’s a few factors to watch for. Some projects get ‘announced’ for a bit of publicity long before any feasibility studies have been done. That can lead to long delays, which can be hard to plan contingencies for.

And then you can get a change of government and the whole thing gets canned.

But still, you see this sort of thing play out time and time again. Some major infrastructure investment changes the relative location or amenity of a piece of land, and the price goes up.

And it’s not just rail lines and major roads. It can be anything from airports, to hospitals to universities, to mines, to… whatever really.

And what gets interesting for me is when personal drones are introduced. That sounds like science fiction, but it will be in the next ten years I reckon.

What happens to relative land values when we can be 100km from the CBD within the hour?

Anyway, the key take home for investors is that we’re not just investing in houses. We’re also investing in land.

And land is malleable.