How Amenity Can Boost Rental Returns

Posted by Jack Guthrie

The rise of the downsizers, young professionals and lone person households are shifting demand in our property markets from the classic house and land packages, toward high-quality apartment living. Buyers are now sacrificing quarter acre blocks in exchange for the convenience of major cities. The desire to live in our major city’s has become so strong, that over half of our population now live in just 3 cities (Melbourne, Sydney and Brisbane).

This shift in Australian living has led to a phenomenon of shared amenity. Developers are now adapting their projects to accommodate every facet of living – what was previously achievable through gym memberships and community spaces is now at the fingertips of tenants. Such elements as health and wellness centres, communal bars, rooftop dining and co-working spaces are now rolled into residential living to cater for a tenant’s every need. Many of which are managed through sophisticated on-site concierge services that allow for personalised service.

The introduction of these new amenities has gone a long way to create higher levels of rental demand within a project and strengthen yields for investors. Tenants are prepared to pay more for the inclusions of amenities and convenient features. However, many investors have coined a misconception that servicing the amenity will burn a hole in their pocket, and that buying into a project with appealing amenity will “probably have too much strata”.

Whilst the management of amenity can mean higher strata costs, this doesn’t mean that the property will be more expensive to hold as an investment. Often the higher rental income produced by the residential amenity offsets the higher costs of the property, in many cases creating lower holding costs.

To show you the truth about how amenity is a positive thing for investors, we have done some research into a Blue Wealth approved market – Ivanhoe, Victoria. We have compared the expected returns of our approved project “Ivanhoe Gardens” with comparable properties without residential amenity.

Average 1-bedroom Ivanhoe apartment

Approved Ivanhoe Gardens

1-bedroom apartment

Rental income

$313/week

$383/week (22% higher)

Average Strata Fee

$1,360/year

$2,047/year

Ivanhoe Gardens as a project includes a squash court, Co-working spaces, retail amenity, private dining, saunas, wine and whisky bars, car wash bays with car chargers, games rooms and a full-sized gymnasium. These amenities act as a major drawcard for investors seeking tenants in return for $13 per week higher strata ($687/year). All of these appealing features will generate an expected rental income that is 22% higher than competing properties in the direct market. This higher rental income on average creates an extra $70/week rent ($3,640 per annum). Ultimately, offsetting the costs paid for the higher strata fees.

Australia’s growing inner ring populations, will continue to place demand on these innovative shared amenities. As the investment space continues to adapt to a growing Australia, Blue Wealth aims to provide our clients with the best opportunity to leverage off these cutting-edge investments.

Posted by Jack Guthrie, on 11th Dec 2018