Architectural design has evolved to be ever more impressive, overwhelming, and beautiful.
An admirable amount of money and time is invested into structural innovation so that each construction project contributes elegance and awe to a city’s skyline.
The video describes the Australia 108 project which saw a building rise 100 storeys above the historically swampy area of Melbourne’s Southbank. The construction of this outstanding project began many years ago and is currently the highest residency tower in the southern hemisphere.
It was originally supposed to be a little taller, but due to the aviation restrictions back in 2013 it was limited to 100 levels. However, it’s still the tallest tower in Melbourne.
The building contains 1105 luxury apartments, and the entire top floor is a penthouse which sold for $25,000,000 to a Chinese businessman.
The plentiful luxury amenities start at the lobby with concierge services and continue on levels 70 and 71 including: a cinema, gym, dining room and a glassy swimming pool which is situated 212 meter above the street level.
The whole construction is a unique and inspiring design and at night further defines itself with an attractive LED system.
Australia 108 is located right on the prestigious Southbank of inner-city Melbourne. It’s a walking distance from everywhere and an easy commute.
For all these reasons, it’s certainly exciting to buy a luxury apartment in the building and enjoy the prestigious lifestyle and the amenities. However, the question is – is it a smart solution for the investor?
The sellers’ killer pitch to raise buyers’ emotions to fever pitch level consisted of a few main factors.
The most impressive impact was to show them the well-known photo of the towers’ residential units sitting confidently high above the clouds (although this is actually a rare phenomenon these days in Australia.).
Another was to show off the swimming pool located 212 meters above street level. You can gaze at the whole city from the sky while you swim.
Of course, the tower’s creative and prestigious shape and the golden star were other factors that ensured the building’s position as an iconic and attractive landmark.
The actual height of the building is one of the most persuasive factors and many potential buyers fall for that. To buy and live in the tallest skyscraper in the southern hemisphere gives a confident impression that the investment couldn’t go too wrong.
However, nobody mentioned in the marketing material that there are aviation limitations or that it will take many years to change the limitation rules. Meanwhile, another beautiful green building was born.
Introducing The Green Spine project, which doesn’t have any aviation restrictions as the construction will commence only in 2022. This magnificent tower will be 356m high, significantly taller than Australia 108 which stands at 317 meters. So currently Australia 108 holds the title but not for much longer.
Another sales tactic is the 25-million-dollar penthouse on the top level. Many people can easily be influenced by wealth dreams and the prestigious money stories, but one must be cautious. Of course, if there are super expensive apartments at the top levels it can certainly contribute to the overall building value and maintenance in general. It might also increase the number of owner occupiers which is also good.
However, if you read my previous articles about property risk & return assessments, you’ll know that only one asset-class and property configuration can be the optimal one in any suburb. The risk assessment may only be a guide, but it is essential, as it assesses and highlights aspects that we may be seeing. Only one budget variation will associate with low equity and cash flow risk.
Usually in these kinds of buildings we will see a range of prices that increase slightly from level to level and also vary based on the location, aspect and view.
For example:
1-bed 1 bath, no car park – $450,000 – 590,000
1-bed, 1 bath, 1 car park – $640,000 – 730,000
2-beds, 1 bath, no car park – $600,000 – 800,000
2-beds, 2 bath, 1 car park – $850,000 – 980,000
3-beds, 2 bath, 2 car park – $1,900,000 – 5,800,000
So again, regardless of the diverse range of prices from 400k to 25M, the reality is that there is only one specific configuration that has the most likelihood to appreciate within a reasonable time frame.
It’s simply not viable or accurate to arrange a property investors’ free-for-all and declare that everybody can be sure of a great investment here, no matter what the size of their pocket!
As an example, I chose a 3 bed, 2 bath, and 2 cars residency on one of the top levels of the building. Below you can see a short risk system analysis, as of October 2021.
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The overall risk is medium-high and there is a huge likelihood not to make any capital appreciation over the short and medium term, which will also affect the long term. Although the property enjoys good demand for its property configuration, location and prestige, the property price is higher than the median price and supply may be greater than long-term demand.
While a longer investment term might be adequate under normal circumstances, in this suburb and with this particular asset, there is still a potential risk the property will deliver poor returns.
Due to the demand for rental apartments in Southbank and within a building that has 1105 units, there is a likelihood of reducing material value because of poor market sentiment and increased equity and serviceability risks. If there is a high vacancy rate – the supply can be greater than the demand.
With regards to cashflow: higher weekly rent levels can reduce rental demand for this property, there can be low gross rental return and high quarterly strata payments. The number of new residential buildings may increase the vacancy rate, which is currently high at 7.5%.
A combination of units without car parking associates with extreme risk, and so the penthouse on the top levels and the properties of 4 beds that cost a great deal, won’t perform as expected.
The median property price is 547k so the high range prices won’t work.
There are negative historical growth figures, for example:
– 1.6% in the past 5 years
– 5.2% in the past 3 years
– 2.3% in the past 12 months
– 0.6% in the past 3 monthsWith only 464 units planned over the next two years (representing 2.5% of existing stock) in the Southbank, it is unlikely that the additional supply will impact capital growth and rental returns over the short to medium term. However, units in the Southbank and those towers are likely to deliver stagnant or negative capital growth in the short and medium term. Our analysis suggests that this level of growth is likely to remain consistently poor in the foreseeable future.
There is also a risk that this property’s value will decrease by 5 – 10% in the next few years. Buyers should be cautious regarding poor capital growth in the medium to long term. With the median price of units less than 50% of the median price of houses in the Southbank, they present an attractive buying opportunity for home buyers and investors. Any number that is higher than 1.3M will mean that those properties will face negative results.
Median days in the market is 51 days which is a medium score.
Owner-occupier ratio is 10.9% which is poor.
The supply of units in the Southbank typically meets the demand in a strong market. However, the long-term demand for units in this area may be lower under normal market conditions, reducing the number of future buyers. This could impact capital growth, leading to a lower future sales price than the average for this area. This presents an equity risk for this property.
A holding period of 10 years decreases the risk associated with this investment. However, an investment term of 10 years in the Southbank in these luxury towers still carries a potential risk that the property value will not increase by an average 3% each year. Also considering the high upfront transaction costs such as stamp duty and selling costs the overall investment may well result in a net loss.
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Despite this generally negative overall risk assessment for the property, there are also positive attributes that serve to mitigate some of the financial risks, including: the attractive conditions of a brand-new property, a good demand for the property configuration, and overall positive property features such as the city location and outstanding views – which appeal to great number of potential tenants.
There is also the additional positive element of a tax advantage for high income earners.
However, in summary, despite some positive aspects, there is a major risk concern. The ideal investment will produce annual equity and allow us an easy holding, otherwise we’re truly risking our hard-earned money and locking it up for the unforeseeable future. The only exit strategy is to sell at a loss.
So, the sellers’ killer pitch is quite powerful if you think about it. Investors pay their 10% deposit and wait for the settlement. The construction sometimes takes 5 – 6 years which is time enough to forget the initial sales pitch story, and even the reason for your impulsive decision to invest.
The same rules apply if you choose to invest in a second-hand apartment at this location.
Here is an example of an ‘off the plan’ advertisement for real estate:
Last Chance for Huge Stamp Duty Savings!
PAY ONLY 10% DEPOSIT NOW & THE BALANCE IN THE FUTURE.
LOCK IN TODAY’S PRICE WITH MAXIMUM STAMP DUTY SAVINGS!
Penthouse, ‘Australia 108′ Southbank Blvd Southbank
Three Bedroom Luxury Apartment Near the Top
Floor to Ceiling Windows in All Rooms with Breath-taking Views !
Located on one of the top floors, this three bedroom, two bathroom luxury Penthouse is one of the exclusive CLOUD RESIDENCY Penthouses – each room has floor to ceiling windows with spectacular views in different directions – more than 180 degree vision range to the north, east and west!
This penthouse comprises open plan living, a fully equipped kitchen with stone benchtops, a main bedroom with BIR and a dressing room with BIR plus an ensuite, a 2nd bedroom with BIR and an ensuite, a 3rd bedroom with BIR, and a centre bathroom.
The facilities at Australia 108 include:
• Gym
• Outdoor BBQ area
• Sky Garden
• Private Dining Room
• Virtual Golf Course
• Lap pool, Sauna & Steam Rooms
• Private Theatre
• Infinity Edge Pool with views (Royal Botanic Gardens & St Kilda Rd)
Located in the heart of Southbank, ‘Australia 108′ is well known as the tallest residential building in the Southern Hemisphere – Walking distance to Melbourne’s CBD, Crown Casino, Southbank entertainment precinct, the Royal Botanic Gardens, and major public transport.
There is nothing wrong here, and indeed as I mentioned, this is a very nice building and for those who want to live there, it’s an exciting lifestyle change.
However, those sales points won’t be ideal for the investor. Stamp duty discounts or incentives from the agent or the developer should always raise a red flag!
The major misleading approach is to create a ‘wealthy atmosphere’, implying to the buyer that they are going to be wealthy in the future if only they ‘realise’ that they truly deserve to own part of a super luxury building. They might fall prey to the dream that they will become financially equal to the property strategists from the firm, who apparently became wealthy once they added a few luxury units into their property portfolio.
But this is far from the truth.
Often when inexperienced investors are impressed by these kind of stories and see the sellers’ expensive suit, sport car, and shiny office, they are heading in the direction of making an irreversible mistake.
There are still good buildings and units to invest in across Australia, but to invest because of strong emotions generated by sellers’ illusory stories and manipulative marketing brochures, especially like those for these kind of luxury towers, has little logic.
So, this is the real estate battle today: between valid property data utilised by serious property strategists, and the marketers who are looking for a quick sale at any cost.
Everybody understands that the real estate market is on a constant rollercoaster. These days there are a lot of agencies, off-the-plan companies, marketers, and property spruikers popping up every day trying to make a quick buck. It was the same years ago before the previous property pick and investors got smashed with bad investments.
Be extra cautious of property investment promoters or spruikers, who invite people to their ‘wealth creation’ seminars, often for free, with the promise of investment tips or opportunities. They typically promote a property investment system or even market a specific property development that, when analysed thoroughly as above, you realise that, yes, it is beautiful real estate, but it is not a worthy property investment.
Before you buy ALWAYS run a risk assessment on the property.
Especially if you feel that your emotions are flooding you.