Suburb spotlight: Neutral Bay's demand rising but potential growth remains

Five kilometres north of Sydney CBD, Neutral Bay in the North Sydney Council area is a blue chip area popular with capital growth investors.

It's on the lower north shore, and is bound to the East by the Warringah Freeway. Largely serviced by buses, it also has two wharfs, Neutral Bay Wharf and Kurraba Bay Wharf, for those taking the ferry.

Statistics to know

Houses

• Median house price: $1,658,000
  
  
• Median weekly advertised rent: $950
  
  
• Five year growth: 16.97%
  
  
• Quarterly growth: 6.25%

Units

• Median unit price: $723,000
  
  
• Median weekly advertised rent: $550
  
  
• Five year growth: 38.94%
  
  
• Quarterly growth: 0.35%

Source: RP Data

Including Neutral Bay Public School, Forsyth Park and a couple of reserves, the main daily attraction remains the busy Military Road shopping strip or Neutral Bay Junction, around which Woolworths and a Caltex are placed. The Big Bear is another focal point for locals, including a medical centre, Coles, restaurants and specialist grocers. Other popular spots include The Oaks Hotel, as well as Maisy’s Café – a 24 hour coffee spot. In the past few years, low-rise commercial development has been strong in the area, bringing a surge of restaurants and outlets.

On Military Road, it seems that some are attempting to capitalise on the centrality of their property. One development application in particular stuck out for Property Observer. A proposal for the demolition of the single storey commercial premises at 128 Military Road and the re-build of a mixed-use commercial/retail and residential building was approved subject to conditions. The apartments will include three studios, seven one-bedroom, eight two-bedroom and four three-bedroom apartments, as well as communal facilities on roof level, including a gym. The property is owned by Lexeno Pty Limited.

The development is expected to bring two commercial tenancies on the ground floor, 22 apartments on the upper levels and basement parking for 16 cars. It will cover five storeys.

Meanwhile, for something a little different, The Tier on Premier is a brand new offering, marketed through CBRE. It includes two- and three-bedroom apartments from $1.33 million, with a grand opening this weekend at 2 Premier Street, and is offering just seven boutique apartments with views of North Sydney CBD. It is being developed by Moore Development Group.

Source: CBRE

EPS Property Search's Patrick Bright, who has previously lived in Neutral Bay and has had an office in the area for 15 years, speaks well of the suburb - noting that it shares some strong similarities with neighbouring Cremorne and Mosman. He says that as it's already much developed, it's unusual for there to be supply and demand issues from new developments.

He also suggests that investors look towards established stock, as they tend to be the properties with the best positions and views.

Investors looking to buy into Neutral Bay should note that, outside of assisted living retirement type situations, there is currently a 6/1 Spruson Street studio offering with a price guidance of over $320,000. However, this is the exception rather than the rule, with those looking to buy into an entry-level studio or one-bedroom apartment looking closer to the $520,000 and above mark, with two-bedroom apartments starting from $620,000 spanning up to $900,000 and in some cases even more. For instance, 2 Premier Street includes new two-bedroom apartments from $1,330,000 in a boutique block of seven.

Three-bedroom apartments are regularly priced at above $1 million, though can be bought cheaper, while three-bedroom townhouses appear to start at around $1 million, but are regularly seen in the $3 million bracket.

But what should you really pay? Bright notes that, for the better investment properties, you want to be considering the following properties in the following price brackets:

One bedroom apartments - $600,000 to $700,000

Two bedroom apartments - $850,000 to $1,000,000

Three bedroom apartments - $1,000,000 upwards

Of course, the condition of the property will affect the price you pay - and renovators should be looking for lower prices that they can inject capital into through cosmetic fix ups.

Down Shellcove and Kurraba Roads to Kurraba Reserve are some of the most prestigious Neutral Bay properties on Baden Road, providing harbourfront offerings and harbour views.

RP Data records show that this area's better properties are quite tightly held, with the past sales including the $1,500,000 2010 purchase of two-bedroom, two-bathroom unit at 5/2 Baden Road (A).

Meanwhile, 3 Baden Road (B), a three-bedroom, four-bathroom house, sold in November 2010 for $8,300,000, having sold for $6,000,000 in 2004.

It was noted in the listing that views from the Harbour Bridge to the eastern suburbs are visible from “almost every area of the home”.

In February 2012, 2/4 Baden Road (C), a four-bedroom, two-bathroom unit, sold for $1,280,000.

Last year, 17 Baden Road (D), a three-bedroom, three-bathroom house, sold for $4,800,000.

In 2009, 15 Baden Road (E) sold for $7,600,000. It was a four-bedroom, four-bathroom house, while 5/21 Baden Road (F), a two-bedroom, one-bathroom apartment sold for $740,000 in 2010.

Map source: Google Maps 2014

It’s all about being on the right side of the road.

But how important really is the view? Bright says that it's critical, and a non-negotiable for Neutral Bay, which is positioned in a way that harbour views and bridge glimpses are possible.

"Why would you buy in the area if you're not going to have a property with a good outlook or view? You want an above average property," he says.

"Why would you buy in the area if you're not going to have a property with a good outlook or view?" Bright

With a healthy amount of rental stock on the market, and a current vacancy rate of 2.6%, according to SQM Research, it is common in the area for properties to compete against each other for tenants. The first to get rented are those with good floorplans, good outlooks and views - so investors would be wise to always buy above the average.

He also suggests that investors look for property with parking, and that are low maintenance as the buildings can be older in some instances. Bright notes that the last few years have seen a surge of Gen X and Gen Y young professional renters looking for the lifestyle that Neutral Bay offers, who are willing to pay a premium for the 'right' rental property.

At present, one of the more exciting listings is for 22 Spruson Street, which provides an opportunity for an investor to purchase an entire block of apartments. The four two-bedroom apartments, on a 635 square metre parcel, is noted as having the opportunity to renovate, recreate or enhance further over time. They have shared laundry and off street parking.

Photo of Bent St Neutral Bay courtesy of Sardaka/CC BY 3.0

Turn over page for insight on what investors should be considering in a potential purchase

The 2011 Census Data puts 72.4% of dwellings as units or flats, 17% as semi-detached or townhouses and around 10% as houses, so most investors will be considering the apartment bracket, renting to a young professional, most likely a couple family without children (58.5%).

The census also had the most common age group as the 30 to 34 bracket, with 14.9% in this age group, closely followed by 25 to 29 year olds at 14.8%. Of those over 15, 36.3% were not married while 47.5% had never been married. A further 17.1% were recorded as being in de facto relationships.

Around three quarters of Neutral Bay residents work full time, with the median weekly household income calculated by the Australian Bureau of Statistics as being $2,073.

{plotalot id="22"}

Price-wise, the area has surged with the rest of Sydney. At present, rental yields are flagged at around 4.5%, where 18 months ago a number of investors purchasing in would have been achieving above 5%.

This is unsurprising, given the 12 monthly growth rate for the areas units and houses sits at 13.96% and 5.10% respectively. Bright expects the yield to pick up over the next two years, as is common in market cycles. SQM Research's statistics suggest that this is certainly correct - with their implied gross rental yield statistics pointing to a 4% to 5% return for two-bedroom units, and high-5% for units generally.

Competition is heating up - days on market in the area have decreased and prices have risen, in line with Sydney overall, with RP Data seeing the days on market drop to around 44 for units.

Recent auctions to bear in mind include 302/151 Military Road, a two-bedroom, two-bathroom unit that sold for $615,000. Meanwhile, three-bedroom, three-bathroom 2/6 Montpelier Street sold for $2,375,000, and two-bedroom, one-bathroom 3/44 Bent Street sold for $840,000. Units closer to the main roads do tend to be priced cheaper, and it's worth looking a couple of streets back to avoid sound issues.

Neutral Bay, due to its inner Sydney location, is what many investors consider their bread and butter bluechip for medium to long-term growth.

If you can afford a little more, however, Bright suggests that Kirribilli would be his preferred area to purchase in. Neutral Bay, due to its inner Sydney location, is what many investors consider their bread and butter bluechip for medium to long-term growth, but it doesn't come cheap. If it is a little out of your range and you're considering Sydney's north shore - then further up the train line is where to look, suggests Bright. Chatswood and Cameray, for instance, may be the next places to consider.

Photo of Bent St Neutral Bay courtesy of Sardaka/CC BY 3.0