A new apartment complex in the New York neighbourhood of Soho is taking real estate to a whole new level, selling undercover car parking spots for $US1 million each.
Space and real estate are at a premium in the world’s most famous city. To put the car park price in context, the average home sale price in Manhattan was close to $1.5 million in the first half of this year.
Locally, real estate agents say car parking is quickly becoming a “rare commodity” in Melbourne and Sydney.
According to data from findacarpark.com.au, an online marketplace for those looking to buy and sell parking spaces, the average cost of a car park in Melbourne is $50,000, and offers an average rental return of eight per cent.
With average house prices in Sydney and Melbourne soaring to an unattainable $800,000 and $600,000 respectively, should you consider investing in car space?
High demand, high returns
Research from 2012 by Colliers International shows a strong demand for car parking spaces, with the amount of people working in cities far outstripping car park developments.
Findacarpark.com.au founder Francis Armstrong says since founding the site in 2005, he has seen a steady growth in demand and prices for car parking spaces in major cities.
“Every year, especially this year and last year, we’ve seen a massive, substantial growth in yield compared to other real estate,” Mr Armstrong says.
According to the site’s data, average rental returns on spaces in NSW and Victoria are six per cent and eight per cent respectively, compared to Australian Property Monitor’s figure of a four per cent return on regular property in Melbourne.
Hocking Stuart Yarraville director Leo Dardha claims demand will continue to outweigh planned car park developments.
“I think it’s a unique opportunity for an investor or someone looking to buy their own little piece of real estate,” Mr Dardha says.
“I think it’ll be a great idea to get into some sort of investment capacity and having your piece of real estate.”
Low capital growth, surging parking taxes
Despite the high yields, Metropole director and property strategist Michael Yardney advises against investing in car parks, pointing out their low capital growth.
“Car parks are not a good investment because they are a commercial lease, which only goes up by the CPI [consumer price index], which is two or three per cent, while we know that Melbourne and Sydney real estate has gone up 12 per cent, 16 per cent this year,” Mr Yardney says.
Taxes on off-street parking are also growing at a rapid rate, with parking space levies in Sydney costing $2260 per year and congestion charges in Melbourne at $1300.
Mr Yardney says people who can’t afford to invest in regular real estate should hold-off and wait until they can afford to buy.
“The trouble is real estate is not a yield-driven investment. If you want yields, don’t buy real estate, put money in a cash deposit, buy shares in the bank,” he says.
“If you can’t afford an investment-grade property, and to me a car space isn’t, sometimes the right thing to do is nothing.
“There are not lots of people going around looking for car spaces. They sell very, very slowly.”
What should you consider?
Mr Dardha says those interested in purchasing a car space need to consider the financial return on the space and the location, with certain areas worth more than others.
“Location is important. It’s crucial. Predominantly the CBD is where the car parks are mainly sought after,” Mr Dardha says.
In Sydney, spaces in the CBD are the most in demand, while in Melbourne the CBD and St Kilda Road also fetch the most.
“Check how long the lease is and what it is returning. Speak with a professional who works in that type of real estate and get the lease term checked by your solicitor,” Mr Dardha advises.