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Investing in car spaces? Park that idea

Every time a state government or local council announces a reduction in the number of car spaces required for apartment construction, there’s a flurry of excitement about the value of existing parking spaces. At a cost of less than $50,000 a space, surely this is a great way to enter the property market with no tenants to trash the joint. It’s just a block of concrete, how difficult can it be?

A week ago, the NSW Government released a draft change in planning laws allowing apartments within 400 metres of a transport hub to be built without parking spaces. Cue the articles on the rising competition for spaces. The Australian Financial Review (AFR) ran the headline, “Supply shortages fuelled by new planning laws means capital gains and attractive yields” (27 September 2014, page 29).

Don't forget the Parking Space Levy

Not one mention of a minor inconvenience: the Parking Space Levy. It’s a damn annoyance for anyone selling a parking space so why bother with it? Well, simply because it applies to all investments in off-street car spaces in a ‘leviable district’. The levy is a whopping $2,260 (indexed to CPI) in the City of Sydney, North Sydney and Milsons Point. It’s a more manageable $800 (also indexed) in Bondi Junction, Chatswood, Parramatta and St. Leonards. Click on any of these locations to see the relevant map, and it’s surprising how far the areas extend. Sydney includes Pyrmont, Ultimo, Walsh Bay and parts of Chippendale and Surry Hills. There is an exemption if it is not an investment, that is, if the owners live in the same building or an adjoining one.

Owners of individual car park spaces, such as the significant recent release near Sydney Airport, may heave a sigh of relief that they are not currently caught in a leviable area. But every state government is looking for new revenue sources. For example, a few months ago in May 2014, the Congestion Levy Act 2005 for Melbourne expanded the levy boundary, and all off-street parking in the expansion area will be leviable at $950 a year from 1 January 2015 (also indexed to CPI).

The AFR even quoted some healthy return numbers. Be still my beating heart. The owner of a parking space in Surry Hills can ask $80 a week. If the parking space cost $50,000, the yield would be 8.3%. Back up the truck, how many of these can I buy?

There are three costs this calculation ignores, and the Parking Space Levy is the highest. There are also council rates and strata fees. Yes, although nobody has to collect the garbage for a 15 square metre block of concrete, there are still roads and council offices to pay for.

Out of the 52 weeks at $80 a week income ($4,160, let’s ignore any agent’s fees or vacancy rates, it’s bad enough without a complete reality check) comes $2,260 of Parking Space Levy. A typical City of Sydney council rate for a car space is $650 a year (including stormwater charge) while strata fees are about $920 a year. Those three costs total $3,830, leaving $330 return on the $50,000 investment, or 0.7% pa. That’s without paying any borrowing costs.

What capital gain?

Of course (said the agent), there’s always the capital gain. When the City of Sydney announced an increase in the Parking Space Levy from $950 to $2,000 in 2009, the value of parking spaces in some suburbs dropped 25%. The levy started in 1992 at $200, and the suburbs were extended beyond major CBDs in 2000.

With governments of all colours desperate for income, does anybody expect any of these levies or levy boundaries to shrink? No, they will rise each year.

Like every real estate investment, the gross yields quoted by agents are only part of the picture, and when it comes to Sydney car spaces, the Levy is a cost you can’t park to one side.

 

This article is general information only and is not a substitute for professional personal advice.

(Graham Hand presented at this week’s SMSF Owners’ Alliance Technical Workshop, giving his insights on SMSF portfolio construction. If you are interested to learn more about SMSFOA and receive regular updates you can become a Registered Supporter for free at www.sisfa.com.au*.)

* Self-managed Independent Superannuation Funds Association (SISFA) and the SMSF Owners Alliance merged in 2017.

11 Comments

Graham Hand

June 13, 2017

Thanks, Joel. Yes, the Parking Space Levy is one of those costs of investing that can damage returns in real estate, and which many agents fail to mention.

Joel Knott

June 12, 2017

Thank you for the excellent piece Graham. I live in Brisbane and am often in Sydney on business (so often that I keep a car here). Over this weekend I was in Sydney and thought about buying a space in the Pyrmont area. It all seemed too good to be true, fair prices for the spaces, and strata seemed reasonable. But, as my mother always said, if it seems too good to be true...
The agents definitely seem to leave that pesky "little" detail of the Council parking space levy out of the equation. That figure alone is a game changer from a good investment, to a deal breaker. Thank you for enlightening us all.

Byron

January 27, 2018

Joey

So would you agree that buying a car space close to the airport is still a solid investment?

joey

September 24, 2016

yep I agree with Graham, i am an owner of 6 car spaces in mascot and I only pay strata fees 830$ and council fees 527$ for each lot of 2 car spaces, nothing extra , no levy or anything, so i am lucky to read this artice because i was going to pay a deposit for a car space in sydney for $70000 for only a 10 square metre space, not worth buying in city if yu are not using , filthy investment

Brian bissaker

October 10, 2014

Good on you Graham.Another excellent piece of analysis.
Brian

Joe

October 28, 2014

So are the Sydney Airport car spaces worth buying?

Graham Hand

October 28, 2014

Joe, we are not licensed to give financial advice, so I will make two statements. 1) The spaces near the airport are not currently in the Parking Space Levy area (as far as I know), which is the major cost for an investor and 2) There is no way of knowing what the future brings.

Marc

October 20, 2018

Hi Graham,
Quote" no way of knowing what the future brings " it is now 2018 and reality has caught up with you.... it is now well within the Levy arrangements.

One does not need a Crystal Ball to foresee this..............

Graham

October 20, 2018

Hi Marc, how has reality caught up with me? What has changed? The Parking Space Levy continues to rise with CPI and is a massive factor in buying car spaces in the relevant area.

Birchley

October 01, 2017

And who profits from the council levy? Less private car parks more parking on the street or illegal parking. Council profit from street meters and fines. The levy maybe considered a fair trade onflict of interest.

Birchley

October 01, 2017

Seems high risk with very little return. I pitty any person who has bought a carpark for a small fortune and then tries to sell it in 5-10 years. Car spaces ARE NOT finite because we wont need carspaces for autonomous vehicles. Musical chairs!


 

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