Vogue South Yarra apartments are positioned at the heart of Chapel Street, Melbourne’s
most stylish shopping, dining and entertainment precinct. VOGUE, a mixed-use development made up of both splendid shopping and residential apartments above it is set to be one of the most iconic tower in the prestigious suburb of South Yarra.

South Yarra needs no introduction. Chapel street is analogus to Orchard rd of Singapore with desirable lifestyle options. It’s a place where most of the young, high-income earners yearn to live in.

From an investment perspective, gross rental yield should be slightly higher than 5% for selected units(with carpark) and according to homepriceguide, the median price of units has grown by 7% between March 2009 and September 2009 and currently the median price of units in the suburb is $442,000.

Property managers have reported that units take roughly 3-6 days to be tenanted the moment an application is received from a prospective tenant, hence the vacancy period of units in this are is reduced dramatically.

Full specifications and cashflow analysis can be produced upon request. We don’t think the entire development suits investors but at least of handful of the units would do well from an investment perspective. Just drop me an email and we will take it off from there.

Have a awesome week ahead!

A number of property investors asked me if there’s a need to purchase parking lots in developments in or near to the CBD. My answer is a straightforward ‘YES’. My business partner told me he hasn’t known any Australians without a car. In fact, ALL the Singaporean friends who have migrated over to Melbourne or are currently working there on a long-term basis own a car. The reason is pretty simple. Australians have a certain lifestyle to upkeep and geographically it’s impossible to travel around the state in public transport within a short period of time.

What if someone lives and work in the CBD? Does he need a car?
YES!!

What’s he going to do over the weekend? Only 5% of the population works in the CBD. It’s not a huge proportion compared to those working in the suburbs. Most Australians work outside the CBD. The tenant wants to have the luxury of moving around over the weekend. If you have bought an apartment along Chapel Street, or St. Kilda road without a car space, your tenant base will be significantly smaller. Having been in this business for the last 5 years, I have learnt that as property investors, the two most important group of customers you have to aim to satisfy are the banks(1st) and your tenants(2nd). If you choose to ignore what your tenants really want, you will be in for a surprise - not a pleasant one I can guarantee.

Good luck folks!

It was a Friday evening and hordes of investors streamed into the function room at level 44 in The Sail@Marina Bay. Thanks for Forex Asia Academy, we were able to hold this event at the tallest residential tower in Singapore.

My business partner, Steve was present to answer questions that were posted when participants of the forum registered online. The response was indeed encouraging and from the feedback that we got from the audience, there’s still a very strong level of interest amongst Singaporeans as far as Australian property investment is concerned.

One of the all-time favourite questions that was poised to Steve, who has a huge portfolio of residential properties in Australia was if the time is right now for property acquisition. Steve’s answer was pretty simple and straightforward. ‘It all depends on your property plan’, he says. As circumstances for different individuals differ, the time for property acquisition for one may not be for the other.

If you wish to find out more about property plans, you may contact me at +65 98344408.

Have a great working week ahead!

The Reserve Bank of Australia (RBA) and the Government have caused an outcome which was better than we might have expected, the rapid reduction in interest rates has increased yields and reduced holding costs making most investments cash flow positive, and the Government has increased incentives to first home buyers and reduced some taxes.

2008 was a year that proved to all that housing is a lower risk asset than any other. We have seen share markets adjust by about 40% and our super funds suffer a reduction of something in the order of 40% also. Had the same people invested in housing many investors would not be facing wealth destruction. This is not to say shares do not have a place in a diversified portfolio, it just highlights the advantages in property as a very stable investment.

Below highlights the median property values over the last 10yrs along with current rental yields.

Source: Residex

On current market data, demographics, labour movements, etc. we believe that Perth still has adjustments to come. Perth in sheer dollar terms probably has the largest adjustment still left in it. Again our best guess is that it will probably revert to being the fourth most expensive capital city in Australia. Having said that it is not our expectation that it will achieve this via any dramatic falls. Currently, it would need to fall in value by about a further 5%. The more likely outcome is that we will see another couple of points fall over the next few months and then minimal growth, while places like Brisbane and Melbourne which have a less exposed economy, will provide higher rates of return. We need to recognise that Perth until recently was a city where home ownership was more the norm than rental, probably due to affordability, hence the pressure to sell properties other than in the top end will not be overly significant.

Looking further forward and given the global and domestic situation, growth of 2 to 5% would be expected. Over the last 5 years the property market has under preformed as the vast majority of capital flowed into the share market, however we are now seeing signs of that capital shift back into the property market. For example, Melbourne had an annual growth rate of only 4.5% between 2003 to 2008 compared with an annual rate of 9.5% between 1980 to 2003, Sydney also has a long term growth rate of 9.12% and has traded below this trend for some time. The old saying, “time is your friend”, is true in all markets and history tells us that when the share market loses momentum the key property markets like Melbourne and Sydney serge. The two years following the 1987 stock market crash, Melbourne grew from $100,000 to $185,000 and Sydney climbed from $130,000 to $185,000. Both cities had growth of about 20% per year, more than double their long term growth. While industry and share markets can expect lower cash flows, our housing markets will continue to provide increasing cash flows (rents) which will reduce the risks even further in an environment where interest rates are reducing. The massive shortage of supply will continue to cause increases in rents, with most major cities having a vacancy rate of only 1%. The more expensive suburbs in our cities will ease slightly due to job losses in the finance sector. Properties with rents under $450 per week will continue to remain strong.

The points below highlight why the Australian and US market are very different and will not suffer the same fiat.

 A tale of two markets.

A year ago, the danger to the housing sector was increasing interest rates and an ever increasing stock market. In 2009 the threat is unemployment. As this increases consumers are less likely to take out large mortgages, build new homes, or look at investment properties.

Australia is not the US or the UK and general house prices are not going to suffer the same decreases. However the prestige end of the Australian market place (A$700,000 to A$2M) has been rocked by the financial crisis, margin calls on shares, over exposure and retirement dreams have been shattered, country properties and holiday homes are flooding the market in many areas and these properties are coming onto the market by distressed sellers. With a reduced number of buyers, prices are taking a hit in this area and unfortunately this pulls the median house price down. As always the impact will vary in the luxury end of the market, “AAA, unique, irreplaceable” residences (A$5M to A$10M) will always have buyers, the second tier prestige homes are the most at risk. Areas like Brighton in Melbourne, the Gold coast in Queensland, holiday areas and many overpriced properties in mining towns across Australia will see significant reductions and may drop by 10 to 15%. Confidence is zapped, February and March will see the real pain in these areas and I don’t think we will see the bottom of this market until Sept/Oct 2009 when the prime selling period kicks back in. Falls in prestige house prices should not be extrapolated to the broader house prices, the million-dollar price point is less than 5% of the Australian market and does not represent the broader market.

The lower end of the Australian market (A$300,000 to $450,000), which represents 75% of all properties, remains strong and demand is consistent in most major city areas. The First Home Owners grant of up to $28,000 has provided a strong incentive, add to this mortgage rates have fallen by 30% over the last 12 months, and this has made home affordability in some areas the lowest since 1999. With rents still increasing due to undersupply, yields are increasing drawing more and more investors back into the market. Many vendors are already seeing opportunities to increase prices, many land developers have seen a jump of more than 15% in demand for land to build and with a reduction in apartment construction across the country due to the credit squeeze, this only adds to the undersupply. This area of the market is set for interesting times.

In short, housing continues to demonstrate its long term, low risk status having adjusted relatively little and is unlikely to adjust much further as the Government and the RBA takes action to put a floor under housing prices.

Australia will continue to provide a safe haven for capital flows, with a very stable Government and added lifestyle choices, Australia will always be a destination for international migration. Property is controlled by two basic factors - population growth and capital flows - both of which find their homes in Australia.

Article is contributed by Stephen Arnold, Director of PPG International Pty Ltd, a Melbourne based property acquisition and investment firm. PPG International specializes in helping investors in the area of wealth creation with residential properties in Australia. Stephen can be contacted at steve@ppgi.net.au.

Once a swampland occupied by the Aboriginal tribes, Melbourne’s inner city of Southbank is now a rejuvenated playground for the young.  The area which used to be part of South Melbourne after the British settlement became industrial and was occupied by old factories, warehouses and wharves.

An initiative by the council in the early 1990s saw a big transformation and Southbank now boast some of the finest buildings in the Melbourne city, with the 91-storey Eureka Tower as one of the most prominent building in that area. With proximity to the CBD and St. Kilda road, the Southbank became a popular inner city suburb for working professionals seeking quality lifestyle and residential properties close to the CBD. Residential property developers jumped in on the bandwagon in the late 1990s and began massive construction, erecting buildings after buildings. There were also boutique luxury boutique apartments, notably the Melburnian apartments built in 2001 which was targeted at the owner occupiers market. A penthouse sold in that development was the most expensive ever sold in Melbourne at that time.

It was no surprise that Southbank soon went into an oversupply of apartments shortly after and that led to the market bottoming in 2004. It regained momentum though and property prices in Southbank recorded steady increases since.

Research has shown that majority of the units in Southbank are rented; 65 per cent of the suburb’s population being renters as compared to the Victorian average of 20 per cent.

With 92 per cent of the residents aged between 20 and 39, it was no surprise the area is heavily populated by singles, young working professionals who want to live close to city and lifestyle.

Louis Christopher of SQM research describes, “that is, it’s close to work – it only takes 10 minutes if you jump on the tram or 15 minutes if you want to walk into the CBD. It’s close to public transport, close to cafes, and entertainment facilities and close to universities.”

Figures have shown the median unit price in Southbank has increased at a rate of 5.9 per cent annually to reach $462,000. There hasn’t been much growth in the last 5 years; only about 1.5% annually, however the median unit prices recorded an improved rate of 12.7 per cent last year.

There is strong tenancy demand and vacancy rates have fallen to just 2.5 per cent.(3% is considered ‘balanced’ in the market)

Tips when acquiring an investment property in Southbank: Always get a unit with a car park. A car park is worth up to $50,000, however when included can save heaps of parking problems for potential tenants. In a tight area where off street parking is limited, tenants will almost certainly choose to rent a unit with a car park.

Since I posted an earlier article on 460 Victoria Street, there has been quite a bit of enquiries asking for more information about the development. From an investor’s perspective, the idea of acquiring a 1-bedder makes good sense. A check with various portals shows 1-bedders currrently asking for $340 per week within the vicinity. Assuming there’s no increase in rental within the next 24 months(which is highly unlikely as developers stopped building because of credit squeeze and record levels of migrants into Melbourne), the cashflow analysis is as such:

Property value: $320,000

Rental Income:   $17,680 (52 weeks)

Outgoings:
Interest on a $256,000 loan: $10,240 (Indicative fixed rate @4% per annum)
Indicative Body Corporate: $885.55
Council Rates:   $1,200
Water Rates:   $250 (estimated)
Contents Insurance:  $250

Cashflow:   $4,854.45 (+ve)

So if you are seeking to improve the cashflow of your property portfolio or expand your property portfolio, a 1-bedder in this development with low body corporate would suit. Needless to say, we have not taken into account non-cash deductions which will increase the tax credits for investors if you hold for the long term.

There are not a lot of 1-bedders left in this development, so drop me an email if you are interested.

ABOUT two years after each census is completed, the Australian Bureau of Statistics produces a set of population projections for all states, territories and capital cities.

This document provides one input to demand modelling by federal and state government departments.

Some states also produce population projections but they generally follow the lead set by the ABS.

In other words, you can’t have a state government projecting growth on a trajectory fundamentally inconsistent with the view expressed by the ABS.

The ABS issued a new set of projections last week. It is an important document for anyone in property or, indeed, in business to understand (it can be downloaded at www.abs.gov.au).

And if you cannot be bothered wading through pages of demographic jargon and reams of figures, here are what I think are the key points.

The previous forecast, issued in June 2004 and based on the 2001 census, shows the Australian population rising from 20.6 million in 2006 to 28.2 million in 2051.

This medium-growth outlook assumed falling fertility and net annual migration of 110,000.

Both these assumptions more or less reflected the prevailing paradigm in fertility and migration trends from the late 1990s.

Under this outlook, Australia would add 7.6 million residents over 45 years: 1.5 million being added to Brisbane, 1.4 million to Melbourne and 1.3 million to Sydney.

Outside the capital cities, Queensland was to add 1.4 million residents (mostly on the Gold Coast).

And South Australia and Tasmania were to actually lose population by mid-century, a scenario that caused consternation at the time.

Indeed, South Australian Premier Mike Rann initiated a program of targeted population growth to which he boldly set metrics to measure the state’s progress.

Well, Rann would be very pleased with the new projections released last week, which show Australia’s population increasing from 20.6 million in 2006 to 34.2 million by 2051, reflecting net growth of 13.5 million.

This, too, is a medium-growth assumption.

Within four years the ABS has changed its medium-growth assumption from 110,000 migrants a year to 180,000 migrants a year.

Pushing the annual net migration assumption a further 70,000 over 45 years delivers an extra 3.2 million residents.

The fertility assumptions have also been raised from 1.7 to 1.8 births per woman.

The bottom line is that there has been a paradigm shift in the way demographers view Australia’s future and the key difference is immigration.

Do you, as a business person, believe Australia can sustain an immigration program at an average rate of 180,000 a year when for the past 50 years this figure has averaged 110,000 a year?

If the answer is “yes” (which is my view) then you should start aligning your business agenda with the new demographic reality.

The reason why I think immigration will accelerate in the first half of the 21st century is that as the baby boomers retire later this decade they will leave a void in the workplace that will create demand for more workers.

Governments will support this flow because of their need to shore up the tax base: a workforce constantly rising converts to a rising tax base.

Economic migrants will, therefore, flow from the developing to the developed world to plug the workforce gap.

This outlook presents challenges for government and opportunities for business.

The challenge for government relates to the provision of infrastructure and the opportunity for business is to deliver the infrastructure.

But the business opportunities go way beyond this.

Under the old forecasts the ACT (effectively Canberra) was to add 74,000 residents by the middle of the century, which basically means the topping out of Gungahlin.

The new outlook has Canberra adding 161,000 residents, which means a new town (of 90,000 residents) will have to be developed to accommodate growth beyond Gungahlin.

The new forecasts lift the existing Melbourne and Sydney forecasts by about 1.4 million each.

The net addition of about 2.5 million residents to each city means (now calm down property people) development beyond the growth boundaries.

The Melbourne 2030 and City of Cities planning documents are not designed to accommodate growth at this scale.

Either Australians must “dense it up” to European proportions, or our cities must expand into greenfields locations and most likely within master-planned communities.

The outlook in the resource states is just as exciting.

Over the 45 years to 2051, Brisbane will add 400,000 more residents than had been previously planned, and Perth will up its projected population by a further 700,000.

I’m not quite sure where Perth will put its extra residents. Perhaps Perthlings will press inland instead of along the coast.

The new projections also bring demographic cheer to the regions.

Non-metropolitan Queensland (dominated by the Gold Coast and Sunshine Coast) will accommodate not 1.4 million extra residents over the 45 years to 2051, but 2.3 million.

In just four years the outlook for regional Queensland has delivered a requirement to accommodate 900,000 extra residents.

The two “coasts” will accommodate a large chunk of this, but what does this mean for the supply of and demand for land and water in cities such as Townsville, Mackay, Cairns and Toowoomba?

Even the Northern Territory gets a shake-up in the new projections.

It was to add 145,000 residents over 45 years but the outlook now is for 170,000.

The net increase of 25,000 residents in the forecasts is big news in the Top End because it equates to the equivalent of three new towns the size of Katherine.

But I have, of course, saved the best for last.

Whereas the former projections showed regional Tasmania and South Australia going backwards, the new outlook shows nothing but growth.

Non-metropolitan Tasmania will not lose 50,000 residents as had been thought four years ago, it will in fact add 12,000 residents by 2051.

The Tasmanian seachange shift of 2003 must have set a trend that is expected to continue.

And the same goes for regional South Australia.

Instead of losing 36,000 residents between 2006 and 2051, the new outlook has this region adding 126,000 residents.

This intrigues me.

Apart from Mount Barker in the Adelaide Hills, Victor Harbour on the coast, Whyalla and Mount Gambier, there are few regional towns of any critical mass in South Australia.

The addition of 126,000 people within five decades suggests either the creation of new towns or the morphing of small places into large places in much the same way that Mandurah and Hervey Bay transmogrified in the past three decades.

Anyone up for a spot of new town formation in South Australia?

The new outlook for Australia’s population and its distribution in the 21st century is an exciting paradigm shift for business and government.

At the very least, it requires all existing planning documents to be recast to accommodate growth on a hitherto unparalleled scale.

We need to think boldly about how we manage our burgeoning cities and regions in the future.

And as for business, the prizes will go to those who understand and respond quickest and best to the new paradigm of strong and dispersed population growth throughout the Australian continent.

Article extracted from ‘The Australian’ on 11 September 2008. The contributor is Bernard Salt, a Partner with KPMG; bsalt@kpmg.com.au

With the recent increase in interest rates in Australia, it is no surprise many Australians are now considering renting as a more viable option over buying. The factors that favour renting over buying are as follows:

1.  Rental yields are usually about 4.0% to 4.5%pa – while mortgage interest rate is at least 7.5% now (with new cash rate of 6.75% in November), it is more economical to rent than to buy.

2.  Most first home buyers borrow almost 100% of the property price with the cost of funds at 7.5%pa at best – almost double renting before you pay one dollar off what you borrowed!!!

3.  Australians find it hard to forego lifestyle benefits over property ownership.

4.  Renting does not require a deposit – Australians aren’t exactly the best savers hence to fork out a deposit for a property can be tough for them.

5.  Renting allows Australians to live in a desirable location at a more affordable price versus being pushed into the ‘outer less desirable’ locations where they may be able to afford to buy.

6.  Younger Australians will rent in three or four locations before buying a home.

7.  Australians are taxed to the maximum both directly (PAYG tax & GST) and indirectly (stamp duties, fuel excise tax, sales tax etc). This also makes it hard to save for a deposit once basic living expenses are taken into account.

8.  There is no tax relief to buy an own owner occupied home while there is, when they purchase an investment property – It is not uncommon for a relatively high-income earner to be renting and he may have half a dozen of investment properties, negatively geared to maximize tax benefits. It also allows the investor to build up a property portfolio as quickly as possible.

Article contributed by Clinton L. Waters, More Rosh & Waters a Melbourne-based company specializing in Australian Property Finance – Email Clinton