Elm is a 22-storey development by Fridcorp. Launched early last year, construction has already started on this development located along 18-24 Dorcas Street. I visited the site in June 2008 and back then there was a display unit being constructed under the old building for the purpose of marketing the units. Essentially, the development consist of 1 and 2-bedders, and the first four levels are parking lots for residents and visitors to the development. The fifth floor is where the pool and the gym are located together with eleven 1-bedders and six 2-bedders. The building has similar floor plate for levels 6,8,9,11-15; apparently the floor plates were somehow improved and they are a little different from the time they were launched last year.
I can only say that more 1-bedders were created in these levels, and being close to the city it is quite a sensible thing to do. On the east of the development is a 18-storey building (you can quite easily verify that on google earth) so if you are after the views of the Domain Oval next to the Botanic Gardens, you will have to go higher up(at least above 19th floor). On the western side of the building, it is literally unblocked. So if you go higher up (15th floor and above), you will get bay views. The southerly aspect of the building (facing Dorcas Street) will have views to the Albert Park Lake (famous Australian Grand Prix circuit) while the northerly aspect looks back to the city with nice city views. However there might be a chance that some of the older buildings around it might be demolished for a new tower.
I have a fairly good understanding of the development; the latest update from the developer is as such:
Construction works are proceeding on schedule.
Piling is complete, the basement slab and walls have been poured.
Part of the ground floor tenancy slab has been poured and the jump form is being erected to the lift core.
At this stage, the project is on completion for late 2010.
For some of you who are in Singapore and wants to have a chat with me for a more independent view of the development and the original price list, you may contact me at 98344408 or email me at info@pagreal.com.
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.
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.
With the Reserve Bank of Australia cutting rates, the official Cash Rate in Australia is just 3.25%. The mortgage rates have dropped to just a little over 5% for investors who are on standard variable rates.
Investors are looking to lock in their rates once the official Cash Rate drops below 3%. I see a perfect opportunity to acquire residential properties in Australia with positive cashflow at least for the next 5 years, provided you have loans that are disbursed between now and 2010. The rental yield for residential properties is about 5% and with mortgage rates falling below 5% or even 4%, rental income will be more than the outgoings, thus increasing your cashflow. Besides with the AUDSGD at below 1.0000, there hasn’t been a much better time to acquire residential properties in Australia.There’s a small window of opportunity. However there are risks involved. Here are some of the reasons why you SHOULD NOT look into acquiring properties NOW: 1. You don’t have instant equity now.
The best approach now is get into House/Land that can be built between 6-9 months. Loans will be disbursed at the time when Cash Rate is low; hence fixing your interest rate for the next 5 years means positive cashflow for you.
2. You are highly suspicious that prices of properties in Australia will drop. House/Land packages are basic housing required in Australia. If you acquire a House/Land in the region of $320,000-$350,000, that’s pretty close to replacement cost. The risk of prices sliding further is minimal.
3. You are worried if banks will ask you for ‘margin calls’ if property prices dip.
Singaporeans can relate to prices of properties dropping 20% and banks asking owners to ‘top up’. In Australia, banks don’t practice that. As long as you keep up with your interest repayments, banks don’t do margin calls for property investors.
According the Australian Bureau of Statistics, Melbourne is growing at a rate of 1000 people per week and developers are just not building enough houses to accommodation the growing population. The recent bushfire in regional Victoria further deepen the need to increase the supply of accommodation for residents in Victoria. In the current credit environment, financing for big projects can be a challenge for developers and we have already seen developments stall because of lack of financing.
House/Land packages may be a good option for investors to get into the market quickly. Like Warren Buffet says, ‘Be fearful when others are greedy and be greedy when others are fearful’. I see more upside rewards than downside risks in the current market.
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.
Houses
Area
Median Value
Growth
Rent
10 Years% p.a.
Year Nov 2007 to Nov 2008
Nov 2008 Qtr
Nov 2008 Month
Rate Month Ending Dec 2008
ACT
$450,500
11.00%
0.87%
-2.52%
-1.21%
4.87%
Adelaide
$373,500
11.09%
7.75%
-0.43%
-0.24%
4.19%
Brisbane
$447,500
11.97%
4.48%
0.08%
-0.06%
4.20%
Darwin
$430,000
10.22%
9.44%
2.76%
1.08%
5.70%
Hobart
$350,500
12.26%
1.00%
-2.12%
2.01%
4.46%
Melbourne
$479,500
10.20%
2.36%
0.31%
0.51%
4.80%
Perth
$491,000
13.32%
-3.05%
-2.78%
-1.37%
3.72%
Sydney
$565,000
7.06%
-3.32%
-0.72%
0.45%
4.52%
Australia
$398,500
10.38%
2.97%
-0.08%
0.53%
4.58%
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.
USA Market
Australian Market
Millions of empty homes
Undersupply of more than 100,000 homes
Collapsing banking sector
One of the strongest banking sectors on earth
Non-recourse loans, without penalties
Australian owners cant walk away from loans
30% of all loans sub prime ( No doc loans)
Less than 2% sub prime ( No doc loans)
Credit crunch, bank lending almost stopped
Strong lending into the home sector
Stagnant population growth
Over 220,000 immigrating in 2009
No movement left in interest rates
RBA can still reduce rates by 4%
10%+ unemployment expected
Stable labour market currently at 5.1%
Trillion $+budget deficit
Budget surplus
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.
There was an interesting article in a free circulation yesterday. The person who wrote in urged the government and related bodies to implement a fact-finding process for potential homebuyers in Singapore. Property acquisition is a financial decision and it should start with finance.
In my opinion, there are two groups of buyers in Singapore; owner-occupiers and ’speculators’. I have come across very few buyers who are thinking of holding long-term with Singapore properties. Buying is the easy part; holding is a test of your perseverance and your vision of reaching your long-term goals. And because there is no capital gains tax in Singapore hence speculators are encouraged in this market.
And perhaps many dismiss the idea of holding property long term in Singapore; the idea of fact-finding becomes irrelevant. The speculators would want to dispose their assets as quickly as possible to the next buyer. However, having said that, owner-occupiers generally do their sums before they take the leap.
My investors are all long-term Australian property investors. I don’t entertain short-term speculators and hence it is paramount that I conduct proper fact-finding for my clients. As a trained engineer, I have been doing that for a long time and without sounding too arrogant, I am happy to say most of clients are pleased with what I have done for them…
Three weeks ago, I met up with a prospect-cum-good friend, and to protect his privacy, let’s call this person Mr. C. It’s has been over a year since we first met in the CBD. Things changed and he has moved on to another company and is doing very well. His career has taken off big time and he updated his recent events to me.
Some years ago, he was lured into acquiring a student type accommodation with promise of good yield from a local agent representing a developer from Australia. Believing he would be able to obtain finance of up to 70%, he signed the contracts and they have gone unconditional. Let’s call this investment property IP#1. Lately he bought a residential unit from another agent. Let’s call this second investment property #IP2.
He reversed his decision to hold on to both properties and he sold both securities prior to settlements. The respective agents that sold him these two investment properties managed to sell them for him, IP#1 being sold at the original price and #IP2 higher than what he has originally bought.
It was quite refreshing to me. In my opinion, I felt he ‘lost out’ on a very good opportunity in disposing #IP2. Some months ago, he told the valuation for #IP2 is higher than the purchase price and to be honest, that kind of price cannot be replaced especially at the location where he has bought. If he has settled it, he would have ‘instant equity’ created in his portfolio.
Not to mention if he is to refinance and uplift his equity next year or the year after, it would be quite comfortable and easy for him. By on selling his property, he lost money in agents’ commission, and some other fees (he still manage to reap some profits in the end) that he otherwise would not have incurred if he didn’t sell. When I was talking to him, I was trying ‘tracking his chain of thoughts’. Then I realized he had a very strong trading mindset. He was obviously trying to ‘get out’ and consolidate his position when there was an opportunity to. And the thought of getting into ‘debt’ was obviously too trying for him.
I said to him that if I were him, I wouldn’t have sold it because in 10 or 20 years’ time, it would be 4 times the value of what’s it worth now. I guess I was just being frank, and if that offends him, too bad. I was just being frank and straightforward. At the end of the day, the decision was his. He has spent a great deal of time researching on properties he had acquired only to on sell them before settlement for a profit that’s not worth mentioning. How does that work…?
Last night I had a very interesting meeting with the Founder (and his main marketing man) of one of the largest trading education groups in the region. Together with two very good mates, we held interesting discussions on business opportunities, trading and property investment.
During the discussion, I was asked about the state of the property market in Melbourne since I am constantly looking at that market. Without a single hesitation, I answered, ‘I don’t know’. The reality is it didn’t quite matter to me the state of the property market. As Singaporeans are pretty used to the huge ‘peaks and troughs’ of the Singapore property market, the state of the market becomes a critical topic for discussion. In Australia, yes prices do plunge, but statistically, prices don’t plunge 30%!
I recalled a statement made by Christopher Joye, Director of Rismark International in The Weekend Australian Review, 1-2 November 2008. He mentioned, “Sensationalist and unsubstantiated claims predicting large house price falls in Australia ignore the empirical facts that house prices are determined by both demand and supply”. In my opinion, there’s already a shortage of accommodation in Melbourne as witnessed by record levels of population growth, fueled mainly by immigration numbers, coupled with the crisis and drop in building approval rates, the only confirmed trend is rents are going to rise.
I looked at property investment from a ‘holding cost’ point of view. I do care if the price is right, by doing some comparables around the estate. But that’s as far as I go. I do not professed to be a statistical Guru, or a full time property market researcher because that’s not my job. It’s difficult to say how market has performed, because to me median prices are not the true indication of the state of the property market.
Put it this way, you acquired a property. At settlement, you secured financing and the valuer came back with value equal to or higher than the contract price (usually valuers will cheat by looking at the contract price so they rarely return a value higher than contract price). You financed it and it’s cashflow positive and you continue to replicate what you were doing without max-ing out on your borrowing capacity.
So, what happens if property prices drop?
Well, as long as you keep up with repayments, banks don’t really bother you. The critical thing is to have a tenant secured and that can be organized by a professional property manager.
It makes sense to me…and I sure it does to you as well…so how’s the market performing again, mate…? Have a great weekend ahead!
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.
This blog is set up to provide you with resources, information, expert opinions from specialists investing in Australian real estate. The opinions put forth are entirely that of the panel of contributors and readers. It should not be relied upon solely when making a purchase with regards to any projects appraised.
