Property Market Update 
for Week Ending 20 August 2017 

Key Highlights:

• Auction volume remains high for this time of year.
• The Melbourne market surged ahead this week.
• Nationwide, higher supply levels are putting a damper on clearance rates.
• Fresh capital controls in China may give local developers a boost.

This Week’s Preliminary Auction Activity (Week Ending 20 August)

The number of auctions across the combined capital cities this week was virtually unchanged from last week at 2,041. The preliminary clearance rate came it at 71.7 percent, about one percentage point higher than last week’s preliminary result, which indicates a boost in demand.

Melbourne appears to have had a stellar week with a clearance rate of 77.7 percent, but Sydney will likely come up in the 60s again once all the results are counted. Expect the final nationwide tally to also come back in the mid-to-high 60s.

Here are all the capital city preliminary results for this week:

Source: CoreLogic

Last Week’s Final Auction Results (Week Ending 13 August)

No capital city cleared above 70 percent last week, except for Canberra, which posted a crazy-high clearance rate of 87.0 percent.

Here are all the final capital city results for last week, followed by a breakdown of the sub-regions and key regional areas:

Source: CoreLogic

For the historical data of weekly auction clearance rates, click here.

Recent Home Price Movements

Home prices continued to push higher this week, although only slightly. In Sydney, the median house price rose 0.16 percent. In Melbourne, where demand remains stronger, house prices increased 0.41 percent.                        

Although prices have retreated marginally over the past few days, the quarter-on-quarter gains for our two largest capitals is substantial, as you can see in the chart below.

Only Brisbane home prices are down for the quarter, while Perth remains the only capital city where prices have declined over the past twelve months.

Source: CoreLogic 

Property Market Analysis

Auction volume remains unseasonably high for the winter months. One has to wonder if supply is being pulled forward from the future as sellers rush to market to capitalize on what many perceive as the peak of a cycle. If that’s true, we may see below average supply in the Spring, which could help to prop up home prices.               

Clearance rates have dropped in response to the higher auction volume. With more properties available for sale, buyers have more choice, so fewer properties are selling on auction day. 

However, the higher auction supply hasn’t negatively impacted home prices. While fewer properties are selling on auction day, buyers still seem willing to come in after the fact with offers matching recent comparable sales.

What It Means For Investors

Property investors should assume that home price growth will be relatively flat for the foreseeable future. Looking at the macroeconomic picture, we are pushing the limits of our ability to service debt.

Furthermore, it’s regulators who maintain most of the power to impact the future of home prices. The RBA, APRA, and the powers that be in Canberra have been clear that higher home prices will only serve to increase our economic risks. They can’t afford for home prices to fall, but they will be doing all they can to maintain a gentle damper on demand.

If the market does flatten out, then investors will struggle to reach medium-term growth goals by simply buying and holding for generic capital growth. The alternative is to skill up and instead pursue a manufactured growth strategy, like renovation or subdivision.

On Friday last week, the Chinese Government announced that it will place further restrictions on foreign investment in real estate. While the new crack down will focus mostly on Chinese companies, it does mean that we could see a retreat of Chinese developers from Australia.

That could serve local manufactured growth investors in two ways. First, it means that developable land could become easier to buy. With less competition from overseas buyers, local developers may find it easier to get their deals to stack up. Second, it means that future supply of townhouses and units may be lower, thus making it easier for developers to sell their units in a year or two.

If you know you need to skill up and boost your confidence by learning new ways of profiting in a flat market, check out Steve McKnight’s Property Apprenticeship course.

The post Could Chinese Capital Controls Give Local Developers a Boost? appeared first on PropertyInvesting.com.

Video Transcript

Hi. Welcome to our latest PropertyInvesting.com video blog. I’m Dean Parker from Your Style Homes and today we’re going to talk about design elements and how they can have a big impact on the finished product.

We’ll start by looking at this project behind me; one my friend has been working on and just finished. We’ll compare it to the project beside it.

You can see really easily just in the design elements alone how the two projects differ completely. One’s got a whole heap of detailing on the outside. It dresses it up, makes it look more appealing. The one next door, it’s really just a box. It’s got some render on the outside, and glass that’s even mismatched between the blue and the white. It’s not appealing at all. That’s just the first thing we can see that’s really simple that will make this project a whole lot more appealing and a whole lot easier to sell.

Now we’ll go inside this property and have a look around. Keep in mind, these are high-end townhouses, valued at around $3 million each. We’ll see the level of finish that’s gone into these and we can have a look at some of those design elements I’m talking about that will make this project stand out.

I’ve walked in the front gate and the first thing I’ve noticed is we’ve got paving instead of concrete, which is entry level, or exposed aggregate, which might be mid-level. These here are actual pavers so that dresses it up a lot more. We’ve got established plants that are layered nicely. We’ve also got some garden lighting. The first impression you get when you walk through the gate is everything’s dressed up that little bit more.

The first thing I notice inside, we’ve got floor-to-ceiling windows, which obviously lets in a lot more light and makes the space feel a lot bigger. This is a big entry. You obviously can’t afford this amount of space in every single home, especially in an apartment. The other upgrade that I notice here is the floating timber stairs. Rather than a standard staircase, this dresses the place up just that little bit more. Let’s go check out the upstairs.

All right. Bathrooms sell properties. The main features in here again from an upgrade point of view are the double vanities. It’s always nice to have a double vanity in your en suite. We’ve got plenty of cupboard space underneath. There are also lights over the vanity, which is always a nice thing. I think one of the main features in here is this herringbone pattern tile. I think that really dresses this bathroom up. It could be quite plain, but that’s a real feature. It wouldn’t be overly expensive to do that either. There’s plenty of room in here. This is again another luxury feature to have this much room, as well as to have a freestanding bath. All of these elements are definitely important.

All right. Here we are in the kitchen. The first thing I noticed here is the timber floor. This is a real timber floor. That obviously gives warmth to the environment and is definitely an upgrade. I think timber is probably the nicest feel out there at the moment.

We’ve got this kitchen behind us. It’s reasonably standard. You can see the laminate board and standard handles. There’s a nice tile in the background there. I think the key upgrade feature here is a 900 mm wide appliance pack with the cooktop and the oven. Also, you can see this nice chunk of timber here. This dresses the whole kitchen up and brings a wow factor to the entire kitchen.

I hope this has been a helpful update. I think it’s always important to try and bring as many elements into your design features as you possibly can. All these little things do add up. If you get it right, that’s when your project becomes really easy to sell and you can make a whole lot more money.

The post Tips and Tricks for Developers: How Design Elements Impact the Finished Product appeared first on PropertyInvesting.com.

In this latest installment of Tips and Tricks for Developers, Dean Parker interviews Marty Ayles to gain his insights on how to get the best possible price when selling luxury townhouses.

Video Transcript:

The post Tips and Tricks for Developers: How to Market High-End Properties appeared first on PropertyInvesting.com.

In his latest installment of “Tips & Tricks for Developers,” Dean Parker shares his five critical steps of site acquisition – from submitting an offer subject to due diligence to making a decision on whether or not to proceed with the purchase.

Video Transcript:

Hi. Welcome to the latest PropertyInvesting.com video blog. Today I’m going to talk about site acquisitions. Our business, “Your Style Homes”, operates out of Brisbane, up here in Queensland. Today I’m standing in Newmarket, in front of a site that we’ve just acquired.

I’m going to summarize this into five steps that we follow: from signing a contract with a due diligence clause, through to actually proceeding with that contract.

The first step is to talk to our town planner. He’s the first person that we would call when looking at a site like this. He will do a desktop analysis and identify any risks and issues with a particular site. He’ll do all of the searches. He will check for easements. He’ll check for the planning zones. He’ll check for anything relating to the site, and let us know so we can make decisions from his report.

He’ll also ensure we can get storm water in and out of the site, and check that sewer is available. All of those sort of issues, he will go off and address those. He will also then advise us of any items we need to prepare in our plans, which takes us to step two.

Step two will be talking to an Architect. We’ll get the feedback from our town planner, and then create a basic mud map of what we can achieve on the site. There is no real detail of the internal of the dwellings at this time, so it’s really just high-level boxes with a layout of the apartment or townhouse we want to build.

Then, there is a whole heap of other details we need to work out to meet the town planning requirements. For example, that will include setbacks to boundaries, car-parking allocations, making sure our drive ways are wide enough, and whether we can get the bins on the site, or if they will be on the street.

There is a whole league of town planning issues that we need to address. As I said, this is initially just a mud map of what can be achieved on the site, and from there we can work out our yield. The yield means how many apartments or townhouses can we fit on that particular site.

Once we’ve got that, we can then talk to builders or a quantity surveyor about working out some basic numbers around construction, giving us a reasonably good idea of what that particular building will cost to construct.

Once we’ve got all of that information, then we go back to our town planner. We get him to review all of those plans and assess whether we can actually do it or not. He’ll then identify the risks. Up here in Brisbane they call it either “impact assessable” or “code assessable.” If the town planner says its “code assessable,” we’re basically ticking all of the boxes, and can proceed. If it’s “impact assessable,” we’re not ticking all the boxes and we’ll need to negotiate with council on some of those items.

Now that we’ve dealt with our town planner, our architect who has drawn up our plans, and the builder to get some pricing, we need to come up with a feasibility report. We’ll put all of those numbers into the feasibility, we’ll identify our acquisition costs, and all our other costs associated with the build, any council fees, any holding costs, any selling costs, any marketing costs. We’ll put that all into a feasibility analysis, which will produce a number at the end – the profit that we can make. That number needs to be around 18 to 22 percent for the projects that we’re doing.

If we can tick that box, the last step really is just making a decision on the project, whether we’re going to proceed or not.

To summarize the five steps… Step one is talk to your town planner. He will identify risks of the site. Step two is talk to your architect to get some basic plans done; a mud map. Step three is to talk to your builder to make sure you’ve got your construction prices sorted and that you can build what you’re proposing.

You then get all those people together and be sure that you’re happy through those first three phases. Step four is prepare your feasibility. Make sure your numbers stack up. Step five is to make a decision to either proceed with the contract or walk away.

You must make sure that you do these five steps really accurately. There is no point getting into a contract, and then figuring this information out and being stuck with a lemon.

Due diligence is really the most important process in any development. You make your money when you buy and obviously this stage is where you avoid all of your mistakes. You must make sure you cover everything off.

I hope you got some value out of this update. I’ll see you on the next one.


This transcript has been edited slightly to improve readability.

The post Tips & Tricks For Developers: 5 Critical Steps of Site Acquisition appeared first on PropertyInvesting.com.

I recently finished one of my latest subdivision and renovation deals, which was a four-bedroom house and a two-bedroom unit. They were on a single title joined by a common wall. When I purchased this property it was tenanted, but the leases were close to expiry.

We’re planning to hold these properties, so I’ve just recently had them valued by the bank, in preparation for my next deal. As I was waiting to hear back from the bank, I decided to reflect upon and share seven key things that I learned over the last 24 months of implementing this deal. I also contemplated how our approach differed from doing a quick flip renovation, which we have done previously on a number of occasions.

Here’s a photo of the property before we began the subdivision:

1. The Differences Between Renovating to Sell and Renovating to Hold

My favorite investing strategy is a quick flip renovation to immediately sell and move on; however a good investor is able to adapt based on the current market conditions. Due to the location of this property and the price it was purchased at, the potential for capital growth and attracting quality tenants was high; therefore, I quickly realized I had to adjust my thinking and consider the possibility of using a buy and hold approach.

My strategy was to hold this property as long as I could to leverage the strong capital growth and high rental return. I spent every cent on lifting the rental yield, and also to attend to maintenance issues that had the potential to cause long-term damage to the property, since having a high rental return immediately has as positive impact on the property value.

To understand the likely rental return on a property, my first stop was the local real estate agent – one with a large rental management portfolio. They were able to quickly advise me on what the average rental return was on various property sizes, and also the things that tenants want.

This focused my attention on where I needed to spend my funds to maximise my rental return. The items identified were those that would make the tenant’s lives easier, such as a dishwasher, as well as heating and cooling. Because I was aiming for a maximum yield and retention of tenants, a clean interior and a fresh paint job was essential.

If I was renovating to sell, I would’ve concentrated on ensuring the street appeal was maximised and the first impressions were the best. This means the entry into the house, and the quality of the surfaces fittings and appliances would be higher in order to be consistent with the surrounding blue chip area.

2. The Challenges of Taking Over Existing Rental Property and Renovating to Add Value

Here are before and after photos of the shower:

A big challenge when subdividing and renovating this property was maintaining cash flow by having the property tenanted whilst doing the subdivision. As your portfolio grows, managing cash flow becomes important, because you are relying on income derived from the property. As tenants expect and legally have a right to “quiet enjoyment” of their property, I had to have strategies in place to manage the project with that in mind. This particular property had long term tenants with young families, so it was extra-important to look after them during the renovation.

As our renovations included repainting the bathroom areas, which suffered from mould – a potential health issue – and fixing leaky toilets, we removed existing frustrations and problems. Whilst these may not have added instant value, I showed the tenants I cared about their experience while living in our property. This built loyalty, increased retention of the tenants for longer periods, and also made them more tolerant of the external work that had to take place.

This is a double-edged sword, because the tenant’s expectations of the speed the issues are attended to increases, especially if the issues don’t impact their ability to enjoy the property. They are also more likely to get disgruntled quicker if things aren’t completed in a timely manner.

3. The Importance of Having the Right Insurance Policy

As an investor, my time is valuable. Having the right insurance policy and insurance broker made what could have been a costly and time consuming event stress free. In the middle of the subdivision process, our front retaining wall, fence and landscaping was destroyed by flash flooding, causing thousands of dollars of damage. Here’s a photo of the damage:

Insuring your investment property, especially when you are planning to manufacture profit and have a set budget for improvement works, is a critical aspect of your strategy. In the past, we used bulk insurers without understanding the details of the policy. For this property, we decided to use an insurance broker we recently met and were impressed with, and the results literally saved us thousands of dollars.

I would highly recommend all investors find an experienced broker who can design a policy that suits your project. A skilled insurance broker should be able to make sure you have the right policy coverage to cover common situations. Our policy included damage to the front fence from flowing water, which many policies don’t; therefore, whilst on holiday in Queensland, our broker took care of securing the property, allowing us to finish off our holiday in peace.

Not only did the insurance fully cover the works, we got a brand new retaining wall, fence and front yard, which instantly added to the street appeal and value of the property.

4. How to Project Manage the Renovation

When doing a quick flip, I am used to actively project managing, which is essential in order to control both time and budget concerns. As this project was a buy and hold, I let the rental manager do things I would normally do, as it saved me time and was easier. I learnt that actively managing your renovation is even more important when it is a rental.

Although it is tempting to use a rental manager to arrange for minor renovations and improvements, I found they don’t manage the quality of the works properly, because they are spending your money and have no skin in the game. Once something was done wrong; it was up to me to fix it.

My learning was to inspect the works myself because the agent was not thorough. Allowing the agent to inspect the works meant having critical details overlooked, such as a shower frame installed upside down and blinds installed in wrong rooms, so beware, and be sure to carry out your own inspections. Here’s a photo I took during one inspection:

Often skilled tradesmen who are keen to get the job going may overlook critical advice relating to permit and regulatory requirements. Eager to rebuild our destroyed retaining wall and fence, we overlooked the fact that building on a property boundary automatically triggers a building permit, regardless of whether it’s replacing an existing structure or the height of a retaining wall.

We found this out after the wall was built when council hit us with a building notice, which meant we had to get an engineer to certify that the wall was built properly – an expensive and time consuming exercise.

Make sure you obtain qualified advice from a building surveyor when building anything. Generally, building surveyors are happy to provide advice prior to commencing on improvements at little cost to you.

5. The Challenges of Subdividing With a Tenant in the Property

Subdivisions generally involve excavation, heavy machinery on site, disruption to utilities, dust and noise, which had the potential to cause our tenants hassles and generally making them unhappy. Maintaining a good relationship with our tenants was crucial. I achieved this by making sure they were well briefed with plenty of notice and I provided them with options to escape during the most disruptive periods of the project. This way, they felt included in the process and not trapped.

In our case, we had to occupy the driveway for over a week and had heavy machinery working inside the property for several days, as you can see in the above image. We employed several strategies to ensure disruption to the tenants was minimised. This included:

• Sharing our vision and plans for the property with our tenants.
• Accurate regular and timely updates on the duration and nature of works taking place.
• Ensuring the contractors accessing the site understood they were tenanted, they were not permitted to enter unless notification had been given. They also had to make their presence known if the tenants were at home.
• Ensuring contractors restricted access to no-go zones during construction to maintain a safe worksite.

The project required the installation of a water main, as well as electrical conduits along the length of the driveway. This meant we potentially had to excavate a trench along the only access point to the rear of the property. To minimise disruption, we decided to use a method that allowed installing a conduit for water and power under the driveway without resorting to excavating.

Doing this and not having to build the access to the rear unit not only reduced our costs, but meant access to the rear unit was maintained for the tenants, reducing the impact on them. So, while on a per meter basis using a directional bore to install the conduits was more expensive then digging a trench, other costs, such as having to rebuild the access to the rear and disrupting the tenants meant we ended up saving in the long run, reducing the construction time and keeping our tenants happy.

Having happy and understanding tenants did help, but I never took that for granted when managing the subdivision.

6. How to Achieve Above Market Rental Yield by Adding Value for the Tenants

Applying the learnings from Steve McKnight, I implemented creative strategies to increase yield, such as asking the tenants what would make them more comfortable. I remember the meeting well as I watched the rental manager squirm when I asked this question. The rental manager also advised us not to increase the rent because they were concerned we would lose tenants.

I always ask the tenants myself, rather than through the rental manager, as I think it is helpful to show interest in them as my tenants and also about my property. Our tenants were more than happy to pay $15 dollars extra per week to get a split system air conditioner to cool them down during the summer. They saw value in this, and so did I, as it meant they were likely to stay on longer as tenants. It also added value to my property by increasing the rental yield.

This is just one simple strategy that you can apply.

7. How to Design the Subdivision to Achieve Maximum Return in the Future and Creating Buyer Appeal

Here’s a photo I took after the subdivision and renovation was complete:

Although my strategy with this property is to buy and hold, I may sell this property in the future. In that case, I want the best return possible and with that in mind, I did my research on what would create maximum appeal for buyers.

Some of the important items for buyers I identified are privacy, security and independent titles. In the context of two small subdivided units, addressing these can mean getting premium price or not. When I established there was potential to subdivide the property, we looked at how we could achieve a good outcome by thinking about these three items in particular.

We had two options in the design of the subdivision; one was to have a common area for parking, which would have meant having common land, a body corporate, and everything else that goes along with that. We were able to design the subdivision, so that each property was on an independent title. Whilst common land is quite common in subdivided blocks, we wanted to create the best possible return in the future. It took a bit more effort to design the subdivision this way, but it was worth it.

Conclusion

In the 18 months after settlement, we have a four-bedroom house and a two-bedroom unit with a common wall on separate and independent titles, with scope to manufacture profit from renovation to further increase the rental yield.

This includes a positive cash flow of $6,000 per year and additional manufactured equity of $100,000 based on a bank valuation.

You know you are onto a good thing when the agent who sold you the property calls and advises you to hold on to it as long as you can.

The post 7 Things I Learned In My Last Renovation and Subdivision Deal appeared first on PropertyInvesting.com.

The Australian Bureau of Statistics (ABS) released property price growth data last week, and home prices grew 2 percent over the June quarter across Australia’s capital cities. Over the same period, Sydney property values jumped 2.8 percent, Melbourne is up 2.7 percent, and Brisbane values increased 1.1 percent. Over the twelve months ending in June 2016, Brisbane property prices actually increased more than Sydney.

Once the data for the September quarter is released, we’ll likely see even higher numbers, perhaps up to 4 percent additional growth for Melbourne and Sydney homes. With no sign yet of a slow down over the December quarter, many investors are scratching their heads, wondering how much higher property values can go.

It stands to reason that at some point soon home price growth should flatten, as values keep pushing the boundary of affordability. Rather than speculating on continued capital growth, some investors are turning to more active, manufactured growth strategies, like renovation, subdivision, and development.

In this post, we introduce Dean Parker, a developer in Queensland, and a friend of PropertyInvesting.com. We’ve asked him to share with you some of his insights and wisdom that he’s acquired along the way. Keep your eyes out for more posts from Dean in the coming months.

Video Transcript:

Hi, I’m Dean Parker and I’m the managing director of Your Style Homes. In the coming months, I will be hosting a number of video blogs for the PropertyInvesting.com community.

I’ll be talking to you about the day-to-day challenges that we face in our development business and how we overcome them. My hope is that you will be able to pick up some helpful tips and tricks along the way. Really, these are just everyday issues that we come up against that require us to think on our feet and find solutions to.

To start with, I’ll give you a brief introduction of what we do. We’re a development company in Brisbane. We’ve been up here since 2011, but first began operating in Melbourne.

We now focus on townhouse and apartment projects in the Brisbane area. I’m standing now in front of a townhouse project we’re just completing in Coorparoo in Brisbane. There are eight luxury townhouses here, with city views. It’s a beautiful development.

As part of this project, we’ve been able to retain an existing Queenslander that sat right at the back of the block there. We’ve moved it all the way forward to the front. We’ve refurbished it, split it in half, and turned it into two townhouses. We’ve also built six brand new townhouses around that original Queenslander.

At this point of the project, from our point of view, we’re aiming to deliver a really high quality product to our purchasers. We’ve actually sold seven of the eight townhouses off the plan. We really want to make sure that when we hand these properties over that they’re of high quality and that the owners are extremely happy.

We could go and actually do our own defect checking and then give our feedback to the builder. We would do that at a high level just to make sure all the colours are right, the tiles are right and the fixture and fittings are okay.

But what we’re doing because we’re dealing with bigger projects – really, you could do this on any sized project – we’re employing a third company separate to us and separate to the builder to do our quality assurance check.

In this case, we’re using handovers.com, but there are plenty of other companies you can use out there that do a similar thing. Essentially, the process from here is the builder issues their practical completion to say that they’ve finished works, and then we get our independent company in to do a full inspection.

They’ve already been in for the first inspection two weeks ago and found 800 defects. That’s how thorough they are. They know the building code. They know what is a defect and what isn’t a defect. Any tiny little thing they find, they list it.

They basically get all this information to us on one really helpful spreadsheet. It lists the room, the defect issue and then the trade that they think would be responsible for fixing it.

We get that full list, then we give that to our builder. It’s a really easy process then for the builder to fix it. They print it off, they give it to their site supervisor, he goes through it, issues it all to the trades and then they simply work through the list.

Today, we’ve got our independent company back here again, now doing the second inspection. Hopefully, they’re in there behind me ticking all these items off, and we can then finally give the builder our final handover certificate to say that we’re happy with the product that they’ve delivered.

The challenge on this site really was to deliver a high quality product. Now, we’re not builders. We’re a development company, so I don’t really know the ins and out of every little building code that’s out there. That’s why we’ve got this third party company to come in. They know what the rules are.

The other great thing about this is they’re the meat in the middle of the sandwich. It’s not us being particularly difficult with a builder. It’s an independent company. Really, we’re just the conduit between the two.

The way that we’ve solved our problem here is to get this independent company in. They take away a lot of the headaches. It means that instead of us rushing around trying to do this defect processes ourselves, we can now deliver a really high quality project knowing that an independent company has done a full inspection and that we’ll get the project delivered on time and with a great finish.

I hope you got some value from our first video update. We’re looking forward to working with the PropertyInvesting.com community and delivering a lot more tips and tricks over the next few months as we progress through the projects we’re developing up here. We’ll see you soon.

This video transcript was edited slightly for readability.

The post Tips and Tricks for Developers: Third-Party Quality Assurance Checks appeared first on PropertyInvesting.com.