Posts Tagged ‘Property Development’

Raine & Horne South Australia CEO, Kevin Magee answers the top real estate questions every month including “HOW’S THE MARKET?” in South Australia and “WHAT DOES THAT MEAN FOR ME?” in the process identifying real estate opportunities, clarifying trends and providing property market tips for Raine & Horne members, Buyers, Sellers, Investors (Landlords) & Tenants.

For ongoing & concise property updates, media scoops and tips follow Kevin on Twitter @rhSA_CEO or contact Raine & Horne Glenelg, your Glenelg Real Estate Agents and Glenelg Property Management Experts.

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RP Data – Rismark Home Value Index Release

National property values jumped by almost 2 per cent in August in the largest monthly movement since the RP Data-Rismark Home Value Indices began in January 2005. 

Using the rpdata.com (ASX: RPX) property database, which is Australia’s largest and includes over 170,000 sales during the first eight months of 2009, Australia’s housing recovery solidified during the month of August with strong capital gains registered across the country despite evidence of fading first home buyer numbers.

According to the “market-leading” RP Data-Rismark National Home Value Index (see Background on p4), home values in Australia rose by an exceptional 1.9 per cent during the month of August. This brings cumulative capital growth in the first eight months of 2009 to a better than expected 7.9 per cent. This is also the single highest monthly index result since the RP Data-Rismark National Home Value Index began in January 2005.

According to rpdata.com research director, Tim Lawless, the August results surprised on the upside and are indicative of very high levels of buyer confidence combined with low levels of listings.

“These buoyant conditions sit in striking contrast to the same time last year when values were falling, less than half of the auctions held cleared and sales volumes were at rock bottom.  We are now seeing home values rising at a solid rate, almost 80 per cent of auctions are clearing, and sales volumes have bounced back significantly”, Mr Lawless said.

Rismark International managing director, Christopher Joye, added, “Australia’s housing market is being underpinned by the strongest population growth since 1971, record housing shortages, historically low mortgage rates, better than expected employment outcomes, and one of the world’s most profitable banking systems.”

Australian home values have now risen 3.8 per cent past their February 2008 peak. This rebound followed peak-to-trough falls in national home values of just 3.8 per cent in 2008, which compares exceptionally well with the 15 per cent and 30 per cent house price declines seen in the UK and US, respectively.

Dispelling concerns that the recovery is limited to first home buyers Mr Joye commented, “In contrast to claims that this is a first time buyer bubble, the cheapest 20 per cent of suburbs in Australia have actually under performed both the mid-priced market and Australia’s 20 per cent most expensive suburbs since the housing market bottomed in December 2008.”

“As recently noted by the RBA, all major lenders now require a minimum 10 per cent deposit and are applying the strictest credit standards we’ve seen in over a decade. Australian housing credit growth has also been running at levels that are extremely low by historical standards and noticeably less than the growth experienced in the 1991 recession,” Mr Joye said.

Rpdata.com’s Tim Lawless concurred with Mr Joye and said that over the last three months the premium residential market increased in value by 4.5 per cent compared with a 3.4 per cent gain in the middle market and a 2.8 per cent improvement at the cheapest end. (Note: numbers in chart  to right show changes since December 2008 in the cheap, middle market, and expensive suburbs.)

“Despite the strong gains, the bounce in the premium sector has not been enough to offset the peak to trough fall of 9.9 per cent between February 2008 and January 2009.  Prices in Australia’s most expensive markets are still 1.1 per cent lower than at their peak.”

Mr Joye added, “While the resounding recovery in Australia’s housing market confirms our forecasts, we expect medium term growth rates to be more measured as mortgage rates normalise back to between 7-8 per cent. This would bring the cost of housing finance back in line with its 2000-01 levels, which is notably well below the searing 9.6% highs endured by borrowers in August 2008 care of the RBA.”

In closing Tim Lawless said that the upward momentum in Australian house prices is a critical economic signal from the market to builders and developers to encourage them to reinvest in producing new housing supply. This was a message reinforced by the RBA’s Dr Anthony Richards in a speech to CEDA yesterday: policymakers need to facilitate significant new investment in housing supply to alleviate Australia’s growing housing shortage, which ANZ and Westpac estimate has risen to around 200,000 homes.

“This price growth will also go a long way to comforting risk-averse lenders to start providing credit again to developers, which has been one of the main bottlenecks on the supply-side. And it will stimulate the reallocation of resources away from other sectors of the economy into much-needed housing investment.” Mr Lawless said.

Other key findings from the August RP Data-Rismark Index results:

Unit values (+2.1 percent) have marginally outperformed house values (+1.8 percent) in the month of August. Over the course of 2009, units (+8.5 percent) have also generated slightly higher capital growth than houses (+7.7 percent).

Most capital cities recorded robust gains in the month of August with every single city experiencing rises in home values during the first eight months of 2009.    

After several years of subdued growth following the end of Australia’s last housing boom in 2003, which saw Australia’s “house price-to-income ratio” fall by nearly 20 percent through to December 2008, home values in the two major capital cities, Melbourne and Sydney, have led the recovery in 2009 with total capital gains of 11.6 per  cent and 8.6 per  cent, respectively.

Following Melbourne, Darwin has been the next best performing capital city with growth of 9.7 per  cent in 2009. Interestingly, Darwin also continues to deliver the highest rental yields, implying that the market may have room for further growth.

Home values in Canberra (+6.7 percent), Brisbane (+5.2 percent), Perth (+4.1 percent) and Adelaide (+3.1 percent) have also realised sustained gains in 2009.

As RP Data-Rismark correctly anticipated, residential real estate in Perth has experienced a recovery in 2009 after a period of falling prices since September 2007. While Perth dwellings have recorded 4.1 percent growth in the first eight months of the year they still remain 3.6 per  cent below their September 2007 peak.

National rental yields have softened slightly given the strong capital growth with the gross annualised rental yield for units being 5.1 percent while house rental yields are slightly lower at 4.3 percent.

This article republished from RP Data -- Rismark

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Monika Bonet is the Principal of Raine & Horne Glenelg, your Glenelg Real Estate Agent and Property Management expert.

While some may still be pining for those good old boom days, others have come to terms with the fact that a fairly flat property market lies ahead, for a while at least. So do you rest on your laurels and await the next value rebound, relying on the nature of cyclical trends and the fact that they will predictably take us back to more lucrative, asset appreciating times?

Astute investors are starting a new trend for the new times and, as Gary Pemmelaar, Civil Engineer, Licensed Builder, Developer and Proprietor of Raine & Horne Glenelg succinctly puts it; “It’s all about value adding now.”

Gary Pemmelaar contends that this run-of-the-mill investment method has had its day and the future of wealth creation lies in expansion and development. “With greater interest and media focus on real estate, recent years have seen an increase in demand to get into the market. This demand has had some positive influence on the market place, which has now flattened out in many regions. Rather than purchasing more to increase a property portfolio, the average investor might well look into their existing real estate to see if there may be opportunities to subdivide.”

All around the country, State Governments have been developing blueprints for future urban direction within their capital cities, suburbs and country towns. These are based on population projections which not only show general growth within the country over time, but also a vast increase in aged and single person household demographic clusters.

Gary predicts this is going to be an increasingly obvious trend and hence feels property development is, “a topical thing to be looking at, in the sense that you would expect subdivisions are going to become more prevalent in the future and it’s an aspect of housing that’s going to increase over time.”

Gary says; “The two primary reasons for that are what’s going on with growth boundaries in cities and density requirements for housing. Adelaide is a good example of that, where you have had significant urban sprawl and now with rising fuel costs, many people are now looking to move back into the inner and middle suburbs, which in turn will channel more people down the route of subdividing in terms of property investment.”

Secondly, Pemmelaar says, “We’re probably going to see this as a more viable investment option, simply because there’s been a massive increase in the price of land in recent times. This has been particularly occurring on the fringes of capital cities. This trend could direct people’s thinking more towards subdivision of an existing part of a portfolio they already own, rather than looking to develop a new block.”

He also points out that currently, “Housing markets are pretty tight and rental markets are quite firm. Hence, you have a situation where underlying demand for housing is strong, but you’re facing certain constraints such as land supply and the inflated price of land.

 ”People looking to invest in property are going to see an incentive there to supply the market, but within constraints that might promote more subdividing than we’ve seen in previous cycles.”

What is subdivision?

Subdivision necessitates active involvement from the investor, unlike passive ventures where you purchase a property and rely on long-term capital gains. It’s an endeavor that requires hard work and should not be entered into lightly. Subdivision can involve purchasing a raw parcel of land to create a small to large housing estate or building on an existing property with a second dwelling, such as duplex or dual occupancy sites.

It can also encompass purchasing an existing block of units to separate or strata the title, so that instead of one product, you have the bonus of selling single units within the complex. Subdivision may involve creating an entire new block of townhouses or units for the medium-density market on an acreage allotment in an area where a council encourages this activity.

Mr Pemmelaar of Raine & Horne Glenelg describes a recent deal he was involved in to illustrate how rewarding and simple subdivision can be;  ”On behalf of a Client  we found and purchased a 1950’s house on an 800m2 block, obtained planning approval to subdivide, project managed the subdivision, design and construction of a two semi detached dwelling”.

“They haven’t had to do any of the development work; it’s all been done for them by us. By using our project development and project management services they’ve had the advantage to buy wholesale in terms of purchasing the land and building the new dwellings at cost and then selling retail, by selling them off at completion.”

Gary walks us through the scenario whereby other Clients are currently using Raine & Horne Glenelg to manage their subdivision.

“Another example is where we are currently developing a five townhouse development on the southern beaches for a group of Clients; in this case we identified the site and carried out feasibility for development potential for our Clients. On their behalf we then purchased the site and then project managed the planning approval and subdivision, the design of the townhouse development and we are currently gearing up to call tenders from builders for the construction of the development.”

Gary added “The fantastic thing about this development is that the investors will sell down three of the townhouses to minimize their borrowings, and retain two remaining townhouses at a wholesale price that when rented will create rental cashflow from day one.”  

Many experts believe that you can combine subdivision and being an active participant in literally building your property portfolio, with passive investment. So where do you start with this approach to wealth creation?

Gary suggests, “The most viable subdivision for the average investor to start with would be a small one. The smaller the subdivision, generally the less risk. A house on a large block suitable for two dwellings may be the ideal first time subdivision.

“Consideration then has to be given as to whether you’re building a second dwelling to keep the property long term or to sell it off and place the money back into debt reduction of an existing mortgage.” Setting up a scenario whereby developing a property can create positive cash flow that will assist in reducing debt on any existing loans and even purchasing further property to retain in your portfolio, is highly recommended by those who know best.

Should you want to know more about property development as a vehicle to building a positive cashflow portfolio, call Gary Pemmelaar of Raine & Horne Glenelg

The Latest Property Trend …Transport Orientated Developments

It’s a term making its way into the South Australian vernacular and unprecedented investment in the State’s transport infrastructure look certain to cement its place.

Transport Orientated Development – or the abbreviated version – TOD.

So what are they? In simple terms a TOD is a purpose built neighbourhood with public transport as its centrepiece. They are a blend of high density residential developments, schools, cafes and a rang of retail and commercial operations serviced by one or more integrated modes of public transport.

Since Roman times communities have been built along trade routes, while the modern day transit orientated development is generally accepted to have risen to have arisen from the ashes of European capitals left in ruins after World War II.

In their reincarnation, Adelaide trams brought inner city suburbs like Norwood and Unley to life. But a love affair with the car and bus has driven urban sprawl and the earliest TODs are now the regular suburbs we know today.

The renewed interest in public transport – especially the second coming of Adelaide’s tram network – and the improved services to be delivered will drive a new wave of development. It will be centred around our major corridors – namely the six metropolitan railway lines (Belair line, Tonsley line, Noarlunga line, Gawler line, Outer Harbor and Grange lines), The Coast to Coast tramline and the O’Bahn busway.

Several sites along these Adelaide transport corridors have potential as TOD’s and indeed a number have already been identified. They include Castle Plaza, Noarlunga, Mawson Lakes, Playford North, Brompton, Glanville, Port Adelaide, and Woodville/Cheltenham.

In time they will be assessed for their suitability for high or medium density housing development complemented by improved public transport. The environmental benefits are there for all to see.

 Transport Orientated Development may not yet roll off the tongue, but we should not be worried if delivering our transport future now goes a little off track.

 This article was adapted and taken from “New Connections’ Publication Issue 4 Winter 2009.

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