LOCKED & LOADED... BEING PREPARED FOR OPPORTUNITY IN TODAY'S MARKET.

Whilst Covid is by no means over we are now at last seeing a shift towards normality within Australia and for the first time since the first settlers to this ancient land, without the pressures of immigration.

Industry property projections prior to covid stood, despite our worst economic downturn since the Great Depression, our recession being led by lack of productivity as opposed to finance. As a result, house prices across didn’t fall. In fact in many locations, capital appreciation has been far greater than any of us had expected.

Every cloud…

It was mostly younger people working in retail, tourism, education and hospitality bore the brunt of the pandemic, with the resulting rental drops having an adverse effect on investor demand, slowing developers in their tracks and the fear of the unknown shutting wallets and stalling deals. But hasn’t stopped a new tranche of incentivised owner occupiers entering the market, and whilst there is construction going on all over the land it is very easy to get caught up in this unprecedented cycle.

Click bait newsfeeds hawking 20% increases in 2021 just adds fuel to the fire, as many motivated quite simply by the fear of missing out, jump blindly into the market. But let us take a moment to reflect, why when in what should possibly be a dormant market, things appear to be on the rise?

Firstly, supply has been at an all-time low. Unable to travel, most of us have been hunkered down at home many for over a year now and rather than move on, many have chosen to renovate, repair and stay put resulting in fewer listings, today’s count approximately 25% below the five-year average.

Regardless of Covid restrictions what property that has been available has still seen huge demand. We are in the lucky country after all, where some are luckier than others, willing to spend above and beyond vendor expectations. We continue to see examples of this especially within the tightly held ‘premier’ suburbs and we can only expect this to increase now that we are on the move again, riding the wave of consumer confidence.

Even away from the major metro’s activity has been hot, aided by sea changers seeking a new life in quieter places bolstered by the seemingly more affordable prices to their deeper pockets. Lack of opportunity for our usual discretionary spend on travel and holidays coupled with the costs associated with being ‘out and about’ has made for nice bulges in savings accounts and that’s of course before we include the impact of the lowest cost of debt we have seen in an aeon… if at all.

Aren’t we lucky…

Recent statistics suggest that approximately three quarters of new approved mortgages are associated with owner occupiers. Generous government incentives such as the ‘First Home Loan Deposit Scheme’ and cash backs for those qualifying for ‘HomeBuilder’ have created further demand, albeit in the new construction space and mostly for detached houses within affordable new subdivisions, on mostly green field sites.

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Verifying this, The Australian Bureau of Statistics (ABS) have recently released data from the December 2020 quarter, showing that the number of new houses that had commenced construction was the second highest on record. Sensibly in order to smooth out the construction pipeline and support jobs for longer the government has just extended the HomeBuilder construction timeframe from 6 to 18 months, although there are no further grants available.

So, these incentives have worked. Whilst many of us had to sit it out at home, with many small businesses watching their savings slip out of the door, the government in their infinite wisdom of keeping Australia PLC alive allowed builders to keep working. Yes, I get the economics… but I still don’t get the logic. (Perhaps my perspective has been skewed, as I for one, shut out of the office spent nine months working from home next to a construction site, with all the discomfort of heavy tools and machinery and of course an unsettled dog... but that is another story!)

Consequently, construction costs are on the rise. The demand for builders and tradies already busy with all our covid inspired home renovations is at an all-time high, as are the prices of timber and steel, the former due to bush fires compounded by covid and the latter as recovery outpaces slow supply and distribution. Developers of course (and why wouldn’t they?), seeing opportunity from this new seem of incentivised purchasers, naturally have notched up their land prices as their supply levels dwindle.

As I’ve mentioned before, Covid has changed our focus on property. At times of need, a roof over our heads becomes of primary importance, the more we value it the more we spend on it… a self-fulfilling prophecy and whilst I applaud any effort to get Australians onto the property ladder, (not forgetting how so many have been helped by their parents and/or grandparents topping up their deposits), I do worry that this has created a bit of a false economy, especially in the regional areas where both this perceived affordability and incentive has fuelled demand.

Looking across the country many regional towns have had the spike in prices that has been alluding them for years, as they get up to speed with the country as a whole. If we look at capital growth levels across the nation, we really are just following the average 6.35% median home growth trajectory that we’ve been on for the last 25 years, albeit in fits and starts if you’re the type to monitor the data closely. In many places we are just simply catching up; when you look at the demographics of some of these areas you will see that they do have a natural lid on sustained growth and investing there today might not perhaps deliver the outcome you want.

Still at this rate, at some stage in the next year or so regulators will have to cool the market, which means macroprudential tightening is no doubt around the corner. Banks will increase their interest buffer requirements, reduce their loan to valuation and debt to income ratios, and no doubt APRA will join the party with further rules as to what type of loans are made available.

Interest rates will undoubtedly rise…

With the Job keeper allowance over, employment pressure increasing and cost-of-living rises, you only have to drive past a servo and note the price of fuel to witness that barometer, all compounding what the future might look like.

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Not owning a crystal ball, I find that a healthy layer of risk management is enough to start planning ahead, both for the good times and the bad. For example, if the vaccinations we’ve been promised by October fail to roll out as expected, the borders remain closed and that magic tap to our economy, immigration, stays firmly shut, I think you will agree selecting the right property in the right area is key when there are so many factors that could send your investment strategy backwards.

Another thing to consider as more property investors return to the market, is a lack of what I would call bona-fide opportunity as the supply chains wake from their slumber. Supply is still short and within this good investment opportunity limited. Agreed, now that both developers and financiers are venturing back into the market this will be addressed in time, but as will the increase in investor demand.

So best be prepared…

Getting into good property is like waiting for a bus… a minute late and its already gone. Sure, there’s another bus coming but that one takes you the long route around the houses. You might even have to change with more delay, and whilst it might get you where you are going eventually it’s not ideal; wasting time and money, stressing you out unnecessarily all because of lack of planning.

With demand getting stronger, you need to be in a front-line position to secure the best opportunity as and when they present themselves. Get the right advice, find someone to help with the research and the maths, and when ready engage your mortgage broker to line up your finance.

Locked and loaded…

Then and only then are you ideally placed, waiting patiently to pull the trigger on the right opportunity. Remember there will be other investors primed and looking, so rather like being prepared for an auction, you must have your finance sorted before you can commit to anything.

Finance aside, we must never underestimate the value of good research. Research allows you to understand what type of property and location to invest in and critically, what underpins the future of your investment.

Just because a property or an area has had a sudden blip in value does not mean it is necessarily sustainable. Let’s face it everywhere across Australia has had that rise recently. Equally, because it has a dual key / dual income and on the surface might show you a good rent, what exactly will underpin your future capital appreciation and will attract and sustain the right tenants over the long term? Indeed, what exactly is the demand for this kind of property today, tomorrow and in the future? What exactly is your tenant profile?

Whilst you might need a bit of professional help looking at demand levels in different areas, we can all visualise who our tenant might be. Simply look at the local demographic, if the profile of the rental pool looks like something you had not envisaged, then that should give you a strong enough gut feeling to keep looking at other properties… highly likely to be somewhere else.

It is well documented that areas close to employment and amenity have far more demand and provide better opportunity in terms of capital gain. Property with good access to a CBD, where land is closely contested and mostly built out outperforms properties in the outer suburbs. In the same vein, capital gain is slower within acres of subdivision released side by side, as greenfield sites gain approval for housing one after another and in many cases with no major local employment or amenity to underpin it.

No two properties are the same, property moves in cycles and there are cycles within cycles, so plan accordingly. Research what you are looking for to give you what you need and importantly take advice from those with the relevant experience. There are so many charlatans selling property under the guise of property investment, in many cases all they are doing is listing and selling, using the FOMO and other such forceful tactics to get folk to sign. When you do find someone with a good track record take time to listen to them. Don’t be afraid to ask them for references and ultimately respect their time and knowledge, after all they have the experience and resources you need to be part of your team, ultimately having your best interests at heart.

Before I close, we need to look at the impacts of immigration. Australia relies on approximately two thirds of is population growth from immigration, with the borders shut this will have a continued impact. According to Dr Elin Charles – Edwards, demographer at the University of QLD “by 2030, around one-million fewer people will be calling Australia home than we would have seen otherwise.”

Now he might well be wrong. I’m sure our friends in foreign lands looking ahead at an uncertain future now realise how well Australia has been in terms of health, wealth and lifestyle throughout the pandemic and would like to join us at any opportunity. But what if he’s right… what wave of good fortune is going to keep us sailing forth?

To conclude, there is great opportunity today albeit rare. Nationally I see some good uplifts within the market for all the reasons above but as ever these will at some point waver until our international borders open again. Much as I’d like to see this sooner rather than later, I do not believe globally we have come across the right solution to see that saving grace just yet.

Be prepared…

Stay away from the herd (and the click bait), stay focussed on the prize and stick to what the research dictates, do your risk management and you will be in best position to outperform the market.

Your first stop might just be as easy as a quick call to Tony (drum roll please... did I mention the new guy?! Please welcome Tony to the team!) or myself at Positus, we’d be only too happy to hear what you would like to achieve and show you how we can help you on your property investment journey.

If you are not already one, you might also want to be introduced to some of our happy clients, after all it is what we strive to do... make people happy.

Oh and we also sail… forth, naturally 😊.

SURVIVAL NOTES... A CORONA REFLECTION OF THE GFC

Earlier this year at the outbreak of Covid-19, I was asked about my experiences in my past life in property development, and how we survived the peaks and troughs of the property industry. Typically, what with the anxiety of our clients from the lockdown in March and the ongoing reassurance required, I completely forgot to upload it.

Rediscovered today, it’s certainly worth a read…

Expect no gain unless you’ve planned for it…

In that respect as a company we were always looking at being in the best possible position for a downturn. We knew we could take advantage of the market thinning out.

Let’s face it everyone wants to be a property developer when the market is strong and debt easy to come by. Sites get stupidly expensive, builders get busy, more ‘project marketing’ teams led by the white shoe brigade flood the market and the media is full of ‘opportunities to buy’.

Within the property development space there are also many ‘squirrels’ to distract you and the success of your business whilst you are out bear hunting!

For example, we’d be affected by fear stories in the press and TV or click bait in the new media. A programme would air on a Thursday and by the weekend enquiry would be down and foot traffic at the displays over the weekends to a dribble.

But I digress…

In our case simplistically speaking we had three sides of the business. First the distribution ie. sales and marketing - let’s not forget the banks would want us to sell everything before we laid a brick. Secondly site acquisition’s and yes, it is, a bit chicken and egg. And of course, thirdly the physical development and delivery of the project. All requiring careful management and indeed innovation where possible.

You will appreciate this requires some very selective oiling of the parts to keep moving forward, efficiently and profitably… but today I’m not here to tell you how to run your businesses but I will quickly touch upon what we did across these three areas.

We developed a sales management system accessible to the various project marketing teams we had deployed, so we had complete transparency of the sales pipeline and control of our sales teams, even though we had huge distances between them. This also allowed for the ongoing workflow management hooked in with finance, conveyancing so important for contract exchange and ultimately settlements.

We then dove tailed this into our marketing analysis, to monitor our prowess through spend, media type and location. Bearing in mind we also had a call centre making thousands of calls an evening; its’ sole purpose to fill seminars with people interested to learn more about investing. This message would be enhanced by local radio spots and press ad’s reinforcing our play.

Very rarely would we buy a site on day one, preferring to option them up with a promise to pay an agreed price at a later stage. This required less money upfront and gave us time to get the distribution machine rolling. All things being equal we’d be ‘all sold’ off-the-plan before the transaction was settled. The key part here is that upfront sales and marketing is expensive but necessary to de-risk.

Importantly should the market stall or fall, we’d renegotiate with the vendor. Mentally they’d already spent the money, so would be looking for a solution to get out even if they had to give a discount.

A smart cost program starts early and focuses on sustained changes, instead of cutting muscle or trimming across the board at a later stage. So keep trim and carry no dead wood.

Sadly and inevitably, there are staff who are going to be surplus to requirements in a downturn. If you can redeploy key members in order to retain them then your start up when times are good will be accelerated.

The first bit of advice I received when I started to work in property was “it’s not a question of if you go broke but when”, a pretty good mantra to repeat, I’d say!

By that manage your margin and make sure you are in a good financial position should things change. This is something my investor clients regularly hear from me when I’m running a risk assessment matrix over their numbers.

Interestingly this was the first bit of advice that the chap who told me, had received when he first cut his teeth in development. I have to add he’s been very successful as a result and now one of the most successful private developers that I know.

Many businesses just try to cut costs, thinking that taking such extreme measures enough to survive. Acquisitions are put on hold, research and development gets slashed, marketing budgets are ripped up and staff (their most expensive commodity and in many cases their IP), get laid off. Like an airplane jettisoning fuel before it lands, just in case crashes!

Some forget their core business, rather than invigorating and adjusting their own business model they chase the brightest shiniest thing be it tech or business, perhaps to them a welcome distraction from the ensuing mêlée but under such conditions bloody risky.

Lastly the sit back and wait types, wait and wait until its too late.

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Looking back, I’ve been researching how winning companies behaved differently, Tom Holland and Jeff Katzin bothy partners of Baine & Company share some interesting points.

“Companies that outperformed, by contrast, moved deliberately to capture opportunities before the recession. While they focused intensively on cost transformation, they also looked beyond cost.”

They have use wonderful analogy ‘think of a recession as a sharp curve on a racetrack — the best place to pass your competitors but requiring more skill than on the straights.’

If you apply the brakes just ahead of the curve ‘by taking out excess costs’, turn hard towards the apex of the curve ‘by identifying the short list of projects that will form the next wave of your business model’, and accelerate hard out of the curve ‘spend and hire before markets have rebounded’. 

These were the small things we were doing before the GFC. Always taking stock of your position and moving ahead accordingly. Who was it that said it’s a combination of all the little things that make a big thing?!

The most prepared and competitive companies go on the attack early, while many of their competitors sit on their hands, waiting for fortune to change.

Successful growth companies used a few common tactics to boost their commercial growth.

  • They invested substantially in R&D instead of cutting back.

  • They pointed sales teams to top priorities among accounts and prospects, as determined by the account’s all-in profitability and potential lifetime value.

  • They realigned distribution by rebalancing the mix of current and new locations, or next-generation formats.

  • They also maintained marketing while competitors cut back. And focused on improving the customer experience, making it simpler and more personalised through investments in digital capabilities.

  • They restructured costs before the downturn, without cutting muscle.

Pursue a proactive acquisition pipeline 

Be in the game..

Taking advantage starts with a rational appraisal of your strategic and financial starting positions.

For the well-positioned, recessions present an opportunity to reshape your business. Negotiate to acquire new acquisitions and services at lower prices.

It’s also an opportunity to exit businesses or services that don’t fit strategically in the company’s future. Indeed, in many cases this includes staff too.

Always have a reserve in cash. During an economic crisis, this will give you a safety cushion and allow you to buy assets at low prices. 

Avoid an excessive debt. Only invest in projects where you bring 35% of your own capital and 65% loan from the bank. Should things get sticky this will give some breathing space should you need to take out new loans to repay old ones and paying a high interest on them. The melting point for many investors.

Following the previous guidelines, invest more in residential real estate than in non-residential. Past experiences show that residential property retains its value to a much greater extent, “property is both an investment and a consumption”. It will bounce back.

In conclusion..

In 1918-19 the ‘Spanish flu pandemic’ H1N1 virus hit Australia, rapidly spreading through the our  major cities, brought in by soldiers returning home at the end of the 1st war. The media amped up the fear, panic buying ensued and the streets were empty. Around the world around 50 million died. When you think that the casualties of the recent war totalled 20 million deaths and 21 million wounded, it puts it into perspective.

Australia contributed only 15,000 deaths to the tally even though 40% of the population caught the virus. The government of the day were quick to act, limiting the movement and assembly of the population, capping the spread and allowing hospital care to those that needed it. As a result this model has become internationally accepted, for containing, limiting and ultimately eradicating such pandemics.

Interestingly Australian property prices did not decline, conversely, they boomed in 1919 and rose at more than 10% per annum until 1921. Bolstered by returning soldiers, refugees and immigrants fleeing disease and the devastation of war.

Then and now, housing demand has always been linked to population growth. Our largest capital cities are in a more or less permanent state of housing undersupply, with this the rents increase as more people are unable to buy.

Until now Australia has had one of the highest population growth rates in the western world (my data showing 371,000 in the year to September 2019).

Landlocked by sea and admittedly taking evasive measures a couple of weeks later than we should, (with a few misdemeanours to test our mettle), I believe we have every opportunity of recovering from the virus quicker than many other countries. Again, Australia will be looked at as the ‘lucky country.’

Add to this the many investors that abandon shares and savings for a better return in property and it is far more likely that our population growth rate will continue to rise after the repercussions of the COVID-19 pandemic.

Our location, climate, resources, culture and happy outlook, combine to make an appealing ‘safe haven’ for immigrants seeking a better life. Mark my words, they will come.

So surprise, surprise, I’m sticking with property :)


WHAT DRIVES SOMEONE TO INVEST IN PROPERTY?

WHAT DRIVES SOMEONE TO INVEST IN PROPERTY?

I’m often asked what is it that drives someone to want to build a property portfolio? For many its as simple as creating wealth to fund their future, giving them the opportunity to have choices later in life rather than a forced hand. For some this might be as simple as bolstering the funds they to retire on, for others an important part can be to provide a head start in property for their children or a legacy to the family or chosen cause. Of course, to be in a position of any philanthropy, charity must start at home!

To achieve financial freedom, motivation is the key and with that in mind as with any big goal in life it is important to focus on the prize and plan accordingly. For many it can be as simple as they know they want to get ahead but still haven’t worked out how, that’s why we go to all the effort to ensure that they are making the right decisions and have the financial capacity to be successful.

REFLECTIONS FROM 2018

REFLECTIONS FROM 2018

It’s a shame that the misdemeanours of church figures, politicians and other identities have taken up so much of the press this year. The infighting and personal vendettas of our politicians as ever, adding low levels of confidence amongst the populous.

To compound the issue, it gives our low-level media outlets easy targets to twist the dagger into.. another angle to their usual sell the fear tactic; get the eyeball, sell the click, alas now so common within the online media. Sadly, this approach has seeped through the traditional media like an illness, proclaiming doom and gloom, citing in many cases one off examples and making them sound like they are prevalent in our community.

WELCOME TO AUSTRALIASIA - MAY THE FORCE BE WITH YOU!

WELCOME TO AUSTRALIASIA - MAY THE FORCE BE WITH YOU!

It’s Star Wars time, thankfully not an argument with Tango top and the rocket man of North Korea but the latest instalment of space opera from Mr Skywalker and company. In the news today, I read that there’s a bit of bickering going on amongst fans with an online petition calling for Disney to "re-make Episode VIII properly". My goodness, really? Really?!

Anyhow this got me thinking about all things Star Wars and a funny thing that happened in the Australian Census a few years back.

THEY'VE MADE YOU BED, YOU'D BETTER LIE IN IT.

THEY'VE MADE YOU BED, YOU'D BETTER LIE IN IT.

Oh my, somethings just never seem to go away.

Is it just because we have been fudging our way for aeons, or is it because with the leader of the new world won his position by warped truth and factual distortion that it’s now fashionable; this belief that it’s now totally cool to lie, cheat and deceive.

I still shudder when I look back at the GFC, an event mostly set off by the repackaging of subprime mortgages market in the US, compounded by banker greed and excessive risk taking. One wonders have we ever learned our lesson?

Is it because of this that we somehow our DNA has picked up in the same willingness to win at all cost, albeit usually to others? How long can we get away with all these little fudges? Do we keep pushing till one cataclysmic event tears the fabric from society and leaves us counting the cost again?

PRAY TELL... JUST WHERE ARE THE CITY LIMITS?

PRAY TELL... JUST WHERE ARE THE CITY LIMITS?

If you’ve had any experience in some of Sydney’s Western Suburbs you’d quickly understand that perhaps the state of our housing market isn’t as good as it’s cracked up to be. I remember meeting a couple in their just completed brand-new house, in a ‘new town’ located about 70kms south west from the Sydney CBD, which was being offered for sale cheaper than you could build one next door. Alarm bells yes but professional concern no, as on a higher level we avoid these areas when it comes to investment. In my experience the last places to rise in value become the first to fall, so when looking for a stress free and steady growth path, these areas aren’t highlighted on our radar.

GENERATION 'F'; THE RISE OF THE FUR BABY!

GENERATION 'F'; THE RISE OF THE FUR BABY!

Statistics show that in QLD only 10% of property owners allow tenants to rent with pets, a staggeringly low number considering that 62% of all households in Australia have an animal friend. The numbers speak for themselves; that’s about 33 million pets including approximately 4.8 million dogs and 3.9 million cats and we indulge over $12 billion on them annually.