Property>Property Investment

What is a Class 1B Rooming House?

A Class 1B Rooming House is a multi-occupancy property that provides affordable and safe shared living accommodation for four or more individuals who rent rooms, with each having their own separate residential agreement.

Our newly built Rooming Houses usually provide an Ensuite and Kitchenette in each room, whilst the shared common areas would usually include the main Kitchen and Laundry. The rooms are typically rented out on a long-term basis.

 

Why Invest in a Class 1B Rooming House?

Investing in a Class 1B Rooming House provides the landlord with various financial and non-financial benefits.

The key financial benefits of investing in a Class 1B Rooming House include the following:

1. Higher rental yield:Rooming houses provide a much higher rental yield, usually 3-4 times greater than traditional residential properties.
2. High positive cash flow:With a gross rental yield that is usually a minimum of 10%, the property often delivers exceptionally high positive cashflow. Multiple tenancies also mitigate’s risk of your property ever becoming vacant.
3. Tax benefits:Owning a rooming house often provides significantly more depreciation benefits than traditional properties, and are exempt from Land Tax if specific criteria is met.
4. Flexible investment strategies:Rooming houses are usually held as long-term investments to generate significant cashflow or used to hold land at no cost – in fact make you money as you hold (land banking). It can also be sold as a Rooming House, or sometimes converted to a traditional rental property for sale if needed.
5. Capital Gain: The residential land a Rooming house sits on will appreciate in value similar to any other residential land, so investors can often obtain both high positive cashflow and capital gain.

Additionally, there are non-financial benefits to investing in a Class 1B rooming house, such as:

• Diversification of your investment portfolio
• Progress straight to a Building Permit and avoid a Planning Permit application.
• Opportunity to positively impact communities by providing affordable housing options.

 

What are the Key Things to Remember When Investing in a Class 1B Rooming House?

1. Zoning, Compliance and Regulations: Ensure the property meets the Victorian Planning Provisions, complies with the Building Code and other relevant legislation and regulations.
2. Demands and supply:Research the market demand for affordable accommodation in the area. Usually there is very strong demand in most areas for quality and affordable Rooming House accommodation.
3. Location:Ideally source property close to public transport, amenities and employment hubs.
4. Maintenance and upkeep:Keep the property in good condition, which is essential for attracting and retaining tenants.
5. Property Management: Utilise a Property Management service that specialize in Class 1B Rooming Houses to ensure quality tenant selection and management process, as well as having a solid understanding of compliance requirements.
6. Insurance:Obtain appropriate ‘fit for purpose’ insurance coverage for a Class 1B Rooming
7. Market trends:Stay up-to-date with market conditions and trends, such as the current and forecasted future critical demand for affordable rental housing, to make informed investment decisions.

 

Who rents rooms in Rooming Houses?

Today’s newly built modern day Rooming Houses are modern, clean, safe and usually cater for a degree of independent living.

They’re popular with a range of quality tenants with varying circumstances being singles or couples, retirees, young adults leaving home, those coming out of a relationship breakdown – particularly women 55+, professionals on a 12–24month relocation etc, trainee medical staff and defence personnel etc. The cost of renting a single room in a rooming house can range from $180 to $320 per week or more, with the average for a new modern day Rooming House currently sitting between $280 to $320 per week.

 

How are Rooming Houses Managed?

These properties are generally managed by an experienced rooming rental manager.

A rooming house must comply with government rules and regulations relating to privacy, security, safety, and amenity. They must also be registered with the local council and may be inspected to ensure standards are met. Clear codes of conduct and house rules ensure harmony among tenants, and a tenant may be removed if they disrupt the household. To ensure harmony, most rooming houses operate with a clear code of conduct. Everyone living on the property follows a set list of house rules, and an unruly tenant can be removed if they disrupt the household. Everyone carries the responsibility to look after their own room, so you cannot be held accountable if a housemate is slack with maintaining their room.

 

The Future of Rooming HousesClass 1B

With over 1,300 registered rooming houses in Victoria, renters can easily find a property that suits their needs. Furthermore, new properties are constantly under construction, offering modern, accessible, and furnished accommodation with generous courtyards and spacious balconies.

Rooming houses offer a viable solution for those tenants feeling pressure from rising rental prices or wishing to minimise their rental payments and for investors they provide a profitable long-term investment.

 

What Should I Do Next If I Am Interested in Investing in Class 1B Rooming House?

The Class 1B Rooming House landscape can be very complex.  There are numerous stages involved that range from site selection, design, build, compliance and property management.

Working with experienced and knowledgeable professionals in the Class 1B Rooming House space is vitally important to mitigate risk and ensure a smooth process throughout.

Investing in Rooming Houses:
To explore the option in detail, please book an obligation-free consultation with Steve Boyd, our Head of Specialist Property Investment via sboyd@thehopkinsgroup.com.au or call 0419 393 628.

Mortgage & Lending Options:
For more information on your lending and mortgage option, please book a consultation with our Property Mortgage Specialist, Loreen Dyer via ldyer@thehopkinsgroup.com.au or call 0411 337 010.

Property Management & Existing Property Conversion:
If you have an existing Class 1B Rooming House property or want to convert an existing property into one, please book a consultation with our Business Development Manager, Sarah Holdsworth via sholdsworth@thehopkinsgroup.com.au or call 0466 247 566.

Financial & Investment Portfolio Advisor:  
If you want to explore how a rooming house can complement and maximise your existing wealth-building investment strategy, please book a consultation with our senior financial advisory, David Romanovski vis dromanovski@thehopkinsgroup.com.au or call 0466 247 566.

In Victoria, stamp duty applies on most transactions involving land.

One exception is when a purchaser nominates an additional or substitute purchaser to take his/her place under a Contract of Sale prior to settlement, provided the nomination does not involve extra consideration being paid (as opposed to an on-sale), amongst other things.

This arrangement has been in place for many years and was typically used between related parties. A common scenario is where Mr X signs a Contract of Sale then prior to settlement, nominates his wife Mrs X, as a co-purchaser or a family trust as a substitute purchaser.

It is important to note that if the State Revenue Office’s conditions of the exemption for nomination are not met, stamp duty will apply on both transactions – i.e. a transfer between the vendor to the first purchaser and stamp duty between the first purchaser and the nominee.

Due to a combination of credit becoming less available, restricted economic conditions, foreign purchaser restrictions and changes to off the plan stamp duty concession rules, nominations have been increasingly used between unrelated third parties in recent times.

Why would someone consider a nomination sale with an unrelated party?

A second hand purchaser may prefer to take a nomination instead of buying it direct from the Vendor to utilise off the plan stamp duty concession for Contracts dated prior to 1 July 2017. Similarly, a purchaser may prefer to nominate to a third party as he/she is unwilling or unable to obtain finance to complete the sale due to change of circumstances. Again, these transactions will be considered on-sales for stamp duty purposes if there is any extra consideration involved.

How are nominations treated in a Contract of Sale?

The standard form of Contract of Sale used in Victoria, is not equipped to handle nomination transactions adequately. The only provisions that are contained in the Contract dealing with nominations are:

1. the first purchaser will remain personally liable for the Contract notwithstanding any nomination; and
2. the nomination must be submitted 14 days prior to settlement.

In addition, it is not uncommon for an off the plan Contract to contain special conditions that deal with whether nominations can be made to foreign purchasers and the form in which it will be accepted by the Vendor.

It does not address important questions like:

• Does the nominee pay the deposit upon receiving the signed nomination form or at settlement?
• Who does the nominee pay the deposit to – the first purchaser or the Vendor?
• Will the first purchaser be entitled to use the deposit before settlement?
• Can the nomination be subject to finance approval?
• Can the first purchaser change his/her mind and nominate someone else before settlement?
• For off the plan properties, is the nominee aware of any changes to the Plan of Subdivision, Building Works or Specifications?
• Has the nominee obtained advice about the conditions of the Contract?
• Who will be responsible for paying the Vendor’s costs in relation to the nomination?
• Who will be responsible for paying legal costs of the first purchaser or the nominee?
• Who is responsible for any penalties or default interest if settlement is delayed?
• Is the nominee aware of the terms and conditions of the contract?
• Will additional stamp duty apply and who is responsible for it if it does apply?
• Will the nomination be subject to finance or any other condition?

As you can see, this is not just a simple process and great care should be taken before entering into these arrangements. Each situation is different, so it’s worth seeking professional advice beforehand.

Over the last 20 years I have facilitated a number of nominations between unrelated third parties, but always only with the advice and guidance of independent, reliable and experienced property lawyers. The outcome has always been successful, while protecting my clients’ rights.

Over the last few months it’s been difficult to ignore articles discussing Labor’s controversial plans to scale back negative gearing for investors who buy existing property and halving the capital gains tax (CGT) discount.

What’s happening?

In short, if elected Labor plan to cut back the CGT discount from 50% to 25% for newly-purchased property assets held for more than one year, meaning for those assets three quarters of each gain will be taxed instead of one half.

Changes to negative gearing would also restrict tax deductions for mortgage payments to newly built properties.

Only existing houses, flats and commercial premises would be excluded from the scheme.

When will it happen?

Even if the polls are half right, Bill Shorten will be Australia’s 31st prime minister.

With the federal election likely to be done and dusted come the end of May, it is looking very unlikely the Morrison government will recover from their horror 2018 paving the way for Shorten’s Labor to take charge.

Once elected, the ALP will likely try to fast track their changes through parliament. If successful, they could be in effect as soon as July 2019.

How will the changes impact you?

Let’s look at how these changes might impact the average investor pre vs post implementation.

 

 

Now is the time to act

The reality is these investor benefits will soon be a thing of the past as the ALP are keen to level the playing field for first home buyers.

However, as the proposal includes a grandfathering provision, those who act quickly can still get ahead of those who wait around.

Savvy investors know to run toward the storm when the headlines spell doom and gloom. A correction in the market is to be expected and should not discourage those looking to get started.

Pockets of Melbourne and Brisbane (even Sydney) are currently experiencing some fantastic results.

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Disclaimer: The information contained herein is general in nature and does not take into account individual situations, needs or goals. It should not be relied upon and persons should satisfy themselves through independent means that any decisions based on this material are appropriate. We recommend that you consult with your adviser who will be able to make a recommendation based on your specific circumstances.

Property is often regarded as one of the safest long term investments and also one of Australia’s favourite ways to invest.

Novice property investors can often enter the market with pre-conceived expectations of what it’s like to invest in property; however these expectations don’t always line up with reality. Understanding this is one of the first steps to becoming a successful property investor.

So what exactly are these expectations we need to overcome?

Expectation: For the right price, any property purchase is a good investment

Many people go into property investment with this idea that as long as you can secure a good price, any property will do. However, this is rarely the case.

Reality: Not all property is created equal – what, where and when you buy matters

There are so many factors that will affect your return on investment, so it’s important to do your due diligence before choosing a property.

Before you buy, make sure you research the area, check recent sales prices so you’re familiar with what you can expect to pay, check the vacancy rates and any proposed changes in the area, like new development or zoning permits that may affect future property values. Consider your timing in terms of market trends – are you buying at the peak or trough of a cycle? What’s going to provide the most value in the long term?

It’s also really important to go into a property purchase with an investment mindset. Many people fall for the trap of ruling ‘heart over head’, meaning they allow their emotions to cloud their judgement and are more likely to over capitalise their purchase.

Expectation: Property investment provides instant returns

Many first time property investors go in thinking they can become millionaires overnight, believing that investing in real estate can provide a quick fix to their financial shortfalls. They are drawn in by the promise of capital growth, a steady rental income stream and those sweet tax deductions.

Reality: Property investment is a long game, that requires time and planning

To be a successful property investor, you should outline your investment strategy and then develop a plan to achieve your goals. Not only do you need to focus on the short term, but long term also needs to be taken into consideration, and ensure your investment decisions align with your overall strategy. As the saying goes – “if you fail to plan, then you plan to fail”.

While it’s true that investing in bricks and mortar can be a great way to create wealth, it’s also a long term investment. The longer you hold it, the better off you’re likely to be. It’s about patience and persistence; property moves in cycles, with fluctuating highs, lows and periods of no movement at all.

You need to consider your cash flow and budget carefully – on top of loan repayments you need to be able to afford ongoing costs like rates, insurance, owners corporation fees, repairs and maintenance, and property management fees. While your rental income is likely to cover most of these costs, you need to be prepared for those instances where it doesn’t – such as prolonged vacancy periods or missed payments from tenants.

Additionally, those attracted to the tax advantages of negatively geared and brand new property should be wary of relying solely on these incentives.

The goal is to ensure you can continue to afford your property without entering financial stress that would cause you to sell at the wrong time. Understanding all the costs involved in holding property can be difficult, so it’s recommended you seek advice from a professional adviser to ensure you know what you’re getting into financially and avoid any nasty surprises.

Expectation: I can save money doing it all myself

First time investors will often try to do most of the legwork themselves. They believe they can save a pretty packet by taking on tasks such as researching different loan options, sourcing their own property and managing their own leasing.

Reality: You can save both time and money with the right advice

There’s only so much you can learn online, so seeking advice is a great way to get ahead. At The Hopkins Group, our team of advisers have the experience and technical expertise behind them to guide you through all stages of the property investment process. The Hopkins Group can help you:

• understand your cash flow situation and how property fits in the broader context of your financial strategy
• gain access to high quality property that may not be available to the general public
• secure the best loan product for your needs
• manage the ongoing leasing and tenancy of your property
• undertake pre-settlement inspections to ensure your off-the-plan property is appropriately finished

Our teams are experts in their field and are across all the ins and outs of their industry – from legislative requirements to market trends, they know their stuff.

And while there are fees associated with property management (and the implementation of broader financial plans beyond property), these costs are small compared to the time you’re saving by not doing it all yourself.

What’s more, speaking to a Property and/or a Mortgages and Finance Adviser at The Hopkins Group is free – so you’ve really got nothing to lose!

Get started on your property investment journey and speak to our team today!

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Disclaimer: The information contained herein is general in nature and does not take into account individual situations, needs or goals. It should not be relied upon and persons should satisfy themselves through independent means that any decisions based on this material are appropriate. We recommend that you consult with your adviser who will be able to make a recommendation based on your specific circumstances.

 

Managing Director and Senior Financial Adviser Michael Williams has been quoted in Domain today, speaking on changes to depreciation deductions. The article – Why the depreciation shake-up gives off-the-plan investors an edge at tax time – discusses the changes which came into effect from 1 July last year and how they impact property investors this tax time.

Read the full article here or contact an adviser to discuss this article in the context of your financial situation today.

Having worked with John Hopkins, the Executive Chairman of The Hopkins Group, now for 16 years –  and having known him for a further 15 years before I joined the business in 2002 – I am very familiar with his collection of his well-honed sayings which include ‘self praise is no praise’. Are they self-deprecating or hubris? A bit of both probably, but that’s always been up to the listener to decipher.

However, it’s the saying that came to mind when we were notified that a previously recommended property of The Hopkins Group won an international property award.

Dux Richmond Hill is a residential development of 175 apartments that includes a barbeque, common casual dining facilities, a swimming pool, and views from the terrace across the Melbourne CBD and out towards the Dandenongs. It was completed by Little Projects in April this year and has won the coveted 5 star award, Best Residential Development Australia in the Asia Pacific Property Awards 2018/2019. This is an international property award and a world renowned mark of excellence that celebrates the highest levels of achievement by companies operating in all sections of the property and real estate industry.

I applaud Little Projects for delivering its masterpiece, but John Hopkins was never in any doubt.

Following a meeting in early 2015 with the team from Little Projects, John wrote to his clients;

“In considering Dux as an excellent investment, there are many issues which must be addressed. Two such factors – amongst the many – that I would like to highlight in my recommendation of these apartments include the personality of the location, and the integrity of the developer in charge.

Let’s start with the location; all property markets have a personality. Often people discuss Melbourne as a property market, but Melbourne consists of hundreds of residential property markets, some are popular and vibrant, and some are not so popular and vibrant.

Richmond is one of those markets that is iconic, popular and vibrant, but what makes it so? Its rich history, from its working class cottages to the substantial homes on Richmond Hill; its plethora of retail facilities and buzz of modern day life; its offering of entertainment, food and drink options; its central position next to the MCG and the CBD, plus ease of access to the Yarra River and surrounding suburbs including Hawthorn and South Yarra; its transport links on Victoria Street, Bridge Road and Swan Street, including buses trains and trams, as well as easy access to main arterials. These factors all combine to create a unique ‘personality’ that is virtually palpable.

At the core of Dux apartments being excellent investments is personality; Richmond’s unique personality.

The second factor that confirms our recommendation in this property, is our confidence in the developer, Little Projects.

Over recent years, our clients have purchased hundreds of properties from Little Projects and I can say without any fear of exaggeration, they are up there with one of the best development organizations we have worked with since the inception of our group 35 years ago. Their word is their commitment; it is enacted, and the result is exactly as stated or better.

Across Australia, many properties have been sold to unsuspecting purchasers ‘off the plan’ with the use of pretty pictures, and flowery words, only to find that when they settle their purchase, the property is nowhere near what was described to them when they purchased it. But not when Little Projects is concerned.

We at The Hopkins Group are proud to stake our reputation on Little Projects”.

I am John Hopkins’ apprentice and, as such, am now jointly responsible for reviewing property opportunities for The Hopkins Group. When making a judgement about ‘off the plan’ opportunities there are many criteria to consider, such as location, price point, value, design, method of construction, quality of fixtures and fittings, and tenancy, building and owners corporation management. However, of paramount importance is (another of John’s maxims) “the pedigree of the players.” Little Projects with Rothe Lowman Architects and Mim Design, is a highly acclaimed trifecta.

Paul Little is acknowledged for his passion to develop prominent, innovative and superior quality developments, that are rich in amenity and delivered to an impeccable standard to appeal to a wide demographic.

Architect Rothe Lowman has created a statement building at Dux of superior style, embracing the art deco heritage features of an earlier building, taking cues from the industrial past of Richmond, incorporating a striking façade of streamlined design, with fine details, warm bronzes and glass.

The accolades for Little Projects’ Dux Richmond Hill are a testament to John Hopkins’ judgement. All of our clients who purchased in the building secured offers of tenancy within a week of settling their purchases. Our clients have an expectation that their investment property will provide capital growth and an ongoing and appropriate yield, as well as security and flexibility.

Since the inception of the business in 1980, John Hopkins property selection criteria has been as follows:

1. Choose the best inner urban areas of a major metropolis from a demand, popularity and opportunity point of view;
2. Choose properties in those areas that most people wishing to owner occupy can afford;
3. Choose those properties that are most appropriate for long term investment, mainly from a physical maintenance and tenancy management point of view;
4. Choose those properties that are most appropriate to a particular investors circumstances. Very often these are tax, financial or portfolio balance considerations.

Little Projects’ legacy of Dux Richmond Hill will appeal for generations to come, providing a meaningfully designed home to many. The Hopkins Group clients who purchased apartments in the building will have a secure and gratifying long term investment. John Hopkins’ property investment philosophies are insightful and enduring, and I think as always, John got this right and does deserve the praise.

Interested in which other properties have received The Hopkins Group stamp of recommendation? View a selection of our Current Recommended Property here, or contact us to learn how property investment might fit in your personal financial situation.

READ MORE: Did you see Dux got the Vogue treatment recently? Check out the Vogue Living feature here.

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General advice warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

 

There are a myriad of reasons people choose to invest in property and most have a specific criteria they wish to satisfy.

It may be because someone said you should, or you’ve decided it’s the best way to diversify your portfolio, reduce tax, create wealth, subsidise your superannuation or set up your children’s future. Or maybe it’s one of many other potential reasons.

Whatever your reason to invest in the Australian property market, you’ve probably asked the same question:
“With so many options available, which option is right for me?”

Let’s assume you’re a first timer looking to invest in a residential property (the safest option if you’re new to property investment).

There are key factors you need to consider when investing in property. These include, but are certainly not limited to:

• affordability
• style• location
• quality
• vacancy rates
• yield
• growth
• proximity to services and employment hubs

Once clear on these basics, you then need to decide where to invest.

Choosing where to invest

Choosing where to invest in property can seem a daunting, confusing and difficult task to do on your own. Luckily you don’t have to; with the help of an industry expert you’ll be able to invest with ease and work toward achieving your long term financial strategy.

A diversified portfolio is a good portfolio, and this rings especially true with property. If you live in Sydney it would be wise to invest in Brisbane or Melbourne, and vice versa.

I often tell my clients that we’re incredibly lucky in Australia to have three eastern seaboard capital cities that are all very different. They each look and feel unique, because they fundamentally are – so which capital is the best to invest in?

Without being too biased, here are some important characteristics in each city to think about.

Sydney

Sydney has undergone an unparalleled period of growth over recent years.

If you bought a property in Double Bay in 2012, you’d have doubled your money today. That’s right; Double Bay experienced 98% growth over the last five years!

There are plenty of other examples of this happening in Sydney, but this doesn’t mean that it’s a great place to invest right now.

I do not see any value there at the moment; it’s likely the city will see very moderate to zero levels of growth in the next few years.

However, this will change and we will revisit when evidence of this change becomes apparent… but for now I’m staying away from recommending Sydney as an option for my clients.

Brisbane

Brisbane has had a strong and stable property market in recent years and that means there’s a lot to be excited about.

Large infrastructure projects are currently underway (second parallel runway, Queens Wharf precinct, Kuripla Precinct, Springfield tech hub, to name just a few) and they will change the Brisbane’s landscape in the years ahead. The city has even been named Australia’s lifestyle capital, with seven of its suburbs making REA’s list of Australia’s top ten most liveable suburbs.

This city is becoming more sophisticated, as food and service perform well, and is set to transform further in the next five to ten years. This transformation will reflect favourably on property values and I believe that clients that choose to invest in (the right areas) of Brisbane’s market will enjoy strong gains over time with secured rental income.

Melbourne

The Melbourne market has long been considered a stable and solid area for investing in property. It mirrors Sydney in terms of growth and performance but offers better value per square metre than its northern cousin.Melbourne flourishes when it comes to food and service, and has a strong rental market of professionals who gravitate towards high quality housing on CBD fringe locations.

Long referred to as Australia’s most liveable city (until REA passed the torch to Brisbane – sorry Melburnians), and more recently the world’s, I strongly believe in the Melbourne property market for investment and will continue to support it off the back of its underlying fundamentals.

Why only eastern seaboard?

You might notice that I’ve only mention eastern seaboard capital cities. This is due to the fact that they are the only capital cities in Australia that we, at The Hopkins Group, consider to be major metropolises.

A major metropolis is determined by population growth, international and interstate migration, and the ability to stand strong should there be a correction in more than one industry.

For example, unlike Perth, Sydney, Brisbane and Melbourne will not be adversely affected by a drop in the price of iron ore. Nor will they experience a drop in property values, employment or income levels, should tourism numbers decline – a situation that would most certainly affect Surfers Paradise and the Gold Coast’s property market.

I tend to stick to what we call “inner urban areas of a major metropolis”. Essentially, this means the fringe locations (usually within 10 kilometres) of a major, independent CBD.

Our due diligence checklist and market research procedures have remained the same for 40 years because they work. We stick to proven fundamentals in an attempt to de-risk the process as much as possible for our valued clients.

Need more help in finding a property that’s right for you? Our team are on hand to answer any questions you might have. Contact a property investment adviser today.

 

The Victorian Government has proposed changes to current stamp duty charges, to take effect from 1 July 2017, with the aim of easing housing affordability for first home buyers.

As a result of these proposed changes, investors will no longer be eligible for stamp duty concessions previously available on off the plan property purchases.

There will be new benefits for first home buyers with stamp duty to be abolished for those purchasing properties valued below $600,000.

The changes will have a flow-on effect on the property and construction industries and investors are encouraged to consider their options before the end of the financial year to make the most of the dutiable value of off the plan apartments.

Understand the issues

The Hopkins Group has considered the Government’s proposal and hypothesised what effect the changes to the stamp duty charges will have on the property market as a whole – from a first home buyer angle, to a property investor, and even a construction and wider economy perspective.

Watch Executive Chairman John Hopkins and Managing Director Michael Williams work through the issues and give some insight into their experience of how the markets have ridden the wave of similar initiatives over the years.

• Watch the video

Download our fact sheets to find out more about how the stamp duty concession changes will affect certain buyers and what you can do to prepare for looming deadlines.

• Fact sheet – First Home Buyers
• Fact Sheet – Investors

To discuss how the stamp duty changes will affect you and your individual circumstances, call The Hopkins Group on 1300 726 082 to book an appointment with an adviser and start talking about your first home ownership or investment goals.

 

John Hopkins Mortgages operates under Australian Credit Licence 389093

 

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On 1 March 2017, The Hopkins Group hosted John’s Keys to Success webinar. We received a couple of interesting questions during the webinar that we felt required a more in depth answer than what was possible in the live chat facility. John has taken the time to answer these questions personally, following the presentation, and we are pleased to share these questions and answers to you here. 

If you would like to watch a replay of this webinar, please contact us and we will email you a link to view this in your own time.

Question: How do you respond to the belief that land appreciates and buildings depreciate?

Answer:

There are three important points to make regarding this question, the first is the use to which you could put to that particular piece of land. The second is the demand for that use in that position and the third is to say that it is not correct that buildings always depreciate in value.

Would you prefer to own half an acre on the shores of Cremorne or in Collins Street Melbourne, or would you prefer to own 400 acres 400 km west of Alice Springs? Of course, the point is the size of land must ALWAYS be related to its ability to be used (town planning) and the demand for that use. Given that land in central Australia an office building that would be an excellent investment in Collins Street or apartments and town houses on land in Cremorne would be your preferred investment every day. But the size of the land is so much smaller. Land, or the size of it, on its own is not the whole story.

You might think that the analogy is not relevant due to the extreme differences and distances but it is the same factors that would apply to land in outer urban areas of Australia’s metropolises (Brisbane, Sydney, Melbourne) and those quality inner urban suburbs that have underlying demand of occupation because of the general amenity provided by being inner urban. What gets sacrificed is the size of land and or the type of property.

Better off a terrace in Paddington or South Yarra than a house and land in Packenham or outer urban Sydney.
If multiple dwelling developments (townhouses and apartments) are in appropriate locations for the type of property and the title to those properties are modern, that is, up to date with today’s laws of title and are therefore easily saleable, transferable and financed, those properties may not be sitting on land but they have rights and title to land for the use that they have been created.

Tell me an apartment overlooking Central Park or Manhattan Island, in Elizabeth Bay overlooking the harbour or South Yarra looking north to the river and west of the Dandenong’s doesn’t have value. They don’t have quarter of an acre land that they are built on but growth in capital and income over decades and decades is beyond question.

In regard to buildings depreciating in value, if I built an office building, a house, a townhouse development, an apartment building, ten years ago, to build exactly the same buildings today, will cost a lot more. That is a combination of inflation, development costs, government charges, building costs and so on.

Depreciation in buildings occurs in those buildings that are not quality, not in well designed, well-constructed buildings.

All the above doesn’t mean the right house and land properties may not be good investments, it just means in the alternative, to suggest you need buildings on land is the answer and townhouse or apartments aren’t good investments is ridiculous and not borne out in fact.

Question: What’s your take on the recent media reports that banks are blacklisting certain Melbourne suburbs for funding?

“Media reports: The banks are listing certain Melbourne suburbs for funding”

Firstly, if you were in control and responsible for the mortgage assets of one of Australia’s licensed banks, you have prudential obligation and legal requirements to ensure that book is not overly exposed to any one particular category of asset, in this instance, property, in relation to other assets within that book.

Therefore if there is a particular suburb in a metropolis like Sydney, Brisbane or Melbourne, that enables the creation of a high number of a particular type of property, in this instance, let’s say Abbotsford, Melbourne with medium – high density apartments, whether or not that market is deemed a risk at one level or another that bank must curtail its lending.

Secondly and obviously if a particular asset or group of assets is considered high risk in terms of security, the bank would obviously not lend. Using Abbotsford as an example, where certain banks have limited their lending, the issue is very much to do with the numbers that have been developed there and the weighting in their mortgage books.

For reasonable quality developments, all through Abbotsford, there is ample proof of demand of occupation from both owner occupiers and tenants. We have firsthand experience of high demand in recent months for people to occupy many medium-high density categories of property in Abbotsford.

In regard to demand of ownership, there have been many sales in the secondary market, that is sales of individual properties in the open market after a development has been constructed and settled.Compared to say Docklands, and possibly the CBD of Melbourne, where the markets have been driven by off the plan sales mainly to overseas investors. And the local market for both owner occupation and ownership is weak. This therefore would suggest Docklands and the CBD are high risk in comparison to Abbotsford.

The issue is carefully investigating the circumstances around particular markets.