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Q&A | Keys to Success Webinar


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?


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.


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