The Rising Number Of Contracts Not Proceeding

The past year or so has seen an increasing number of contracts not proceeding to settlement. This is a worrying trend with not a common reason for it happening. We have seen finance issues, Bodies Corporate not assigning, valuations of residences, buyers getting cold feet, verification of figures coming up short and issues with some older agreements all contributing one way or another to the problem. There is a role to play for everyone involved to do their part in making these things happen from the accountant putting figures together for sale, the buyers being truthful about their financial circumstances, the vendors leaving cleaning figures in the P&L as an expense and allowing for a receptionist if it has a larger net profit (i.e. $280,000 plus) and the brokers qualifying buyers harder than they currently do and not pushing people into buildings they can’t afford or stretch themselves too far. 

 

 

The days of husband & wife teams being expected to do 100 hours a week covering everything from maintenance of lawns and gardens, repairs to units, market the business, do all the office work and man reception in holiday buildings and then arrange and oversee trades people are gone. No one spends $1,000,000 plus dollars to do all that and then clean units as well so vendors who take out cleaning wages and receptionists are kidding themselves if they then blame the broker for not selling their business.

Similarly accountants who don’t advise their clients to leave those figures in as expenses are to blame as well and the brokers who don’t point it out to potential buyers run the risk of a contract falling over as the verifying accountant will pick it up and include it in his report.

Vendors should be wary of including items in their P&L that are one off items such as replacement of air conditioners and hot water services, painting of units and anything that is non recurring as somewhere around the $350 to $400 maintenance profit per unit per year in the letting pool is acceptable with accountants we believe but brokers should be asking their buyers “are you a handyman” if there is a high net profit on repairs and maintenance before they inspect as they waste everyone’s time if the buyer won’t pay for the R&M component. Valuations can be an issue so prepare your unit for sale, look at and say to yourself “would I buy this residence?” when a coat of paint and carpets cleaned could present it in a new light.

The banks are becoming increasingly difficult to deal with particularly on smaller property management rights and are looking for higher deposits, preferably cash, and longer agreements for interest only loans. The myth that the committee cannot refuse a new manager has also been put to the test recently and if they don’t think you can do the job they can refuse the assignment. They cannot discriminate but buyers should be aware that it is not a foregone conclusion and they should prepare proper resumes with personal and business references and a business plan to help secure the assignment. Nobody wants to spend thousands of dollars on verification, due diligence and finance approval to see the purchase fall over at the last hurdle, so brokers should make sure their buyers are informed and well prepared.

In this increasingly difficult environment management rights still stands out as a great, secure and profitable business but we all need to play our role in making it easier to buy, not harder, by being honest with vendors when listing so they know their role, qualifying buyers better so we don’t waste time on inspections that they can’t afford or don’t suit and making sure they use industry experts to ensure everything is covered.

Development Trends in the Apartment Sector

There is an entrenched belief in the industry that property market trends in Sydney and Melbourne tend to precede activity in the Queensland markets.

 

The market in Brisbane and the Gold Coast has historically seen an upturn in property sales volumes as the southern markets ‘overheat’ and property values increase to the point where they are no longer seen as sustainable or affordable. Property investors then turn to markets where they perceive greater prospect of capital growth and return is available.

However at the moment we are seeing strength in the apartment markets of Sydney, NSW; Melbourne, Victoria and southern QLD in both Brisbane and the Management Rights Gold Coast. It may well be the case that property sales volumes in the Gold Coast market will rise further but Brisbane has been showing solid steady growth in sales for over a year. There has been an inflow of overseas capital investment particularly from Asia, in response to the relatively strong Australian economy. This has served to stimulate property development where it may not have taken place otherwise if we were wholly reliant on the Australian lending system. In this article I take the view that this investment is not as important to the market as the underlying trends for the success or failure of the development projects underway or planned.

So why is this recovery different to past cycles? The economic environment in Australia since 2009 has changed the fundamentals of property investment for Australians. Declining consumer confidence indicators show that the Australian population is not confident in the stability of the economy, which includes job security and perhaps a forecast of interest rate rises. In the past the general effect reduced consumer confidence in the property market and would indicate slowing growth.

Interstate migration to Queensland has declined over the past few years as people sought stability. Those who did move generally did so for employment or family reasons. Lifestyle was less of a motivator. Housing prices and stamp duties no longer represent an incentive to relocate and realise a cash lump sum for investment or retirement, although we will be keeping a close eye on this tipping point in affordability between the States.

Instead property developers are responding to real demand from the changing demographics (age groups and types of households) in the respective cities. The population in South East Queensland is still growing despite commentators pointing to percentage reductions in growth rates. It is wiser to look at the actual number of people who require housing. Who are they and what type of housing is appropriate.

The common element between all three states is the change in the dominant age groups and lifecycle stages of the population. The general trend is for a housing pyramid to now look more like an hour glass. With the dominant Baby Boomers now 55 – 75 years old and the “20 – 30 Something’s” representing the largest groups for new housing demand. With both groups either downsizing boomers or mobile young adults… apartments are the answer.I have borrowed a slide from SGS Research shown at a presentation to the UDIA in QLD. It highlights the increasing importance of 1 and 2 bedroom apartments and the decline in both the number of family households and corresponding drop in the proportion of family homes.

Their Property Management Rights purchase triggers are also quiet similar –Affordability: differing by degrees Boomers may rate affordability at a higher purchase price in return for amenity.Proximity to transport, amenity and infrastructure – inner city or fringe city locations are very important to both groups. Being closer to the workplace, education or to entertainment venues.Developers are responding to this demand and the SSKB Development Consultancy Team will continue to support our clients and work with them to reduce the development and market risk using all the resources and market intelligence we have available in Victoria, NSW and Queensland.

Fortune Favours the Bold Motel Buyer

Significant opportunities are now available in regional Australia for experienced, resourceful motel operators willing to back their own judgment and ability. Amid the fallout after the mining construction boom, fortune will indeed favour the bold. Many strong regional towns suffered a dramatic downturn as mining construction declined. Motels that experienced outstanding trading during the resource-fuelled boom, now find a remarkable high has been followed by a demoralising low.

Some who reaped considerable benefits during the good times have, sadly, had their spirits knocked by the downturn. Understandably, they are ready and eager to sell and move on. 

So, as one door closes, another door opens. And on the threshold are canny, counter- cyclical investors with the wherewithal to step in and drive a turnaround. “In many cases these are historically good motel towns, but they are suffering a tough downturn. That is where the real opportunities lie,” says Resort Brokers national sales manager Trudy Crooks.

“It’s not for everyone, however. You have to know what you’re doing. “If you do, you will recognise quality properties in fundamentally strong motel markets, where you can buy at a very attractive price, hold it, drive the business and, potentially achieve very strong returns down the track.”

Ms Crooks cautioned buyers interested in struggling regional motels to do their homework carefully to ensure they are paying a fair market price based on current conditions. “Look at the most recent six months trading results and compare those to the same period in the previous year,” she said. “In most cases, the recent half year will be down significantly on the corresponding six months in the year before.

“Therefore, the motel price needs to reflect the net profit of the most recent trading period.” The gains possible when experienced operators take advantage of the cyclical nature of the accommodation property business are clearly demonstrated.

“Four or five years ago, Management Rights Gold Coast in the big coastal resort areas were hard to sell,” she recalled. “But those who had the vision to buy in during the downturn are certainly reaping the rewards now that they’ve rebounded so strongly.

“There has been a real role reversal – the regions were flying when the coast was in a lull, and now the opposite is true.”

According to Resort Brokers managing director Ian Crooks, the impact of mining camps on the mainstream accommodation industry cannot be ignored.

Motels in many key regional centres, he said, would still be doing reasonable business, if not for mining camps that continued to operate beyond their intended or permitted scope. “In some places, mining camps permitted only to operate during a project’s construction phase have remained open and are now offering short-term accommodation in competition with motels,” he said.

“I’m pleased to see action has been taken in some areas, with show cause notices issued. If more of these camps were closed down, as they should be, it would bring life back, not just to local motels, but to the towns in general.

“I think that will happen, and it is another factor to be considered by those who are in a position to grab the significant opportunities out there now.

“The fact is, right now, a lot of regional motel owners want to move on.” Advice from renowned counter-cyclical investor Warren Buffet:

“Be fearful when others are greedy and greedy when others are fearful.”

Australian Landlord Insurance – Excellent Coverage, Value and Referrer Program!

TheOnsiteManager.com.au frequently gets introduced to many products, including landlord insurance, catering to the real estate industry. With our managers in mind, we assess the overall benefit of each product. Recently, Australian Landlord Insurance (ALI) presented an offer to us to take to our managers. We are pleased, on behalf of ALI, to offer to you landlord insurance for just $320. This represents a reduction, in most cases, over landlord’s current policies but also provides your clients with additional cover in many areas. Also note that the normal cost of a ALI landlord insurance policy in Queensland is $325. 

 

 

ALI’s product is extremely competitive in the current market. Some of the main features of its policy are:
Rental default up to $18,000 with no excess, up to a maximum rent of $1,500 per week and the number of weeks is not limited on all rental default claims. As an example, if a property rents for $500 per week, rent default coverage is up to 36 weeks. Whereas some other insurers only offer up to fifteen (15) weeks rent default coverage.
Murder/Suicide/Government – 104 weeks cover. Whereas some other insurers provide 52 weeks cover
Accidental, deliberate & malicious damage (inclusive of pet damage) up to $70,000. Whereas some other insurers provide coverage up to $60,000 but presently only provides $500 cover for deliberate and pet damage.

Not only does ALI provide a significantly better offering and a far lower premium, they also have the most generous referral fee we’ve found at up to $30 per policy per year!

If you wish to take advantage of their offer, we will, as a priority, arrange insurance coverage with ALI and ensure you get your discount as part of TheOnsiteManager.

TheOnsiteManager.com.au has also bundled up with another services provider, Hotspots Australia to offer smoke alarm compliance as well as a increased referral fee of $30 a property when combining both landlord insurance and smoke alarm compliance. Additionally, there are discounts for owners with multiple properties.

When a Management Rights Portal, becomes an Investment Property Portal

Naturally, onsite managers always prefer to sell to an investor, it just makes sense from a business perspective… But more than that, managers know their stock inside-and-out, they literally *live* and breath their listings, unlike a conventional agent. The manager understands how units behave as investment vehicles, and they can do an excellent job explaining all this to a prospective buyer without even thinking about it. It just rolls off the top of their head. They know the condition of the sinking fund, the admin fund, how the committee is performing, the schedule for upgrades, the return potential and current rental demand, and of course how much the units are selling for.

I know from my own experience buying investment properties, the onsite manager is always the best person to speak to about expected returns in a complex. Even when an outside agent is listing the property for sale, I find when I tell them I’m purchasing for investment, the first thing they do (assuming they don’t try to poach the management for themselves) is flick me over to the onsite manager to find out about the investment details. The manager has to field all the questions, and basically sell the unit to me, while the agent gets all the commission and credit. It’s not fair – and it’s one of the reasons we invented TheOnsiteManager 15 years ago – allowing onsite managers to also sell listings inside their complex and compete with the outside agents… and of course we do all this for managers, without charging them a dime of commission.

It’s always amazed me how well managers do at selling listings too, and how much they seem to doubt themselves when they first come on board. They are often intimidated by outside agents and don’t think they can do as good of a job. They’ll often call me, elated, when they close their first deal and “it was so much easier than I thought!”. Of course selling listings isn’t difficult when they’re marketed correctly, priced correctly, all the contracts and paperwork are in order, and the sales person knows the product inside and out. We can help with the first 3 factors, the last one managers take care of themselves.

More and more we’re finding investors, and even diversified funds are using TheOnsiteManager to identify viable investment properties to purchase for their portfolios. They’re actually using the site directly, instead of going to sites like RealEstate.com.au or Domain.com.au because the site has so many investment listings and all listing content is investment-centric. Of course it was never the original intention of our website to be an investment property portal – our site was designed to be a management rights portal – but we certainly do have a lot of investment property listed there. We have listings from over 400 different complexes! And with that, come users hunting specifically for investments. I’m even getting fund managers contact my office wanting spreadsheets of all current listings to identify the best properties to purchase for their clients. It’s really exciting to see.

In order to encourage this new audience, we’ve started presenting more financial data on residential sales listings to help investors make a better short list of property. Now in search results, listings will show (in addition to the usual beds, baths, car spaces) The Floor Space; The Gross Return (PA); and; The Yield. TheOnsiteManager.com.au is the only property portal that displays this data to investors from search results, making it a far quicker process to nail down suitable investments. We’d strongly advise all managers selling listings complete these financial fields to ensure their listings aren’t overlooked.

We’ve also focused heavily, and invested strongly on Search Engine Optimisation for our top 10 suburbs in terms of investment property listing density. These are Southport; Oxley; Carrara; Bowen Hills; Calamvale; Labrador; Runaway Bay; Clear Island Waters and Waitara. As a result, if you search google for Investment Property In [Suburb] or Investment Property For Sale [Suburb] TheOnsiteManager is generally the first organic listing on the page after RealEstate.com.au. TheOnsiteManager.com.au is beating every other realestate portal, including Domain for investment related real estate searches in the top ten regions our managers list in. This is obviously a considerable advantage for onsite managers seeking to market to investors.

You can see the new investment section on the website by going here: https://www.theonsitemanager.com.au/investment-property . We’d love to speak to you about how we can assist you to sell and rent residential listings inside your complex and strengthen your letting pool **WITHOUT** sacrificing your commission, drop us a line here.

Management Rights, The Developer`s Role

Lawyers acting for buyers of Management Rights are often faced with the task of trying to explain to their clients problems which they may face as a result of badly worded Caretaking and Letting Agreements. Much of this could be avoided if developers and their advisers took more care in preparing these agreements.

 

Developers have a golden opportunity to set up Management Rights in a way that will not create difficulties for building managers. The developer is in complete control of the Body Corporate at the time the original Caretaking and Letting Agreements are put in place.

I have acted for many people buying units from developers and I have never found the content of these agreements to be an important factor in deciding whether or not to buy in a particular development.

Of course the agreements must be fair and reasonable to the Body Corporate; in fact the Body Corporate and Community Management Act requires this. However too often a potential buyer of the Management Rights will find that the content of the agreements makes a decision whether or not to buy a difficult one. In many cases the content creates potential problems for the buyer because of ignorance of the law relating to Management Rights on the part of the developers and their solicitors or a lack of consideration for the potential building managers commercial interests.

In some cases the content of the Caretaking and Letting Agreements indicates a failure on the part of those preparing them to appreciate that a Body Corporate’s powers are limited by the Body Corporate and Community Management Legislation. Some agreements:- 

contain duties which require the building manager to carry out work which the Body Corporate has no power to pay for include the delegation of Body Corporate powers to the building manager which the Body Corporate has no power to delegate.

In such cases prospective buyers of Management Rights are faced with the possibility that some time in the future their agreements could be unenforceable against the Body Corporate.

The following are some examples drawn from actual agreements which illustrate a failure on the part of those preparing the Caretaking and Letting Agreements to properly consider the commercial interests of the building manager:- duties that are so broadly worded they are bound to cause confusion between the Body Corporate and the building manager as to the extent of the work the building manager has to carry out to perform the duties a Body Corporate being given the power to set the hours during which the building managers office must be manned a Body Corporate being given the power to force a building manager to transfer the managers unit and the Management Rights Business to someone else when the Caretaking and Letting Agreements come to an end.

 

This seriously compromises the building managers negotiating position when seeking extensions of agreements complicated duties in the Letting Agreement when all that is required is an authorisation to allow the manager to operate an onsite letting agency failure to give the building manager control over areas required for the proper conduct of the Management Rights For Sale Business by freehold title. allowing the Body Corporate to terminate the Agreements if the building manager goes bankrupt, or if a company, is liquidated or put into administration. Because of the Gallery Vie decision, such provisions may make it difficult or even impossible to obtain financing for management rights procurement or purchase.

Also, such a provision is not contained in the legislative provisions allowing for termination.

Developers and their legal and body corporate advisers must make sure the content of Caretaking and Letting Agreements is right before the selling of lots in the development starts. Developers are obliged to provide to buyers of lots copies of the proposed Caretaking and Letting Agreements. Any subsequent changes to the proposed agreements must be notified to contracted buyers each of whom may have the right to cancel a purchase if they will be materially affected by any of the changes.

Sale puts Quays in Management Rights Super League

 

BIGGERA WATERS apartment complexes Harbour Quays and East Quays have joined the super league of Management Rights Gold Coast with their caretaking and letting businesses and associated real estate selling in one line for close to $13 million. 

 

A syndicate of 10 local investors has bought the 363-unit Harbour Quays and 300-unit East Quays management rights portfolio in an off-market deal secured by Resort Brokers Australia for developer Emandar Group.

Agent Alex Cook confirmed earlier reports that the sale price for the 10-building operation was in the $12 – $13 million range, including seven apartments and eight offices.

“With 663 apartments in 10 buildings across the two adjacent projects, and 450 currently in the letting pool, this constitutes one of the biggest permanent residential management rights sales on the Gold Coast,” Mr Cook said.

The deal, which settled on Friday (August 11, 2017), is the second largest permanent management rights transaction on the Gold Coast in terms of unit numbers.

But, with its larger real estate component, the sale price easily eclipses the $10.5 million believed to have been paid by Mantra Group for the 788-unit Southport Central buildings.

Emandar established and retained the management rights as they developed Harbour Quays and East Quays progressively since 2012, selling out the first six-building project by mid-2014 and the final four-stage complex by late last year.

“Each of the six buildings in Harbour Quays is a separate scheme, so the sale included a manager’s unit and office on title in each,” Mr Cook said. “East Quays, although four buildings, is covered by a single scheme, with the buyers taking one unit and two offices.”

The consortium of private investors is led by James and Sandra Stapelberg, who will be the Harbour Quays and East Quays onsite managers, supported by Garry McKenzie in a purely administrative role.

The Stapelbergs are long-time Gold Coast resident managers, while Mr McKenzie has been involved in the management rights industry here since the mid-1980s.

“The business is established and operational, with both complexes fully tenanted, delivering a attractive net profit of circa $1.5 million, so it attracted very keen interest from a number of parties,” Mr Cook said.

“Emandar, who opted to retain the rights during the establishment stage after project completion, selected these operators based not solely on price, but particularly on their excellent track record for quality property management,” he said.

“Struck at a multiplier in the six-plus range, it demonstrates the ongoing strength of the Management Rights Gold Coast market, especially for large-scale, high-netting properties.”

Mr McKenzie said the extent of real estate included in the deal was seen by the syndicate as providing an opportunity to improve convenience and amenity for residents and tenants.

“It adds security and stability, allowing us to deploy management and operational staff where they are most effective across the sites,” he said.

“We also plan to use some of these spaces to introduce new onsite facilities, perhaps a café or coffee kiosk, real estate office, and a concierge-style cleaning and maintenance outlet where residents can easily book anything from housekeeping to car detailing.”

Mr Cook said the Harbour Quays and East Quays sale shared the spotlight with other super-league management rights deals in a market where the focus is more frequently on short-term resort-style properties.

Resort Brokers and Mr Cook have also been behind some of the biggest deals in the holiday category, including Soul Surfers Paradise, and Beach Haven and The Beach Apartments at Broadbeach.

These highly-competitive bids have been won, in the main, by high-profile listed resort companies, including Mantra Group and Thailand’s Minor International.

The Harbour Quays / East Quays sale comes on the back of other recent large-scale permanent management rights sales including the 263-unit Waterford Apartments complex developed by Matthews Property at Bundall, also handled by Mr Cook.

“While the sale price is confidential, Waterford was also bought by a group of private investors, demonstrating the purchasing power of syndicates and partnerships,” he said.

“Mum and dad investors are able to pool their resources to buy high quality, high-netting assets such as these.”