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.”