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.

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.

Options, Be Very Aware

A valid and current Caretaking Agreement and Letting Agreement (“Agreement”) with a healthy term remaining is one of the most valuable assets in a management rights business. This is recognised by anyone with an interest in the business, including banks and potential purchasers.

It is therefore imperative that Service Contractors and Letting Agents (“Building Managers”) understand the process that is involved in both exercising an option and adding an option to the term of their current Agreement.

Exercising an Option to Renew

The effect of not exercising an option can be disastrous. If a Building Manager does not exercise an option within the required time frame, there is no obligation on the Body Corporate to either re-engage or re-authorise the Building Manager as a Service Contractor or Letting Agent. If an option is not correctly exercised, then the Building Manager has the potential to lose the heart of their business.

Building Managers should:-

Check the current term of their Agreement and when it ends;
Verify whether there are any current options to renew; Carefully read the option clause and any other clauses affecting the option to see how and by when an option must be exercised; and Diarise so that the option is exercised in accordance with the Agreement before the period to exercise the option has expired.

Adding an Option to Renew

Adding an option to an agreement sounds a simple task. However, failure to follow the correct procedure can end in disaster.

Although there are ways to refresh the term of the agreement up to ten or twenty-five years (depending on which module of regulations applies to the Scheme), the maximum length of an option is the lesser of either:

Five years; or Until ten or twenty five years (depending on the module) from the date of the General Meeting approving the motion to add an option.

All motions seeking to add an option must be presented with the correct forms, and can be passed by ordinary resolution in a General Meeting of the owners by secret ballot where no votes are exercised by proxy. There are important timing requirements as to when the motion must be lodged, and how often such a motion can be considered. Suffice to say that Building Managers who attempt the process, without the assistance of a lawyer skilled in management rights, usually get it wrong.

Even though a healthy term looks great on paper, paperwork itself does not earn the vote of the owners, and it is up to the Building Manager to develop a good working relationship with the Body Corporate so that there is incentive for the Body Corporate’s lot owners to approve the addition of an option in future years.

Building Managers should favour a rollover, or reverse option, provision in their Agreements. This provides for a continuous 5 year automatic rollover of the term , to allow for a total term of 10 years, in the case of a scheme governed by the Standard Module regulations, or 25 years, in the case of a scheme governed by the Accommodation Module regulations. In this case, the Body Corporate would have the option of terminating the rollover of the Building Manager has been in serious breach of the Agreement at any time. However, many lot owners are opposed to such rollover provisions. For psychological reasons, they like to have power over the extension process.

Building Managers have to realise that the politics of dealing with Body Corporate members is very much the art of the possible. Building Managers face the dilemma of, settling for options that are almost certain to be agreed to, or pushing the boundaries, which may lead to a rejection of what is being sought, and having to wait another year before, once again, being able to put an option motion on the agenda.

How to Find the Right Property Management Company?

Putting resources into real estate can be an extremely lucrative attempt, however, it is also one that requires a great deal of exertion. Particularly if you have purchased a property with the plan of leasing it, you should be ready to give various service to your inhabitant. From finding occupants, gathering rent, building upkeep and everything in the middle of, gathering income from an investment property is not a passive exercise. 

 

So as to make all the previously mentioned things happen, it is essential to contact the companies who deal with property management rights because they can help you to get a decent property at a not too bad cost. These organizations won't simply help you purchase a decent property, yet they can additionally manage it on your behalf. This will help in producing most extreme income from your property. Along these lines, it is vital for you to realize that, which is the most reputed property management company in your locality.

Tips for Finding the Right Management Company

· Search Your Local Network: Ask your friend, family members, realtors and contractors about the property management companies in your area. Gather as much information as you can for your further reference.

· Ask the Company Officials Important Questions: After gathering the information, contact the companies to get an additional information about their clients, properties they are already managing etc. Try to get the property portfolio and look for the results to get an idea about their property managing techniques and what kind of results they are going to provide you if you hire their service.

· Value for Money is Key: After gathering necessary information, discuss pricing and ensure that you are getting satisfying results.

· You Should Take the Calls: Remain in constant touch with your property management company you have selected because you and the company should work in a team and any lack of information can make a lot of difference.

The aforesaid points are just an overview to finding the right management company as per your requirements but, it is ideal to do some homework before choosing any property management organization. By picking the correct property management organization, you can evade superfluous headaches, time wastage, and spare a lot of cash too.