{"id":20960,"date":"2018-04-27T01:00:59","date_gmt":"2018-04-26T15:00:59","guid":{"rendered":"https:\/\/realestatetalk.com.au\/?p=20960"},"modified":"2018-04-27T01:00:59","modified_gmt":"2018-04-26T15:00:59","slug":"evidence-of-a-brisbane-unit-glut-knockdowns-increase-investment-lessons-from-the-gfc","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/evidence-of-a-brisbane-unit-glut-knockdowns-increase-investment-lessons-from-the-gfc\/","title":{"rendered":"Evidence of a Brisbane unit glut + Knockdowns increase + Investment lessons from the GFC"},"content":{"rendered":"<p><strong><em><u>Highlights from this week: <\/u><\/em><\/strong><\/p>\n<ul>\n<li>A rise in Brisbane off-the-plan unit sales<\/li>\n<li>Should agent \u2018best practice\u2019 include auction bidder advice?<\/li>\n<li>Low interest rates encourage re-development<\/li>\n<li>Margaret Lomas saw the opportunities in the GFC<\/li>\n<li>Settlement delays could trap buyers<\/li>\n<li>Defining a \u2018housing crisis\u2019<\/li>\n<\/ul>\n<p><strong>Transcripts:<\/strong><\/p>\n<h2>Brisbane units in oversupply &#8211;\u00a0Angie Zigomanis<\/h2>\n<p><strong>Kevin:<\/strong>\u00a0 Nearly 20% of the apartments in inner Brisbane are sitting empty, and more than 50 projects have been shelved or ditched altogether as landlords struggle to survive in the city\u2019s over-supply crisis. More than 10,000 new apartments have been abandoned or deferred by developers in the past 12 months amid waning investor demand, rising construction costs, and lending restrictions, according to a new report by economic forecaster BIS Oxford Economics.<br \/>\nAngie Zigomanis \u2013 who is the senior manager, residential property, for BIS Oxford Economics \u2013 joins me.<br \/>\nAngie, thanks again for your time.<br \/>\n<strong>Angie:<\/strong>\u00a0 No problem at all.<br \/>\n<strong>Kevin:<\/strong>\u00a0 There\u2019s been a bit of a rise in off-the-plan sales since 2013, allowing for a greater number of projects to reach sufficient pre-commitment levels. Has this added to the problem, or has it actually created the problem?<br \/>\n<strong>Angie:<\/strong>\u00a0 Well, it\u2019s created the problem. At the start of this period, the inner Brisbane apartment market was fairly buoyant, vacancy rates were fairly tight, and those conditions set the pre-conditions for investors to pour into the market, whether it\u2019s local investors, whether it\u2019s investors from interstate, or investors from overseas.<br \/>\nOne of the problems you get with the apartment market is that people often buy in in today\u2019s markets, but because it takes two to three years for a major apartment project to work its way through to completion, often that project is being completed in tomorrow\u2019s market, and if enough people are buying in today\u2019s market, then you get the situation you have in Brisbane now where there\u2019s over-supply in the future.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Of course, some people will commit to buying into a project only to find the project doesn\u2019t go ahead because they just don\u2019t reach those levels.<br \/>\nHave you got a feeling about how many people could be impacted by this, Angie?<br \/>\n<strong>Angie:<\/strong>\u00a0 Not really. There are projects, obviously, that are pre-selling that perhaps are unlikely to go ahead, whether it\u2019s projects not getting pre-sales levels or whether it\u2019s the developer business being unable to get finance as well. That\u2019s become an increasing issue as well, just because of the increasing risk that\u2019s emerging for financiers in the Brisbane market. Many are pulling back, and it means that the next round of projects are less likely to go ahead.<br \/>\n<strong>Kevin:<\/strong>\u00a0 The latest CoreLogic Home Value Index revealed a fall in unit prices in Brisbane by 0.6%, pretty small, but still, it is a fall. That was in the past month.<br \/>\nIs that going to ease the situation, do you think?<br \/>\n<strong>Angie:<\/strong>\u00a0 This is the way markets operate, I guess. When markets get over-supplied, prices drop back to induce more demand. But having said that, I think, at current prices and at current supply levels, it won\u2019t induce enough demand. And I suspect you\u2019ll find the prices will continue to fall back further over the next year to two years.<br \/>\n<strong>Kevin:<\/strong>\u00a0 That has to be good news, I would have thought, for anyone wanting to buy an apartment. Wouldn\u2019t you agree?<br \/>\n<strong>Angie:<\/strong>\u00a0 Yes, definitely. It makes prices more affordable and gets people into the market a lot more easily. The flip side of that, I guess, is also it means that if you\u2019re a potential first-home buyer, rents are very attractive as well and may keep you in the rental market longer.<br \/>\n<strong>Kevin:<\/strong>\u00a0 That\u2019s very true.<br \/>\nHow many unoccupied dwellings are there in inner Brisbane? Have you got a number?<br \/>\n<strong>Angie:<\/strong>\u00a0 Our estimate is about 17% of apartments, so it\u2019s a fairly high number. That\u2019s an increase from about 11% back at the 2011 Census. The inner-city apartment markets tend to have a high level of vacant dwellings anyway, because you tend to get people from regional areas who have a second home and a bolt hole within inner-city areas where they can come in, see concerts, and what have you.<br \/>\nSo, it tends to be higher anyway, but this is higher than you\u2019d otherwise expect, and I suspect a big part of that are recently completed apartment projects that are looking for tenants.<br \/>\n<strong>Kevin:<\/strong>\u00a0 We talk about inner-city Brisbane, but are there any better or worse areas of over-supply, say, coming outside of the Brisbane metropolitan area?<br \/>\n<strong>Angie:<\/strong>\u00a0 Outside of Brisbane?<br \/>\n<strong>Kevin:<\/strong>\u00a0 Yes, some of the suburbs like West End and things like that.<br \/>\n<strong>Angie:<\/strong>\u00a0 Yes. So, within inner Brisbane, we suspect the areas with the biggest supply risk are West End and probably just northwest of the CBD, areas like Fortitude Valley, Bowen Hills, etc., where there are just huge <strong>[4:03 inaudible]<\/strong> of supply that are being put online, and the supply is being dominated by investor purchases as well.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Supply and demand is what real estate is all about. Have you got a feeling for how long it\u2019s going to take to adjust so that the market can get back to a bit more balance, particularly the apartment market?<br \/>\n<strong>Angie:<\/strong>\u00a0 We think that will be at least until the turn of the decade, so two to three years out from now, 2020\u201321, when you\u2019ll start seeing potential rises in rents and things start to get soaked up.<br \/>\nAt the end of the day, we\u2019re fairly bullish on the demand side, and on the tenant demand side, there\u2019s strong growth in overseas student numbers, which is a big source of tenant demand. The Brisbane economy is starting to show signs of turning around, and so we\u2019ll see increases in employment in the inner-city areas, and that will attract a lot of young professionals and young professional renters into the city and draw in migration from interstate.<br \/>\nSo, we\u2019re actually fairly bullish on the demand side, but just the supply side is very strong. We estimate that there will be over 8000 apartments completed this financial year, compared to a long-term average of just under 2000 per annum. So, this really is a supply story, not a demand story.<br \/>\n<strong>Kevin:<\/strong>\u00a0 So, it\u2019s not a matter of build it and they will come; build it and you\u2019re in trouble. But it\u2019s all about, as we said, supply and demand.<br \/>\nWhat are we likely to see in the next couple of years? Will these prices continue to fall?<br \/>\n<strong>Angie:<\/strong>\u00a0 Yes, I think there will be further declines. There will be challenges for rents, and I think as new supply continues to come online in the next year to two years, it means that a person who completes a new apartment building may be able to keep the same rents but that will really be attracting tenants from secondary apartments, so people with older apartments that can\u2019t compete in the market will have to start discounting rents.<br \/>\nAs rents get discounted, it means the gap between what people are getting in rental income and what they\u2019re paying for their mortgage starts to widen, and there will be people who become increasingly stressed and will end up putting their apartments onto the market.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Of course, affordability is a big driver for sales, and Brisbane is still a very affordable market, I would have thought.<br \/>\n<strong>Angie:<\/strong>\u00a0 That\u2019s right, yes. We\u2019re starting to see Queensland now attract population from the other states again. It\u2019s taken a while because the economy has been fairly weak, and at the end of the day, there\u2019s no point in moving to Brisbane if you can\u2019t pay off a mortgage.<br \/>\nBut now the job situation is starting to pick up again, we\u2019ve started to see a big turnaround of people from New South Wales moving up north again, and just the most recent quarters of data coming out of the ABS suggest that\u2019s starting to accelerate.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Angie Zigomanis, thank you very much for your time.<br \/>\n<strong>Angie:<\/strong>\u00a0 No problem at all. Thanks, Kevin.<\/p>\n<h2>Housing affordability &#8211;\u00a0Matthew Bateman<\/h2>\n<p><strong>Kevin:\u00a0 <\/strong>A very hotly debated issue all the time is housing affordability. Do we actually have a housing affordability crisis here? And if so, what can we do about it? Many, many people trying to make decisions about how to get more people into property, but I guess the bottom line here is sometimes, we have to realize that not everyone wants to be in property.<br \/>\nSo, do we actually have a crisis? I\u2019m going to talk about this with Matthew Bateman. Matthew is from ThePropertyMentors.com.au, giving great advice to people who want to get into the property market.<br \/>\nMatthew, thank you for your time.<br \/>\n<strong>Matthew:\u00a0 <\/strong>Pleasure, mate.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Question: do we have a housing affordability crisis, and if so, what can we do about it?<br \/>\n<strong>Matthew:\u00a0 <\/strong>To focus on things, we need some definitions around what a crisis is. \u201cCrisis\u201d is usually a word that the journalists and the media like to bandy around because it draws on really strong emotions, but as investors, we want to try to take emotion out of the equation. So, the best way to look at it, I guess, is to use some numbers and use some figures and work out where the market actually is right now.<br \/>\nThe thing about housing affordability is nobody is going to deny that it is a difficult thing to get your foot onto that property ladder for the first time. But Kevin, I\u2019m sure you\u2019d agree, it\u2019s always been difficult relative to the times.<br \/>\nThis is a great exercise to do for anyone who wants to put some perspective around things. I remember speaking to my grandfather who was in the Air Force and he had three years overseas, and he came back with about \u00a3800 in those days. About \u00a31 a day was what they got paid for basically putting their life on the line and serving our country.<br \/>\nHe came back with \u00a3800 and decided \u201cI\u2019m back, I\u2019m relatively young, I have a new wife, we\u2019re starting a family. We need a house.\u201d So, he did what a lot of people at that stage did, which was he went and found something that he could afford to buy. And at that stage, it was actually a brand new subdivision in a suburb in Sydney southern suburbs called Caringbah.<br \/>\nObviously, Caringbah is now a well and truly established suburb, but when my grandfather was buying there, there was no water, no power, no sewer, and he actually built a house himself. It took him around two years to build because \u2013 Kevin, I\u2019m sure you\u2019re aware of this \u2013 early after the War, there was a shortage of materials.<br \/>\nSo, while he had it all quoted up and he had enough to buy the land\u2026. The land was basically \u00a31 a foot of street frontage, so he bought himself a 50-foot street-front block, worked out to be just under a 1000-square meter block. Back then, the land was not the most expensive part given there was no water or sewage; it was the material cost.<br \/>\nHe actually built the house himself on the weekends. After working a full 9-5 normal workweek, he\u2019d go on the weekends, get some help from some mates, and they\u2019d started knocking his house together. The house actually stalled for a long period of time because he saw his plaster costs triple, again, just because of the shortage of materials post-war.<br \/>\nLong story short, that property, he\u2019s actually now in the process of subdividing and selling off half of the backyard, of which he\u2019ll probably end up getting close to $1 million on around about 500 square meters out in Caringbah now.<br \/>\nI guess the moral of that story is housing has always been difficult to get into. Do we have a crisis now? I guess just putting that context aside, we have to come back to how do we measure housing affordability? I guess probably the most simplistic measure \u2013 and probably the one that gets the most media attention \u2013 is the Demographia International Housing Affordability Survey.<br \/>\nIt\u2019s a worldwide study. They look at a whole bunch of different cities around the world to say what\u2019s affordable and what\u2019s not affordable? Their metric or their measurement for affordability really comes down to the median or average wage for the country and the median dwelling price. What they do is they basically just say if a house is worth X and the average wage is worth Y, we divide X by Y and it gives us a number.<br \/>\nNow, using their metrics \u2013 it\u2019s called a median multiplier or median multiple \u2013 they rate affordable housing as being a multiple of three and under, and severely unaffordable being a metric of 5.1 and over.<br \/>\nIf you go to the ABS data \u2013 which I did recently, just so that the numbers are accurate \u2013 the full-time adult average weekly wage is about $1567 a week, or around about just under $82,000 a year. So that\u2019s the average wage, if you like, here in Australia.<br \/>\nThe median dwelling price\u2026 I\u2019m careful here to use the word \u201cdwelling\u201d as opposed to \u201chouse,\u201d because obviously dwellings encapsulate all forms of housing from apartments, units, villas, townhouses, houses, etc. The average dwelling price in Australia is about $687,000. This is ABS data.<br \/>\nThat gives us a dwelling-to-income ratio of about 8.4, which puts housing affordability in Australia according to the Demographia study at severely unaffordable. In fact, all of the major capital cities in Australia are in \u201cseverely unaffordable\u201d territory.<br \/>\nHowever, to put the flipside on that, to use their metric of being affordable as three and under for the average wage, that would mean that the average dwelling price in Australia, to be affordable, should be $245,000 or less.<br \/>\n<strong>Kevin:\u00a0 <\/strong>So, if I understand you correctly here, Matthew, what you\u2019re suggesting is that that price you talked about for the median dwelling price, about $600,000, dropping back to a third? That\u2019s just not going to happen.<br \/>\n<strong>Matthew:\u00a0 <\/strong>Yes, $245,000. It\u2019s not going to happen, and I would ask, do we really even want that to happen?<br \/>\n<strong>Kevin:\u00a0 <\/strong>Exactly.<br \/>\n<strong>Matthew:\u00a0 <\/strong>If we look at where Australia holds their wealth, most Australians hold the majority of their wealth in real property. Therefore, if we saw our economy and the wealth of Australians basically reduced by two-thirds, that would have catastrophic outcomes on GDP growth, and we\u2019d probably go into a full-blown depression. So, we have to be careful what we\u2019re looking for or asking for when it comes to housing affordability.<br \/>\nI\u2019d actually like to redefine this model as not being necessarily an issue about affordability, but probably being an issue more around accessibility. If I can just use another quick example to highlight what I mean by that, if we went out and took a typical property here\u2026 Let\u2019s say we were in Sydney or Melbourne or Brisbane and we went and bought, let\u2019s say, a two-bedroom apartment and we paid $500,000 for that, in those markets, we should be able to achieve somewhere around a 4% rental yield, or the actual rent to live in that property would be about $20,000 a year.<br \/>\nNow, to purchase that same property for $500,000 on an 80% loan-to-value ratio, I\u2019d need to come up with a $100,000 deposit, but then my mortgage would be on $400,000. Now, if I could get interest rates at 5% \u2013 which is fairly achievable today for most buyers or most investors in the market \u2013 that\u2019s equivalent of $20,000 a year in mortgage.<br \/>\nSo, realistically, to own the home, as long as you have that accessibility factor, meaning you have the deposit, the actual mortgage cost is probably very similar to what a lot of people are paying in rent.<br \/>\n<strong>Kevin:\u00a0 <\/strong>That\u2019s fascinating, Matthew. So, what can we do about it?<br \/>\n<strong>Matthew:\u00a0 <\/strong>Kevin, there are a number of different ways that people can go about getting their foot on the property ladder. Obviously, that deposit and that accessibility is the bigger issue, so again, a lot of people are choosing to go to the bank of mom and dad for deposits, people are teaming up and joining forces.<br \/>\nOne of the things we\u2019re working on behind the scenes with state government and local housing providers as well as community housing providers is we\u2019re looking at some options to actually be able to get more affordable rents into the market, because not everyone wants to buy their own home. There are a lot of people who will choose to or by necessity, will be forced to rent, so we\u2019re looking at solutions in that space.<br \/>\nAnd one of the things that I think is going to come out in the next year or two or three is probably going to be deposit bonds, and that is governments supporting young people who want to get into the market by basically stumping up that 20% or 25% initial deposit.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Fascinating stuff, Matt. I thank you for your time. We can talk a lot more about this.<br \/>\n<strong>Matthew:\u00a0 <\/strong>I could talk all day on this.<br \/>\n<strong>Kevin:\u00a0 <\/strong>I\u2019m listening to you, and I\u2019m going back on my history as well, my grandparents, my parents and even my own experience. I\u2019m at that stage now where I\u2019m going to become one of those people who talk about the experience.<br \/>\nMate, it\u2019s been great talking to you. Thank you so much for your time, Matt. Matthew is from ThePropertyMentors.com.au. Thanks, mate.<br \/>\n<strong>Matthew:\u00a0 <\/strong>Pleasure, mate.<\/p>\n<h2>Failing to get finance before auction &#8211;\u00a0Dene Tucker and Matthew Andrews<\/h2>\n<p><strong>Kevin:<\/strong>\u00a0 There\u2019s been an alarming suggestion in a recent YouGov Galaxy poll that 18% of people in Australia failed to get pre-approval finance before trying to buy at auction. You\u2019ve got to be crazy!<br \/>\nJoining me to talk about this, Dene Tucker who is the broker\/owner RE\/MAX Auction Services for Australia and also Matthew Andrews who is the general manager for Pivotal Financial.<br \/>\nFirstly, Dene, thank you for your time.<br \/>\n<strong>Dene:<\/strong>\u00a0 Not a problem at all. Good morning, Kevin.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Matthew, welcome to the show.<br \/>\nDene, I might start with you. Obviously, doing auctions all around Australia, do you find this happens more in any one state than the other?<br \/>\n<strong>Dene:<\/strong>\u00a0 Having had the opportunity to consider this since this story came out, I guess I\u2019ve determined that I\u2019m obviously quite privileged, because I\u2019m clearly working with a lot of experienced agents, and frankly, over 5000 career auctions now, I\u2019ve never actually come across this.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Is it something that you would come across, do you think? As far as you\u2019re concerned, when it\u2019s knocked down, it\u2019s knocked down.<br \/>\n<strong>Dene:<\/strong>\u00a0 Look, my engagement with my agent clients, the salespeople I\u2019m working with week in, week out, I\u2019m pretty confident I\u2019d hear if there was a situation where someone\u2019s bid under a hammer and then not been in a position to go through the deal because they didn\u2019t have the financing.<br \/>\n<strong>Kevin:<\/strong>\u00a0 I would imagine it\u2019s just best practice for an agent, though, to make sure if you have someone all the way to come to an auction to bid that at least they\u2019re going to get their finance set. It\u2019d be one of the questions they\u2019d ask them, I would have thought.<br \/>\n<strong>Dene:<\/strong>\u00a0 Most definitely. Certainly, in all the training work that we do and have done over years and years, a big part of it is about making sure that people are prepared for auction day when we\u2019re talking about buyers. Certainly, that remains a focus for us as part of the process.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Matthew, to you for a moment, I imagine there would be occasions where someone \u2013 and I\u2019ve actually heard of this \u2013 where someone is going there to buy a loaf of bread or something, they turn up at an auction and think \u201cWow, I love this place. I think I\u2019ll buy it.\u201d A pretty risky thing to do, but it could happen quite easily, couldn\u2019t it?<br \/>\n<strong>Matthew:<\/strong>\u00a0 Yes. And good morning, Kevin. It\u2019s a really interesting question. I think it comes down to the education of the client in the process of applying and being successful for finance and purchasing a home.<br \/>\nUnfortunately, at the moment, a client can turn up as long as they\u2019re a registered bidder at an auction and proceed with a purchase without any finance in place. What Pivotal Financial and ReMax are working together to do is work with the client at the earliest opportunity to prepare them for auction or any of their finance needs.<br \/>\nNormally, this starts off with a pre-approval and the lender\u2019s acceptance of the property they\u2019re liking to look at, so we assess their affordability and the attraction to the area of the properties that they\u2019re looking at.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Matthew, when someone does come to you and wants to bid at an auction and you have to set their finance up, one of the things you don\u2019t know about auction is the eventual sale price.<br \/>\nDo you let them work within a barrier of a price range and then you\u2019re comfortable for them to bid within that range?<br \/>\n<strong>Matthew:<\/strong>\u00a0 Correct. The main driver is a lot of regulation and compliance within the finance industry at the moment. First of all, we look at the serviceability of the applicant, so what\u2019s the level of debt that they can take on dependent on the end LVR of the property purchase? That\u2019s a big one or a key one in identifying how much they can actually borrow. Then that sets them on the path of the properties that they can look at.<br \/>\n<strong>Kevin:<\/strong>\u00a0 In the event that someone did turn up to an auction and bid, then they\u2019re the successful bidder, it gets knocked down to them and they turn up to sign the contract and say \u201cI need to make this subject to finance,\u201d the first thing you have to turn around and say is, \u201cLook, I\u2019m sorry you can\u2019t do that.\u201d What penalties could apply to them in theory if they couldn\u2019t complete?<br \/>\n<strong>Matthew<\/strong>:\u00a0 This is probably a question that Dene could help with as well, but potentially, they may be up for a deposit or be liable for the full purchase property or a dollar value of that loan depending on the circumstance of the vendor that\u2019s selling the property.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Dene, did you want to add to that?<br \/>\n<strong>Dene:<\/strong>\u00a0 Yes, Matthew is absolutely right. The deposit immediately \u2013 of course, once that\u2019s been paid and cleared \u2013 is to the benefit of the seller. The process from there then becomes a matter of resource, whether or not the seller has appeared to have put the resources into pursuing their contract to settlement or whether it\u2019s economically more viable just to re-enter the property into the marketplace. But either way, if the deposit is paid, then that\u2019s forfeited by the purchaser.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Yes, because it\u2019s quite clear, isn\u2019t it \u2013 Dene, once again, asking you this question \u2013 when you read out the terms and conditions or make them available for people to look at, part of it is that you\u2019re buying this on a cash unconditional basis. It\u2019s quite specific, isn\u2019t it?<br \/>\n<strong>Dene:<\/strong>\u00a0 Very specific. From a best-practice perspective, there are probably a couple of things in that chain of process that need to occur. Firstly, when the agent or whoever is assisting them registers the purchaser, that purchaser needs to clearly be told that they\u2019re bidding on an unconditional basis, that\u2019s part of the process.<br \/>\nThe next part from a best-practice perspective is to have the purchaser not only sign the registration form and provide the ID as required in statute, but also sign off on the particulars and conditions of sale by auction, which clearly state that there are no conditions attached. So, clauses 3 and 4 of the agreement, which are the more common ones, your finance clauses and your inspection clauses, are removed.<br \/>\nThe next part of the process is that it\u2019s re-emphasized by the auctioneer. I do that at every auction, quite clearly emphasizing those clauses are out and that they\u2019re bidding on the basis of it being an unconditional contract.<br \/>\nThere\u2019s always going to be an onus on our industry as much as there is on the finance side of this for our people to be able to communicate these things succinctly and clearly and not allow these situations to occur in the process as part of the process.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Gents, we\u2019ll leave it there. Thank you very much. Dene Tucker from RE\/MAX Auction Services and also Matthew Andrews from Pivotal Financial. Gentlemen, thank you very much for your time, and I appreciate you giving us your wisdom today.<br \/>\n<strong>Dene:<\/strong>\u00a0 Thank you, Kevin.<br \/>\n<strong>Matthew:<\/strong>\u00a0 Thank you, Kevin.<\/p>\n<h2>Lessons from the GFC &#8211;\u00a0Margaret Lomas<\/h2>\n<p><strong>Kevin:\u00a0 <\/strong>Are there any investment strategies that do well in \u201cboom and bust\u201d? What a great question. I\u2019m going to ask that question of Margaret Lomas from Destiny Financial Solutions.<br \/>\nGood day, Margaret. How are you doing?<br \/>\n<strong>Margaret:\u00a0 <\/strong>I\u2019m very well.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Good. Can you answer that? Is there such a thing as an investment strategy that does well in both boom and bust?<br \/>\n<strong>Margaret:\u00a0 <\/strong>I can answer that. And I\u2019ll go back to when the GFC first hit, because at that point in time, not long before the GFC, I\u2019d actually invested in quite a lot of properties that you would have considered to be right at the lower end of their markets. So, I\u2019d gone to some capital cities but gone right into those areas that people generally turn their nose up at, and I\u2019d also invested in a couple of larger regional towns, as well.<br \/>\nAnd interestingly enough, what I found is that once the GFC hit and a lot of people with more expensive property were finding that both their values were down and their rents were also down relatively speaking, I found contrarily that my properties actually all grew in value really well during the GFC.<br \/>\nI think the reason behind that is that when you think about it, people still throughout the GFC wanted to buy property to live in, but they had to amend what their aspirations were. So, more people fell down into those lower price ranges, more people needed to rent in those lower price ranges, and we actually saw a subsequent increase in demand in those lower price range properties and those lower rent range properties.<br \/>\nSo, because I owned quite a lot of properties in those areas, I had a great time during the GFC, and my properties rose really well in value.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Okay, so turn it around. What happens when it\u2019s the opposite?<br \/>\n<strong>Margaret:\u00a0 <\/strong>Well, the thing about that is providing you make sure that the areas that you buy in are also areas that have future potential \u2013 because you know there\u2019s some infrastructure coming up, you know that their population is growing, and you know that the demographic is made up mostly of families, and those families need to be met through the future provision of schools and childcare centers and shopping centers \u2013 then those areas also continue to grow post-economic stress just the same as any other property will.<br \/>\nSo, you get similar growth to any other property after or when there\u2019s no economic stress, but you seem to get better growth while there is some kind of economic stress.<br \/>\n<strong>Kevin:\u00a0 <\/strong>What\u2019s your most favored strategy? Or have you just told us what it is?<br \/>\n<strong>Margaret:\u00a0 <\/strong>That\u2019s not always my strategy. Certainly, if I think the economy is going along nicely and we don\u2019t have any kind of major economic stress, then I will change that strategy. And from time to time, I will buy from areas where they might not be in that bottom third of the market \u2013 they might be closer to the median value \u2013 but they exist in areas that border onto areas that already had a lot of attention and grown really well.<br \/>\nAnd you can see that happening all over the place. If you look, for example, in Queensland and we go to the northern suburbs, let\u2019s say we think about places like North Lakes and Petrie where we have all of that big university development happening, we\u2019ve seen properties in those two areas and Kallangur going up really well in the last few years, and they\u2019ve gained some great value and their rents have also gone up.<br \/>\nIf we have a look at those areas and then have a look at their bordering suburbs, we find places like Dekabin and areas like those where there\u2019s a significantly lower buy-in price, but those areas are also subject to the same kind of infrastructure. So, the reason their prices are lower is because at this point in time, they\u2019re still not favored. People still think that they\u2019re not the best area to live in.<br \/>\nBut what you always see happen over time is that once those other areas that are doing so well start to just peak up a little too high and come outside of the price range of the average buyer and the average investor, then we see them start to look a little bit further afield and we get pressure on those outlying areas.<br \/>\nAnd I really like that as a strategy. That\u2019s what worked for me very time I\u2019ve bought.<br \/>\n<strong>Kevin:\u00a0 <\/strong>You\u2019ve mentioned there some areas in Queensland. Does the same apply in some of the other capital cities like, say, the outskirts of Melbourne as an example? As you head out towards Gippsland?<br \/>\n<strong>Margaret:\u00a0 <\/strong>Absolutely. And let\u2019s have a look at what happened in places like Altona. Now, Altona wasn\u2019t doing that well and it was still fairly cheap to buy in, but when we started to see the areas of Williamstown and those other beachside suburbs that were a bit closer to Altona rise in value, it wasn\u2019t long after they went up that the focus then centered on Altona.<br \/>\nAnd Sunshine, which is formally an area that people thought wasn\u2019t that great and area, we saw that grow, and then subsequently places like Tarneit are now starting to get attention because they border Sunshine.<br \/>\nSo yes, absolutely. We do see this happening everywhere. It\u2019s not something that\u2019s unique to Queensland.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Some of these regional areas that you\u2019re talking about, it\u2019s interesting, because we seem to be talking a lot more about regional areas, which I guess in a large way is driven by affordability, how unaffordable some of those inner-city areas have become, Margaret.<br \/>\n<strong>Margaret:\u00a0 <\/strong>And we see this happen every 10 to12 years. I still very clearly recall the last time that the regions came under focus by both investors and experts, and we did see people make some really good money out of some of those big regional areas like Bathurst and Orange, like Townsville, Bendigo, and Ballarat. Those kinds of regional areas actually made some good money for people.<br \/>\nBut I do warn people to understand that when they do buy in those regional areas, first of all, it\u2019s not every regional area. It\u2019s the major ones that have some kind of industry of their own or some kind of microeconomy of their own that can behave independently to their closest capital city, but also understand that timing is really critical \u2013 and even more critical when you\u2019re investing in the regions.<br \/>\nIf you do get in at the right time, absolutely, you can make a lot of really good money for the short-term, and it usually has a run of about two to three years. But regional areas do have a greater tendency to then sit a little flat for longer than what a capital city will.<br \/>\nThat\u2019s fine because you\u2019re usually getting pretty good rent return as well, just understand if everybody is already talking up a regional town and you can look at the figures and see that it\u2019s already had significant growth in the last year or so, you\u2019re probably a little late to get in.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Yes. Just before I let you go, Margaret, could I just ask you for your top three tips for creating a solid investment or having a solid investment?<br \/>\n<strong>Margaret:\u00a0 <\/strong>The first thing is don\u2019t read the magazines, because despite the fact that experts are very free with their knowledge these days and they\u2019re happy to recommend different areas, I\u2019m definitely of the impression and the feeling that anyone who is recommending an area, it\u2019s probably too late to invest there.<br \/>\nI like to think I\u2019m a little bit different; I try to get in early, especially with the webinars that we give for our clients where I try to get those areas that no one else is talking about. But you\u2019ll see when you read the magazines that everyone is always talking about the same areas, which means everybody is buying there. And the moment you\u2019re buying in a heated market where there are a lot of people moving in that market, then you\u2019re too late.<br \/>\nAnd that brings me to the second tip, which is never buy in a heated market. If you find that you start looking in a market that you think sounds okay or you\u2019ve heard that it\u2019s okay but you find that as soon as you find a property, someone else has bought it, then that\u2019s a clear sign that you\u2019re too late to be there.<br \/>\nYou don\u2019t want to be competing against anybody else for the buys that you\u2019re making. The minute you\u2019re forced into a situation where you\u2019re competing, you will also pay too much for that property, and you\u2019ll get to the point where you start getting so tired of missing out that you start to adjust what you\u2019re prepared to pay upwards, and pretty soon, you\u2019re even getting out of your own price range.<br \/>\nAnd I guess the third tip is always think about that family demographic. To me, that\u2019s one of the most critical things that drives growth. I know I\u2019ve said this on your show many times, but it really does bear repeating over and over again. When you think about it, when a family moves to an area, they generally do so because there\u2019s something about that area that\u2019s attracted them, and it will be because everything that you need for your kids is there in that area and there\u2019s an expectation that it will continue to grow and develop.<br \/>\nAnd when you move there, you put your kids in the local school, and most people are unwilling to move their kids around once they\u2019re in school. You know what it\u2019s like. You have your kids in school; you don\u2019t like to interrupt that learning process by making them school hop.<br \/>\nSo the average family is going to stay in an area for upwards of 12 years, and more likely 16 to 18 depending on how many children they have, which then means that as that area becomes more popular, the availability of property becomes less and less because nobody is selling.<br \/>\n<strong>Kevin:\u00a0 <\/strong>Well done. Three fabulous tips there to round out our chat with Margaret Lomas from Destiny Financial Solutions. Margaret, once again, thank you so much for your time.<br \/>\n<strong>Margaret:\u00a0 <\/strong>Thanks for having me.<\/p>\n<h2>Knockdowns increase &#8211;\u00a0Greville Pabst<\/h2>\n<p><strong>Kevin:<\/strong>\u00a0 Apparently, according to Greville Pabst, who is the Executive Chairman of the WBP Group, there has been an increase in the number of properties that are being knocked over for reconstruction. Interesting. This could be an interesting development.<br \/>\nGreville, welcome to the show. Thanks for your time.<br \/>\n<strong>Greville:<\/strong>\u00a0 Thanks, Kevin.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Greville, how big as the increase been?<br \/>\n<strong>Greville:<\/strong>\u00a0 Around Australia, the increase in knockdowns is up to 37%, so it is quite significant. I think it\u2019s driven by quite a number of factors. Firstly, I think it\u2019s more affordable to do that now because of the low interest rates that we have. But the other point, too, is because house prices around Australia have become quite expensive, it\u2019s now prohibitive to go and sell and buy because of the high transfer costs and stamp duty.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Greville, define a knockdown for me. And who\u2019s doing it? Are these current owners or are these people who are buying them to knock them over to redevelop them?<br \/>\n<strong>Greville:<\/strong>\u00a0 Look, it\u2019s a combination. It\u2019s a combination of existing owners who have older properties in the inner-city areas of the capital cities where the land is highly valuable. So, they\u2019re doing that and building something new, or they\u2019re doing a dual occupancy.<br \/>\nOr the other thing is developers are moving in because what the state governments are trying to do is increase the level of density within the inner-city areas, the in-fill. So, the zoning changes have now allowed two houses side by side.<br \/>\nI was dealing with a developer the other day and he was getting 30 apartments on two suburban house blocks. The councils and state governments are encouraging this density, and so a lot of people are actually, in those middle ring suburbs, cashing in to developers.<br \/>\n<strong>Kevin:<\/strong>\u00a0 It makes a lot of sense, doesn\u2019t it? Particularly in some of the capital city areas, empty-nesters, they probably have a really nice home on a big block of land. It makes a lot of sense to pull it down and rebuild something that\u2019s going to fit their existing lifestyle because their situation has changed, and then they get the bonus of having some additional property that they can sell off or even hold and lease.<br \/>\n<strong>Greville:<\/strong>\u00a0 And I\u2019m seeing that even in Sydney, in areas like Coogee where land is quite expensive. They\u2019re typically only 400-square-meter blocks, but people put in granny flats in the back and things like that.<br \/>\nThis whole density is driving it, and the fact that land is so expensive, if you can carve it up and create two or three or four lots, there\u2019s actually good money in doing that.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Someone contemplating doing this is listening to this now and saying \u201cThat\u2019s not a bad idea. I\u2019ve been thinking about doing it,\u201d what should they be aware of before they start, Greville? What are you seeing?<br \/>\n<strong>Greville:<\/strong>\u00a0 There are a number of factors. One is the size of the land. I think the frontage is really important. If you have, say, a 55-meter frontage, particularly in Melbourne, it can allow you to do a side-by-side development. Corner sites are particularly valuable because you can get two street frontages, or if you have a dual street frontage, so if you have another street at the back, you can go a back-to-back development. That\u2019s really important.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Greville, is heritage a consideration for people wanting to do this?<br \/>\n<strong>Greville:<\/strong>\u00a0 Heritage is very important. It\u2019s something that people need to investigate beforehand, because, of course, there are some properties that are covered by heritage overlays and height controls and so forth, so they simply can\u2019t demolish it completely; they may have to retain the fa\u00e7ade.<br \/>\nThe same with vegetation. There are now, of course, lots of planning controls around vegetation. They couldn\u2019t simply cut down a tree these days. You need to get that permission to do so.<br \/>\n<strong>Kevin:<\/strong>\u00a0 You could go to the council to find that out or even go to a town planner, I would imagine. They would give you all that information.<br \/>\n<strong>Greville:<\/strong>\u00a0 Yes, that\u2019s correct. You really need to investigate the local council regulations and engage a town planner.<br \/>\n<strong>Kevin:<\/strong>\u00a0 You\u2019ve no doubt been involved in a number of these over the years. What advice have you got for someone to help them add more value to what they\u2019re going to be doing?<br \/>\n<strong>Greville:<\/strong>\u00a0 It\u2019s the selection of the property. The selection is critical because that really can dictate what you\u2019re allowed to do. The orientation of the site is particularly important as well. Does it have a north-facing backyard? Is it a corner block? What is the size? What is the frontage? All of these factors affect that.<br \/>\nAnd zoning is particularly important because, of course, that will dictate the height that you can go and the density and the number of unit that you can put onto the site.<br \/>\n<strong>Kevin:<\/strong>\u00a0 I would imagine someone who has the property themselves, they might live in it right now, they should probably also research the marketplace to see, if they\u2019re going to redevelop it, what type of property is probably going to be in tune with the current market.<br \/>\n<strong>Greville:<\/strong>\u00a0 Yes, that\u2019s correct. When you\u2019re building and looking to sell something, you really need to build for that demographic. So, you need to look at who is in that area? Are they young professionals? Are they older people? That\u2019s going to dictate what you\u2019re going to be able to get you a good price when you do sell it.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Greville, have you been to any auctions lately? Because we saw you on <em>The Block, <\/em>performing well there. You\u2019ve been still buying plenty?<br \/>\n<strong>Greville:<\/strong>\u00a0 The market has gotten easier for us, funnily enough. When the clearance rates are sort of in the range that they are now \u2013 between 65% and 75% \u2013 it makes it easier for us to buy. It was quite difficult there for a while when clearance rates are nudging 80%. As professional buyers, we were getting outbid. So yes, it\u2019s a much better market now for buyers.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Isn\u2019t that interesting? We do a segment every week with Andrew Wilson. We talk about clearance rates, and we bemoan the fact that it\u2019s a 60% clearance rate. We say \u201cOh wow, what\u2019s happening to the market?\u201d But from your perspective, that\u2019s probably a good thing.<br \/>\nEven 60% or 70% is still a good clearance rate. I think we got spoiled with 90% and 90%.<br \/>\n<strong>Greville:<\/strong>\u00a0 65% to 70% is a very good market. It ensures that there\u2019s balance and you\u2019re still going to get capital growth of 5% to 8%. You\u2019re not going to have four or five bidders at auction, which is going to drive your prices to absolute silly figures. You\u2019re going to have maybe two bidders at auction.<br \/>\n<strong>Kevin:<\/strong>\u00a0 You can handle that, yes.<br \/>\n<strong>Greville:<\/strong>\u00a0 You can handle that. And certainly, we don\u2019t want competition when we go to auction to buy, so it\u2019s a good market for us and our clients.<br \/>\n<strong>Kevin:<\/strong>\u00a0 Spoken like a good buyer\u2019s agent. Good on you. Greville Pabst there, Executive Chairman of WBP Group. You can certainly have him on your side. Good on you, Greville. Talk soon, mate.<br \/>\n<strong>Greville:<\/strong>\u00a0 Thanks, Kevin. Cheers, mate. Bye.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Highlights from this week: A rise in Brisbane off-the-plan unit sales Should agent \u2018best practice\u2019 include auction bidder advice? Low interest rates encourage re-development Margaret Lomas saw the opportunities in the GFC Settlement delays could trap buyers Defining a \u2018housing crisis\u2019 Transcripts: Brisbane units in&#8230;<\/p>\n","protected":false},"author":176692471,"featured_media":20961,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,24],"tags":[101],"class_list":["post-20960","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-shows","tag-podcast"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Evidence of a Brisbane unit glut + Knockdowns increase + Investment lessons from the GFC - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/evidence-of-a-brisbane-unit-glut-knockdowns-increase-investment-lessons-from-the-gfc\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Evidence of a Brisbane unit glut + Knockdowns increase + Investment lessons from the GFC - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Highlights from this week: A rise in Brisbane off-the-plan unit sales Should agent \u2018best practice\u2019 include auction bidder advice? 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