{"id":6308,"date":"2015-11-12T01:00:33","date_gmt":"2015-11-11T14:00:33","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=6308"},"modified":"2015-11-12T01:00:33","modified_gmt":"2015-11-11T14:00:33","slug":"why-developers-are-buying-their-own-stock","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/why-developers-are-buying-their-own-stock\/","title":{"rendered":"Why developers are buying their own stock – Jo Chivers"},"content":{"rendered":"

 
\nIn today’s show we talk to\u00a0Jo Chivers<\/strong>, who is the CEO of project management company Property Bloom, about developers buying their own stock and why that should be a concern to you and I.
\n <\/p>\n

Transcript:<\/h4>\n

Kevin:\u00a0 <\/b>Inside the latest Australian Property Investor<\/i> magazine, there\u2019s a great story written by Kieran Clair called \u201cKeep and Reap.\u201d Basically, it deals with small developers potentially keeping some of the stock for themselves.
\nJo Chivers, who is the CEO of project management company Property Bloom, has a view on this.
\nGood day, Jo. How are you doing?
\nJo:<\/b>\u00a0 Hi, Kevin. I\u2019m well, thank you. I love that title: \u201cKeep and Reap.\u201d I think it\u2019s fantastic. It says it all, really.
\nKevin:\u00a0 <\/b>Yes, it does. I\u2019ll get you to explain it in a little bit more detail, but basically, it\u2019s where a developer can develop a complex and then maybe hold onto a couple themselves. It\u2019s nothing new, but it\u2019s a very good strategy.
\nJo:<\/b>\u00a0 Yes, that\u2019s right. We found that with out clients, Kevin, that when they do build and develop property they do like to hold on. Really, a lot of their purpose and objective behind developing property is to boost and grow their portfolio, so yes, most of our clients are building to hold.
\nKevin:<\/b>\u00a0 How do banks feel about this?
\nJo:<\/b>\u00a0 The banks are fine, but it depends on the size of the development, of course. If it\u2019s a large development the banks do want presales, so that\u2019s definitely something you need to consider with something probably over four units. We tend to work under that threshold because it\u2019s easier for people to finance. We\u2019re mainly dealing with dual occupancies and three- or four-unit sites. Generally speaking, the banks won\u2019t ask for presales on that size development.
\nKevin:<\/b>\u00a0 I can understand why it\u2019s a good thing for developers, because they\u2019re obviously selling out their own development but they\u2019re also giving themselves a bit of a portfolio. What about the other buys in the complex? Let\u2019s have a look at that. Don\u2019t you think it gives a false indication of interest if they don\u2019t know that, in fact, the developer is holding some of the stock themselves?
\nJo:<\/b>\u00a0 Yes, I think in a big development, where you are doing a big strata development of maybe 10 or more units, that would probably be a concern for people buying in. They will look at the holdings. They\u2019ll do their strata report and searches, and they\u2019ll see who is on the strata management committee. That may deter some buyers. Yes, that\u2019s a good point to raise.
\nKevin:<\/b>\u00a0 Buying off the plan, though, you probably wouldn\u2019t necessarily know who the other purchasers are, would you?
\nJo:<\/b>\u00a0 That\u2019s correct, actually. A lot of the larger developers who are building that size development will actually hold on, because they\u2019ll want to reap some of the rewards of future capital growth. So it is a bit tricky when you\u2019re buying off the plan.
\nKevin:<\/b>\u00a0 I can understand, too, if you\u2019re buying into a complex, and you do the searches, as you indicated, Jo \u2013 and you should always do that \u2013 this is an established development and you find that the developer is holding two or three of the lots, you\u2019re also giving up a bit of control to the developer in terms of what can happen in the body corporate?
\nJo:<\/b>\u00a0 Yes, to a degree. But you have to remember that the developer is going to want things to go smoothly, as well. At the end of the day, the people who have bought in are his clients or purchasers.
\nI haven\u2019t had any experience where the developer has overridden certain things. I\u2019ve bought off the plan myself and been that situation where the developer has held the majority of the units when they were completed. We didn\u2019t have any trouble, so I guess it does come down to what would be the issues are could come up, that could be raised? Really, everyone is in the same boat. Everyone wants the complex to be well kept, that kind of thing. I don\u2019t think it would be such an issue.
\nKevin:<\/b>\u00a0 It think that\u2019s a good point, too. You\u2019re very right in saying that the developer would want it to be successfully run, they want the development to continue to look good, so they will maintain it. So that point is quite well made.
\nWhat about if, further down the track, the developer decides to sell off those lots at less than what he purchased them for? That\u2019s going to depreciate the value of all the other lots, too, isn\u2019t it?
\nJo:<\/b>\u00a0 Yes, and that can happen depending on what the market is doing. Everyone is talking about an oversupply of units coming onto the Sydney market in a couple of years, when they\u2019re all finished. That is an issue. You always have that in the back of your mind when you\u2019re buying into big, massive complexes.
\nI tend to like small, boutique developments. If I\u2019m purchasing myself, I always go for very small, boutique developments where hopefully that won\u2019t become an issue.
\nBut that\u2019s a very valid point, particularly when there\u2019s an oversupply in the market. In that case, when that happens, if you can hold on, because otherwise you\u2019ll end up selling at a loss and you might kick yourself. At the end of the day, if they\u2019re well located\u2026 This happened in Sydney, in the Darlinghurst area in 2003. There was a massive oversupply, but if you held that unit now you\u2019d be enjoying some fantastic capital growth.
\nIt\u2019s definitely something to consider, what\u2019s happening in the area, if there\u2019s a lot of building work going on, you\u2019d need to come back to location, location, location. Have you bought into a really good location that\u2019s going to have future growth? If you can, buy into the smaller complexes, because I think the bigger the complexes the higher the risk of that happening and people having fire sales.
\nKevin:<\/b>\u00a0 It\u2019s always good talking to you, Jo Chivers. You make so much sense. Jo, of course, the CEO of property management company, Property Bloom.
\nThanks for your time, Jo.
\nJo:<\/b>\u00a0 You\u2019re welcome, Kevin. Thank you.<\/p>\n","protected":false},"excerpt":{"rendered":"

  In today’s show we talk to\u00a0Jo Chivers, who is the CEO of project management company Property Bloom, about developers buying their own stock and why that should be a concern to you and I.   Transcript: Kevin:\u00a0 Inside the latest Australian Property Investor magazine,…<\/p>\n","protected":false},"author":176692471,"featured_media":6309,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,25],"tags":[101],"class_list":["post-6308","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-sponsored-channels","tag-podcast"],"yoast_head":"\nWhy developers are buying their own stock - Jo Chivers - 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\/why-developers-are-buying-their-own-stock\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why developers are buying their own stock - 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