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In-House News, March 2004

Another Queensland Property Boom?
By Ben Healy, Managing Director of Wealth Coach Australia

An economic boom until 2007 followed by a crash

A second property boom in Brisbane until 2006

Interest rates jumping to over 10%

Economic Forecasters, BIS Shrapnel seem to excel at controversial forecasts. In reality they're one of the few medium-term forecasters in a world of day traders and bank economists who seem to limit their vision to a month or two. Chief Economist, Dr Frank Gelber makes no apologies for referring to this as a BOOM in capital letters, he even refers to it as an 80's style boom.

So, what is driving this upswing? There are a number of factors, all coming on at different stages. A surge in consumer spending initially, a strengthening world economy is helping but the real driver from late 2004 will be a strong upturn in business and government investment. This leads to more jobs, a shortage of skilled labour and so a rise in wages. There are cranes on the skyline, companies are growing, money is flowing and euphoria fills the air. You get the picture.

Inflation follows and goes beyond the Reserve Banks target range. They try and rein it in by increasing interest rates. The residential property market stops dead in it's tracks by late 2006 but the Economy keeps going until 2007 (interest rates are over 10%) and then crashes in 2008.

Their thoughts on the Brisbane market are relatively positive. Another 20% increase in median prices in a second round of growth until 2006. This is driven by an increasing population fuelled by interstate and overseas migration needing 45,700 new dwellings per year. And not only are we not building enough to meet the demand but there is already a shortfall of over 20,000 dwellings. Even so, the high interest rates will stop the Brisbane market but it will be the first to rebound with so much still unsatisfied, pent up demand.

So, what do we make of all this? First of all they are forecasts, not gospel. Think of them like the weather forecasts - useful information but not the final authority! However it would be short sighted to ignore them. If true they have major ramifications on our investment programs, buying and selling plans, interest rate strategies such as locking in rates as well as our career and employment prospects.

Wealth Coach Australia is unique in that it gives unbiased information. They don't sell any investments or products - they make their money solely from annual membership fees. (Check their website http://www.wealth-coach.com.au/)

Cash in on New Niche Markets
By Rod Cornish - Head of Property Research Macquarie Bank

The South-East Queensland housing market is being trumpeted as the new hot property sector to watch. However, before you start buying up big or joining forces with developers in a bid to capitalise on the impending boom, you need to know that this up-swing is likely to be vastly different to any of those seen before.

Research indicates that South-East Queensland has a bright future ahead of it, with price rises fuelled by increased lifestyle migration from the highly-priced Melbourne and Sydney. But these migrators will be a vastly different breed to those who moved in the previous boom. In the early 1990's, young families flocked to Queensland to capitalise on the price differential between the States and the lifestyle advantages, riding high on the back of their own cities' property booms (when Sydney prices jumped 100% in two years). Their quest was space - and lots of it - purchasing large homes with larger backyards.

Generation X

Times however have changed and the next group to migrate to the region will most likely be 'Generation Xers' and their families, who have markedly different goals and values to their counterparts 10 years ago.

Generation Xers are focused on career and lifestyle - preferring to live in the inner city fringe areas with the close proximity to restaurants, cafés and work, that they provide. They are not as focused on houses as an asset or as a measure of success as previous generations and would rather sacrifice living in a large house (along with backyard) to live close to the city - even if they have children. This means the impending boom will be dictated by changing demographic trends and lifestyle requirements associated mainly with Generation Xers.

For many Queensland investors the forecast boom represents a welcome reversal of fortune. Whereas investors in both Sydney and Melbourne seemingly could do no wrong over the past four years (with median prices in Sydney rising by almost 50% and an impressive 70% in Melbourne), in South-East Queensland land price gains during the same period have only been moderate - apart from a few select coastal and river-front locations. With residential construction now at a 13 year low and forecast to remain around current levels over the next three years, Macquarie Property research expects underlying demand will soon run well ahead of new supply. Therefore it expects the housing market will shift from over-supply to under-supply in the next two to three years as interstate migration gains momentum.

How to cash in on the changing market?

'Lifestyle' appears set to be the key to successfully investing in the residential sector over the coming decade - and not just in South-East Queensland. Macquarie Property research suggests lifestyle housing and lifestyle location will be the biggest story of the decade in the residential sector as increasing wealth and rapidly changing work patterns work alongside lifestyle issues to create demand for housing in lifestyle locations. The trend towards city living, especially amongst Generation Next (aging baby boomers) and Generation Xers, will increase with rising demand for housing that features individual design and a location close to cafes restaurants and cinemas.

Significant opportunities therefore surround the following markets: Image and lifestyle housing in scarce inner-city and city fringe locations for the Generation X and male gay market; and Housing for Generation Next (Smaller low-maintenance properties with work from home facilities.) Across Australia residential markets are changing in reaction to the scenario of high interest rates and changing demographics. While opportunities in Sydney and Melbourne will be limited over the next couple of years, within this changing scenario niche market opportunities certainly exist.

Reproduced with permission from Macquarie Mortgages

Why do some people have all the luck when it comes to Investing?

Why do some people have all the luck when it comes to investing?

When it comes to buying property, have you ever noticed some people seem to have all the luck? We all seem to know someone who bought a little house in an inner suburb for next to nothing six years ago, and they've now tripled their money. However being successful in property investing has little to do with luck, and a lot to do with the growth factors that influence a property.

Purchasing a property for financial growth isn't new. In fact, we all set out with the dream that our little block of land and the house on it will grow in value over the coming years. The secret is knowing the four key factors that influence growth, and ensuring you buy properties with these factors in mind.

1. Inflation. This is the oldest one in the book and the most reliable, although the returns can be the least impressive. Over the long-term as construction costs go up, property values will rise in line with the CPI. It's important to remember these price rises don't represent any "real" growth in spending power, as everything else increases in price with the CPI. Don't be fooled by spectacular gains in times of high inflation.

2. Supply vs Demand. This is one of the basic laws of economics. Assets that have a scarcity of supply and increasing demand will increase in value. In housing, the inner city suburbs are an excellent example of supply and demand at work. In the established areas of Brisbane for example there is very little vacant land still available to be built on. Each year approximately 300 blocks of land become available and are sold. Many of these blocks have been 'created' using some of the developer-styled strategies we have spoken about in earlier issues. In contrast, the outer suburbs have approximately 4,000 blocks of land for sale per annum - and no real constraint on more land being developed. Add to this the desirability of the inner suburbs to the Generation Xers and empty nesters and you have a formulae for growth. . Is it any wonder Investment House specialises on this inner ring subdivision styled investments?

3. Gentrification. This growth factor is really only prevalent in the older suburbs around Australia. This is where we see new life being breathed into old run-down suburbs. Typically the older people will give way to younger, more affluent people moving in, spending thousands of dollars on bringing the house to today's standard of living. This mass spending that we looked at in our last newsletter literally transforms old areas into trendy much sort after gems.

4. Population Growth. For Queensland this is going to be the key driver for property growth. There are three components to population growth that you need to consider:

Natural Increase - Most studies show that the impact of this component will continue to reduce over time. This is due to a change in traditional family structure stemming from people marrying later and having fewer children.

The above chart shows the downward trend that is occuring in relation to birth rates in Australia. As the natural increase declines, we must looks to the migration figures to assist in our overall population increase.

Overseas Migration - Currently this is forecast at around 18,000 per annum. This has been increasing over the last five or six years from a base of approx 12,000 and now represents an important stabilising leg to the demand side of the equation.

Interstate Migration - Where people move to Queensland from other states. Studies show this is currently around 30,000 per annum. Most of these people are coming from NSW and Victoria. Clearly employment in Queensland is a key consideration and job creation here must remain high for this trend to be maintained. In addition to interstate migration, we also see a movement of people from country areas to the cities (though these movements are not captured by Net Interstate Migration figures.)

Looking at the above chart, we can see the others states loss, is our gain in Queensland with the majority of interstate migrants coming from Victoria and New South Wales.

With all of this information on the growth factors affecting property today, the future is bright, however now, more than ever, it is important to choose careful before buying.

The Power of Splitters and Sliders

So what do the New York Yankies have to do with Property Investing?

If you are new to the game of property development and have heard the terms splitters and sliders you'd be forgiven if you are feeling a little confused as to what it all means. A quick search on the trusty internet will bring up a lot references to American baseballs, but not much that talks about the kind of splitters and sliders the average Investment House client gets excited about.

The terms Splitters and Sliders relate to two strategies that can be used together or separately to add enormous value to some well chosen inner city properties. In this months issue we will be focusing on splitters and will look at sliders in more detail next month.

A Splitter is where a large residential block, no smaller than 800m2, is purchased and then sub divided, effectively creating another block of land that the investor can either build on, or on-sell.

To qualify as a successful Splitter block, this land should be within 5 to 10 km of the CBD and in most cases it will have an old house built on it that will have to be demolished. To most buyers this sounds like real estate nirvana. Buy one property and create another virtually out of thin air! However, before you rush out looking for the first large inner city block you can find, beware.

When we are looking for these blocks, questions are asked such as, is the house in a demolition controlled precinct, is it pre war (built before 1945) or is it post war (built after 1945)? This will determine whether we can get demolition approval or not. Houses within this zone which were built before 1945 are considered to have a certain heritage value and the Brisbane City Council has decided they must be retained to keep the "feel" of early Brisbane.

Once we have determined that we can remove the house then the viability of subdividing the land is looked at. Here we consider where the services are (ie. sewer water and storm water discharge points). The lay of the land is important, does it slope backward or toward the street, is it in a gully and would building a house on the land restrict water-flow?

Due to new council laws brought in last year, many previously attractive splitter sites are no longer viable. This is where it is essential to have done your research before buying. Now with the new small lot code you must comply with regulations relating to side boundary set backs and building heights. These new rules can limit what you can build on the land so it is vital that you are aware of these new regulations before you commit to a project. Securing and developing a Splitter block can be a very lucrative move for the savvy investor. Done correctly profits in the order of $100,000 in one year are achievable.

If this sounds like a strategy you would like to add to your property portfolio, call the team at Investment House today. Our team is constantly searching the inner suburbs for viable splitter blocks and can help you get your own project underway. And of course you can rest easy as you know you are working with a team who has the runs on the board and are experienced at sourcing and developing high return properties in Brisbane's inner suburbs.

The Investment House way gives me peace of mind...
By Michael Flemming

Living in Adelaide, the obvious first question you may ask is how did I get involved with Investment House?

Whilst holidaying on the Gold Coast I saw a TV commercial for Investment House and it struck a cord with me. Working in the building industry myself, I am fully aware of the leverage that property can bring and like most Australians was envious of the returns that Queensland property investors have been enjoying.

The Investment House philosophy just made sense to me, and I suppose one of the most appealing aspects of the company was that they didn't make any grand promises. Just sound advice and solid principles. I chose to work with Investment House as they were the experts on the ground. Although I could see the potential, I didn't have the confidence to do it on my own. They knew the market and the regulations inside out and I knew they could save me a lot of heartache.

I started out with a development in East Brisbane where I purchased a house and land package through Investment House. The project cost $328,000 and on completion was valued at $420,000. I was impressed! Two years down the track the property is now worth $550,000 and is renting for $420 per week.

After a successful experience with the East Brisbane project I have now begun my second development with a slider in Cannon Hill. I purchased the property for $345,000. The house has now been moved and is currently being renovated. On completion, based on current market prices, the renovated house will be worth approximately $390,000. And remember, I still have the other block of land! Once the renovation is completed I plan to sell the newly renovated property and build a new house on the vacant block.

When the development is completed, it is estimated that the new property will be worth $500,000.

In the three years I have been dealing with Investment House I have always felt in control of the project. As each step progresses they keep me informed and give me a chance to be part of the process.

Michael outside his Cannon Hill Property during renovations

For me, I love the fact that my properties really have been a case of set and forget. With the expert team at Investment House taking care of my investments I really do feel as though I'm making money in my sleep.

Oh, and did I mention the best part? Living in Adelaide, my properties are far enough away that my wife can't drive past all the time and worry about them!!

Disclaimer

Investment House is an organisation that works as buyers agents, development advisory consultants, and project managers for investors looking to acquire residential property. The information contained herein is of a general nature and does not take into account individual situations, needs or goals. Its purpose is to give you a general understanding of the specific topics covered. For further information relating to your specific situation please contact the team at Investment House direct. No reader should rely solely on the information contained in this publication as it does not purport to be comprehensive or to render specific advice. Please be aware that the authors of this newsletter are NOT licensed investment advisors or planners, licensed financial planners or advisors, qualified or practicing accountants.

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