Article Critique - "City faces compo rush over subdivision bans"

Critique of The Courier Mail article by Jennifer Dudley, City Hall reporter, and Melissa Maugeri, property editor 28 October 2005...

LANDOWNERS could claim more than $200 million compensation from Brisbane City Council over its attempt to prevent the subdivision of 2000 blocks of inner-city land.

Council's Civic Cabinet has passed proposals to protect character housing and to increase the minimum lot size from 400 to 450sq m, election pledges made by Lord Mayor Campbell Newman.

Civic Cabinet will now seek State Government approval and public comment.

The changes would prevent land in low-density areas being split into lots of less than 450sq m but would not affect existing titles.

Urban Development Institute chief executive Brian Stewart warned that if the council tried to reject subdivision applications that would have previously been approved, it could be hit with massive compensation claims.

"They would be liable for effective down-zoning of the blocks," Mr Stewart said.

He estimated compensation could be about $100,000 a block.

Mr Stewart said about 200 to 300 blocks a year were subdivided. He said the council move seemed to be inconsistent with the South East Queensland Regional Plan, which called for 145,000 new residences in the area.

Deputy Mayor and urban planning committee chairman David Hinchliffe said the Newman plan failed to address the majority of complaints about land subdivisions, which centred around historic land titles as small as 120sq m.

"I don't think this will address the real source of concern in the community which is about people who are developing historic titles," Cr Hinchliffe said.

"Sometimes existing homes straddle two or three allotments, and we simply cannot prevent development on those small lots."

Cr Hinchliffe said the proposal would take 18 months to two years before it could be finalised. Landowners would then have an extra two years to apply to subdivide property under the old guidelines.

If their application failed, they could seek compensation.

Property Council director Ross Elliot said there should be a lot more work done on explaining options for increasing densities in southeast Queensland before introducing the plan.

It’s always interesting to see politicians wrestling with their lot. 

Imagine you’re running for office (okay – it’s a nightmare, but run with it for a moment).  Your primary objective is to get elected, so you march out into the public arena and “listen to the people”.  As is often the case, the people making the loudest noise are those complaining.., and over recent years much noise was made about small lot development encroaching upon the neighbour’s liveability. 

So you “listen to the people” and make a raft of popular promises to solve their problems and buy their votes.  Then the nightmare takes a turn for the worse – now imagine getting elected and actually having to come up with the goods.

In office, your objective shifts.  Now you have to resolve some very real on the ground problems without alienating the electorate you’ve just made all these promises too.  A cynical person might suggest it would be a good time to explain the difference between “core promises” and “non-core promises” – but best we don’t go there!

The harsh reality for our Brisbane City Council is coping with continuing massive population growth coupled with the urgent need to substantially upgrade infrastructure and services.  It’s an unenviable task - in a nutshell, they need to have more people living in less space.  And it simply has to be done!

So now the politician is confronted with the very real problem of selling “higher density town planning” to the same people they promised “protection of the status quo”. 

Snipping at the edges is the politician’s way of satisfying diametrically opposing needs.  They can claim to have kept their promise (which keeps the electorate at a respectable distance) and retains the flexibility for them to address the fundamental development needs.  These proposed small lot changes will have little impact upon the overall thrust of small lot development within Brisbane.  Existing small lots will continue to exist – and much of inner Brisbane is comprised of small lots.  Houses that can be “slid” onto one existing small lot (405m2) to free up another will continue to be slid.  Houses that can be demolished to free up both lots will continue to be demolished.

The article refers to some 2,000 lots of 809m2 that that will no longer be subdividable.  In the overall scheme of things, this will have relatively little impact on the future of small lot development in Brisbane.   Of course, you may not feel that way if you’re the owner of one of those 809m2 lots that can no longer be developed – but then you can always complain to the out-of-office politicians before the next election.

The proposed changes will further tighten the market of possible development sites.  This will serve to exacerbate the constraint on supply of inner ring detached housing.  According to the law of supply and demand – those sites that remain will become even more valuable.  And for owners of those sites, that converts to higher prices and bigger profits.  The proposed changes simply add weight to the strategy of investing in detached housing close to the city.

Colin Ferguson
Manager - Investment House

Investment House

Research - Shifting trends means extra profit for smart investors!

Inner Brisbane suburbs are full of “traditional Queenslander” style housing.  In fact the City Council has specific regulations to retain the “tin and timber” character of certain areas and the “Replica Queenslander” has been a great performer for investors.   But is this still the best option?

About eighteen months ago we saw the early signs of buyers (particularly those moving from interstate) looking for more modern looking “contemporary” style homes.  Another six months and the trend was gaining momentum.  Was this a significant new trend, or just a temporary “shift” which would be out of vogue in a year or so?   And which has the higher resale value  - the Replica Queenslander or Contemporary Home?

And the verdict is: the market is now paying a premium for contemporary designed homes.

Consider the following example in a suburb 5km east of the Brisbane CBD…

Located in a good street are two very similar sized houses - side by side.  Both properties have 5 bedrooms, double lock-up garages and the level of finishes inside the homes is almost identical (though one has granite benches).

The key difference is external presentation of the homes - one is a replica and the other is a contemporary.

Both houses were sold within the last 12 months.

The contemporary home sold for $683,000 in 2005.  The replica Queenslander, right next door, had been sold just months earlier for over $100,000 less.

In fairness, this is an unusually high price difference but it’s ideal to illustrate the discrepancy between contemporary and replica properties.  In this case, feedback from the selling agents indicated the colours used in the replica Queenslander weren’t well suited to the market at the time and the seller had other complicating issues which contributed to the low price.

In general there is now sufficient evidence to suggest the market is paying a premium of around $50,000+ for a contemporary design over a replica.  But be wary - the trendiness of these designs may not last forever.  At some stage in the future the contemporary designs, especially the radical architecturally designed versions may look very much out of vogue. Remember those seventies orange or lime green benches?

The trick is to build a contemporary home that will hold its appeal. Be cautious when designing the house and ensure that it isn’t overly “architecty” - you may limit the shelf-life and reduce attractiveness to your target market.

All things considered though, contemporary designed homes are fetching a premium price in the current market.

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Investment House launches dedicated Real Estate sales division

This month marked the establishment of a dedicated retail sales division within the Investment House group - aptly called “In-House Real Estate”.  With this new arrival the “one stop real estate shop” concept provided by Investment House is now complete.  Not only can you use the Investment House team to acquire your high performance properties in Brisbane and have them professionally managed, but now you can use them to sell your Brisbane properties as well.

Why start something like this when they’re a dime a dozen?  As is often the case, this new business division was born out of need.  It was the need to provide consistent quality service to clients when it came to selling their properties. 

In the past Investment House has endeavoured to work with the local agents.  The plan was to establish a relationship with the local agents – ideally through whom our client purchased the site.  That way the local agent would be involved with the overall success of the project and would pay close attention to providing accurate market feedback and resale appraisals at the front end – and then work hard to honour their appraisal at the back end (when it came time to sell).  The plan was one of those “good in theory..,  but not so good in practice” ideas.

It has to be said that some local agents did a great job.  The problem was the good ones were the minority.  A couple of things that brought the plan unstuck included;

• lack of continuity - turnover within the industry meant, when it came time to sell, the original agent had simply “disappeared into thin air” and the new agents replacing them couldn’t possibly understand what the other agent had presented and how some of the earlier information (including resale estimates) were arrived at,
• conflicting advice - clients were receiving convincing advice on marketing strategies from one agent that was contrary to equally convincing advice given to other clients by other agents,
• lack of communication - often clients became frustrated with the lack of results and poor communication, and because it was largely out of Investment House’s control it reflected poorly on us, and
• inaccurate reporting – now this may come as a surprise, but..,   there was evidence that some agents “didn’t handle the truth terribly well”.

So the only thing to do was bring the function “in-house”.

So the search began for that “just right person”.  That’s when Mal Cayley came into the scene.  After much negotiating (and the promise of a small fortune), we were able to convince Mal to head up the new division.  Mal comes with an impressive track record and an array of awards for selling residential property in Brisbane.  He is a clever marketer and an expert negotiator.  And his vision for In-House Real Estate is refreshing.

Mal’s strategy is to position In-House Real Estate differently to mainstream real estate agents.

Mainstream real estate agencies work on “farming” a local area – usually one or two suburbs at the most.  And within that area there are all sorts of different properties to be sold.  So the local agents are looking to become expert in (and develop marketing strategies for) many different types of real estate within their farming area.  They need to come up with something that will work for the cheapie dumps, and the renovator’s delights, the heritage Queenslanders, and the new houses, plus the array of unit and townhouse projects that are going on.  The problem here is the stock options are all very diversified and thin on the ground, so it’s hard to find strategies that work really well in anything but a booming market place.  And in a boom it doesn’t matter what you do because the property just walks out the door! Unfortunately, we’re not in a boom any longer.  Talk to almost any seller and they’ll quickly tell you about the shortcomings of the traditional selling process.

The traditional system brings frustrations to buyers as well.

Let’s say you’re moving to Brisbane and want to buy a near new house within about 15 minutes of the city.  To “shop around” you need to talk to dozens of different agents as you move from agent to agent and suburb to suburb.  And there’s the added confusion of not really knowing the city, compounded with all the different stories you get from the different agents promoting their own area.  It makes it hard for buyers to sort the wheat from the chaff.  We’ve seen many new arrivals abandon their buying mode, choosing to rent for a year or so to get a feel for the different areas in Brisbane before re-entering the market.

Wouldn’t it be nice if there was a single group that specialised in quality new and near new houses within the 2-8km range of the city!  The sort of houses most of these new arrivals would find entirely suitable for their needs.

Well, that’s what the In-House Real Estate team is about to do.  They’ll specialise in a narrow band of new (and near new) quality properties within inner ring suburbs.  These are the properties that market research shows are most attractive to the 1,000 or so new arrivals moving here each week.  By focussing on a narrow band of stock, the team will be well positioned to “target market” these qualified buyers with exactly the type of properties they’re looking for.  The buyers will enjoy having a single point of contact with suitable houses in all of their suburbs of interest.  The narrow band of properties will make for easy and effective marketing, and meeting the needs of buyers in an easy and hassle free way can only mean great results for sellers.

Aside of the new strategy, the other refreshing attraction to sellers is Mal’s commitment to “keeping you in the loop”.  The single biggest complaint heard about mainstream agents was “We just aren’t being kept up to date” or “We just don’t know what to believe”. 

To address that concern, Mal has introduced a “research based appraisal system” coupled with a “structured weekly reporting procedure” which provides accurate measurements of inquiry, inspections, and offers – and it also shows you comparative statistics of how other properties are going.  That way, you can assess how your property is performing in comparison to the others on the market.  With that up to date statistical information, you can make meaningful decisions to fine tune the marketing of your home.  And you can accurately measure just how effective each advertising program really is.  All this means the previously invisible will become visible to you.  Being able to do that means you’re in the driver’s seat – and that means you’ll be positioned to get better sale prices sooner.

Here’s what one of our recent successful sellers had to say about Mal’s efforts:

We've been trying to sell our house in a lacklustre market when we met Mal, we were immediately impressed with his professionalism and his record in the Real Estate industry.

We were also surprised he actually increased the sale price and sold the house in a short space of time. Mal is a professional and we certainly have every confidence in recommending him.

Michael & Virginia King

If it sounds as though we’re excited – we are.  For the first time Investment House can genuinely introduce you to an agent you can rely on, because he is one of us.  If you have quality property in Brisbane to sell, this may be the answer. Selling a property should be a fun adventure. To see whether your property will fit with this strategy, contact Mal direct on (07) 3876 6200 or 0421 383 599 or mal@inhouserealestate.com.au.

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Deal of a lifetime.., they say it comes along about once a month!

Our site of the month is a “splitter” site. Some of you many not understand what that means so here’s a quick introduction.

A splitter is a proprietary term that we use to describe a project where we buy a big double block with a house on it that can be demolished or removed. Once we have removed or cleared the blocks we build two brand new homes on the created lots.

This is slightly different to our other popular strategy called a “slider”. A slider project is one where instead of demolishing or removing the house, due to council regulations we must retain the original dwelling. So we slide it over to one lot, raise it, and build in underneath and completely renovate the property. This frees up the other lot to build a brand new home.

At the moment splitters are doing better than our slider projects. The reason for this is that the cost to completely renovate the old house is almost as much as it costs to build a brand new house. A brand new home always attracts a higher resale value than the renovated home, which makes the splitters the way to go at the moment.

Our site of the month this month is a good splitter site, 5k’s from the city CBD. It’s for sale at the moment for $470,000, however we expect to pay $450,000 or less. At the $450,000 purchase price, including selling one house off at completion, the project is estimated to return $110,000 in profit. In other words the house remaining is worth $650,000 and the lucky client who does this deal will end up with an approximate mortgage of $540,000.

To take advantage of this opportunity, please call Marco on (+61 7) 3369 0111

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Case Study - We love those win-win solutions!

People usually ask us how does Investment House find deals for clients. As well as using the normal means as any investor would, we have several extra ways that a regular investor doesn’t have access to. Today’s case study illustrates one of our “other” ways and at the same time illustrates the win-win situations that we try to achieve everyday. Because we are so involved in the market, we sometimes get deals coming to us.

We had looked at a site and thought it was fantastic splitter site however the Real Estate Agent had the site for sale with a price that was just too high (they were asking $560,000). The reason for this was that the agent needed to increase the price to get their commission so that the vendor received the bottom dollar they need to move on. In addition, the agent had sold the vendor the idea of a higher price when all they need (or wanted) was $520,000.

The property stayed on the market for a few months until the vendor approached us directly. He saw one of our development sites in the area and thought he would call us as his agency agreement had finished.  We were able to discuss the price and found out that what we were prepared to pay was the same amount he wanted to sell at. We were able to negotiate a win-win situation for both our clients and the vendor – the vendor sold at the price he wanted while the client bought it at great price with the conditions we wanted.

The client purchased the site for $520,000 and is looking to make a profit of $120,000. Moreover, the property is currently tenanted and this will assist our client with the holding cost while we get the DA.

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Disclaimer

All information in this report is general information only. Nothing in this report is meant to be specific investment advice, nor should you treat it as such. Everyone's individual circumstances will vary widely and you must seek advice from your own independent licensed investment adviser before investing into any form of investment. Investment House, its employees and representatives take no responsibility for the result of any actions taken by the readers of this report.

Investment House and its related businesses makes no representation and gives no warranty as to the accuracy of the information in this document and accepts no liability for any errors, misprints or omission herein (whether negligent or otherwise).