Property Club

Welcome to the Property Club Newsletter

We know there are a lot of Australians who like property. We also know that a lot of Australians have invested in investment properties, some good, some bad but mostly over time property prices have risen in Australia, especially in the last 30 years. So even a bad investment 10 or 15 years ago can look reasonable when you sell it.

The conundrum in the next chapter is whether investors will get the same return from mediocre or ordinary investments that they have in the past. The transitional phase that the Australian property sector went through in the 80’s & 90’s from old to modern catered to a growing population, new young families getting a foot in the door so to speak. The current state of the art projects being delivered are catering to the older baby boomers who went through the previous phase and their demands as reasonable affluent people are entirely different. The former home unit supply chain was very plain, vanilla almost, with little or nothing distinguishing them. Home units were a high volume commodity product that were designed to maximise the yield on the land, not the comfort and convenience of the resident.

Even the house and land packages have been pared back to no more than sometimes 300 m², 280 m². It’s very difficult to find a block of land that is of a reasonable size and that’s acted as a price suppressant in a sense because the land component in the house and land package has become increasingly smaller.

The key driver for a long time, has been, especially in properties of fair average quality, cost price inflation, superimposed by a very robust immigration policy over the last 30 years, all of which has contributed to pressure on the demand curve, restrictions of supply and building costs escalation. So there’s your growth driver in the last chapter.

Technology and creativity though, has made a significant impact recently and a lot of the buildings that were built in the last 30 years, don’t have the benefits of this or modern architecture and frankly modern thinking in terms of resident amenities.

Taking this into account then, looking at the life cycle of an investment of say 10 to 15 years and you asked the question who’s going to be my buyer at the end of that cycle, that buyer is going to demand what is going to be the default offering –  high-quality amenities and if the building doesn’t have those then there’s going to be a fairly hefty or significant discount to market.

For example take a three bedroom apartment built five or 10 years ago. It might have a pool, it might have a limited gym but you get the feeling that the idea was always to keep the body corporate fees as low as possible. Compare that building to a modern new building that has an outdoor cinema, a mezzanine floor that could have an indoor and outdoor swimming pool, with double the number of lifts which will be better quality, and some of these complexes will have a concierge or a service desk for the residents that wish to put their properties into the occasional rental pool.

So why will this market trade at a premium to the apartments that have been built in the last decade? Probably one of the greatest contributing factors to the answer of that question is the fact that the demographics of Australia have shifted dramatically, people are getting older, they’re downsizing, and they’re expectations of apartment living have shot up dramatically and as a result of that, they demand quality space, bigger units better fit outs, more amenities.

Many of these people are swapping homes where they raised a family and the apartment needs to approximately the home as closely as possible. This demographic is getting larger, not smaller, whereas 40-50 years ago, Australia’s population was moving into homes that were looking for the quarter acre block, the bigger home, they were moving into the western outskirts of Sydney in search of their dream home.

In the same way we saw those areas increased significantly from what they were perhaps in the 60s or the 1970s. Certainly throughout the 80s and 90s they had a renaissance. We’re going to see the same effect in the quality apartment market.

So the savvy investor will need to be aware of these factors, and despite the fact that a rising tide lives all boats, if you’re looking for a premium in the apartment market then you’re going to have to buy in buildings that are for at least the moment future proof. And if it’s not future proof then these investments are going to actually trade at a discount . They will become the equivalent of your1960s three story walk up, no car parking, no views, limited window space, cold and just generally fairly awful.

Having said all of that, the investment property Club is actively looking for opportunities that investors can take advantage of projects and buildings that are future proof and if they’re not future proof, then they need to be trading at a discount now, not trading at a discount at the end of your investment cycle.

Our aim is to provide you with opportunities that we see meeting that future proof hurdle. That requires a combination of knowledge and experience and a keen understanding of who is likely to be your purchaser at the end of your investment cycle.

So it’s not enough to know who is going to rent the property today, that used to be sufficient, the most important part of the equation is becoming or having an understanding of who is likely to buy your property and why, when you want to sell it.

I trust we can work together on these ideas and I look forward to speaking to you.