All I want for Christmas... is some more houses

Just in time for Christmas we’ve received the results of the National Housing Supply Council’s State of Supply Report 2011.

The Council’s report provides independent and consistent data on housing supply, underlying demand and the supply-demand gap, as well as affordability. The report has become a trusted resource for both government and industry. Reference:  http://www.nhsc.org.au/supply.html

With so much debate going on with whether there actually is an under supply of housing or not, this report gives some real weight to the argument. In fact, it’s pretty clear.

The Council projects that underlying demand and supply over the next 20 years will see a shortfall of over 600,000 dwellings nationally.

Wow...that’s a lot of housing that will be required despite ‘weaker market conditions’ that are being touted right now.  But I’m not really seeing ‘weaker’ conditions. In the areas Property Bloom develops things have started to move. Just this week we found a fabulous development site.  It is a solid three bedroom house on 1012sqm with two street frontages (there’s the twist).  This potential development site had plenty of interest, so much so that we had to race to exchange in order to secure it and take it off the market before Christmas.  The agent received over 30 enquiries in under a week.  On this site we’ll build a three bedroom duplex – two attached 3 bed villas – for our clients.  So we’ll create three properties from one. 

This is where I make the familiar reference to the two speed economy.  You will find that in any large region where there is lots of employment opportunities – as we see in the Hunter Region of NSW – there will be strong demand for housing.

But it’s not just any housing that’s required. We need to tailor to the needs of the community.  The State of Supply Report uncovers that the numbers of households comprising couples without children and lone-person households are projected to grow much more rapidly in all regions than are the number of households that are families with children.  With an aging population this all points to a need for smaller dwellings. The projections suggest that most regions can expect a greater relative increase in demand for flats than for separate houses.

Here’s an important point:  “...demand for private rental dwellings may well increase more sharply than is projected, due to social housing stock not increasing in proportion to increased underlying demand...”  What is that telling you investors?  Rents will continue to increase, combine this with interest rates dropping, buy in the right area and you should end up with a very strong yield.

With affordable housing in great demand, Property Bloom addresses this by developing properties; renovating houses and then building a granny flat. This strategy can be turned over very quickly and we basically double the housing capacity for that property and create a 9% gross yield for our clients.

By building villa developments in large regional towns like Muswellbrook, Cessnock and Maitland we are also providing good quality, affordable dwellings. These are quickly snapped up in the rental market.

So if you are looking for to give yourself a Christmas present, consider developing property, or at least purchasing one, in areas where there is an under supply and strong demand. You’ll not only be doing yourself a favour, but also the communities you are investing in and assisting with the shortfall of housing.  Merry Christmas!

Property Development…The Answer to the Housing Shortage

If you are a property investor looking to take the next step into developing property, then there’s never been a better time.  Just take a quick look at the current market conditions and you’ll see what I mean.

Australia’s housing shortage is likely to get much worse before it gets any better because construction of new housing continues to fall well behind the number of properties required. We are seeing Australia’s population growing although the ABS reports that at March 2011 growth had slowed slightly over the prior year.  But we still grew by 312,400 people. In contrast, we saw a 7% decline in new dwelling commencements (nationally) over 2010/11 to 154,877.

Then there is the continually rising demand for rental properties. The national vacancy rates are now 1.8% and a lot lower in most of the areas of the NSW Hunter Region where Property Bloom is developing. There is massive demand for new rental stock and tenants will pay a premium for brand new.

And here’s a tip for what to build:  The changing demographics of Australia - particularly a smaller proportion of couples with children and ageing of the population- is likely to increase underlying demand for smaller dwellings proportionally more than demand for separate houses. 

The Government’s National Housing Supply Council’s 2010 State of Supply report concludes:

• Underlying demand has continued to grow since the last report (by more than 200,000 households) and is projected to increase further by 2029 (by 3.2 million households to 11.8 million);
• Supply is not responding to this increase in demand (and that the impact of the global financial crisis on residential development in 2008-09 is likely to reduce dwelling completions in the next few years);
• State and territory data on future infill and greenfield supply may be higher than actual delivery of lots (contributing to a larger gap);
• The gap between demand and supply has continued to increase and will continue to increase without any changes to demand and/or supply;

So the writing is on the wall. We need more housing and depending on where you are developing, villas or units will be in demand.  It’s a perfect time to step up and become a developer.  But if it’s your first time, you should use a project manager to guide you through the development process.

At Property Bloom we start by finding suitable and affordable development sites for clients in the right locations where there is good demand for new dwellings.  Then through a detailed process, we’ll guide the project to a result of building anywhere from two – six new villas, more if clients can finance larger developments.  In some areas we are building larger houses as this is what is in demand right now.  The total cost of a typical development is $650,000, around the price of a two bedroom unit in Sydney.

Whilst all the hard work is taken care of, clients can be as involved as they like in the process.  We have some clients that are first time investors and need their hand held through the process. Others want to learn the development process so they can do it themselves next time. At the other end of the scale there are experienced investors who work in demanding jobs who don’t have time to source development sites for themselves, let alone manage the entire process.  Property Bloom has managed over 45 developments, so we have a tried and tested system in place.

Using a project manager to handle your development means you are handing over all the detail to someone with the experience needed to successfully manage your investment.  Some of the responsibilities of a project manager include:

• locate suitable sites
• run feasibilities on potential development opportunities
• brief designers and work with them ensure the site is optimised through good designs
• consult with architects, engineers and other technical workers to make sure that design intentions are met.
• interpret plans, estimate costs and recommend reliable suppliers
• manage the planning phase to ensure the fastest possible approvals
• study building contract documents and negotiate with building owners and subcontractors
• manage construction methods and procedures
• coordinate the supply of labour and materials
• direct site managers and subcontractors to make sure standards of building performance, quality, cost schedules and safety are maintained
• control payment to subcontractors by valuation of completed works
• communicate effectively and report accordingly
• keep project budgets

Is there a good time for your builder to go broke?

The Definition of a Developer’s Nightmare is: hearing that your builder is going into liquidation.  So what happens when a builder you’re using does go into liquidation?

With the announcement of Cosmopolitan Homes in NSW going into liquidation last week, I thought I’d share what I know about this topic.

When your builder raises a contract, they also need to raise insurance. The policy that is most important is the Home Warranty insurance. 

Home Warranty insurance is issued to the developer/homeowner to protect them against loss due to non-completion, defects and breach of statutory warranties by the builder. It is legally required and is only triggered if a builder dies, disappears or becomes insolvent before completing the home or fixing the defects.
I’ll repeat...you can only claim on this policy if your builder dies, disappears or becomes insolvent.  These are pretty drastic outcomes really for the builder but can also have dire consequences for you.
I think we all understand what ‘dies’ means.  ‘Disappearing’, well I’m not sure how this is legally defined, I couldn’t find an explanation. How long does he have to be gone for?  Does a three month trip to Vegas count?  What I do know more about is the process of ‘becoming insolvent’ and it can be quite drawn out.

If you find yourself in the situation where your builder has gone into voluntary or court appointed liquidation, the good news is…you are most likely covered by Home Warranty insurance. The bad news is…your cover may not be enough to complete your building works.

I’m going to let you into a little known fact:  Your Home Warranty insurance policy only covers 20% of the builder’s contract and up to a maximum of $300,000 for incomplete work.  So the stage your builder goes broke is very important, but totally out of your control. I’ll come back to this.

Going into liquidation is not easy for anyone. For voluntary liquidation the builder needs to acknowledge that they just can’t keep trading. There can be a period of denial as he comes to terms with this. Hopefully, he won’t be trading whilst insolvent because that’s against the law.  Signs of distress may include; delays in completing the stage of build and disgruntled tradies who have not been paid or are continually having to chase payment and the builder being over anxious for their next drawdown. So when the builder finally faces reality and goes into liquidation, he needs to appoint an accounting firm to manage this process.  They will be known as the liquidators. Their job is to notify all ‘creditors’ of the situation.  A creditor will be you if you are under construction with the builder and anyone else he owes money too like staff, contractors and suppliers.
The builder may be put into Court Appointed or Official Liquidation. This is when someone applies to the court that a company should be wound up in insolvency. If this happens the court will appoint a liquidator. 
Either way, before you can make a claim under the Home Warranty insurance policy, the status of the company must change from “registered” to “Under External Administration and/or Controller Appointed” on the ASIC website. Once the company’s status has been changed, you can lodge your claim.
When you make your claim, you’ll be asked to complete a schedule of payments you’ve made to the builder up to this stage. You’ll know how much you have left in your construction loan account. So then it’s a roll of the dice to see if you can complete the works with the insurance payout.
The insurance company will appoint an assessor who will inspect the site and put a building schedule together for the works that are outstanding. This is sent out for tender to builders on the insurance company’s panel and you can also get your own quotes.  This is when you may discover that the works required to complete the project may not be covered by the claim and what’s left in your construction loan.  With just 20% of the original builder’s contract to play with, there really isn’t a good time for your builder to shut down.

How can you avoid the situation of a builder going broke? Well you can certainly do your research on them before signing up. Get a list of their tradies and talk to them about how they are treated by the builder. Does he pay on time? Is he good to work for?  How long have they been working with him? Talk to past clients and ask how their experience was?  Check the Department of Fair Trading website for any past complaints and the ASIC website to see how long the builder’s been trading and his status.

At the end of the day, you will need to trust yourself and go with how you ‘feel’ about a builder. After all, we cannot know everything that is going on with a company. When you find a good builder, stick with them!

Interesting links:

https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255

http://www.fairtrading.nsw.gov.au

http://www.search.asic.gov.au/gns001.html

www.propertybloom.com.au