High Australian Dollar and low metal prices, a lethal combination

The recent news that the aluminium smelt is closing in Kurri Kurri, a town in the Hunter Region of NSW is very sad. 

My thoughts go out to the 350 or so workers who will be looking for new jobs or being forced to retire over the next three months as the business winds down.  The plant is blaming a lethal combination of prolonged record high trading of the Australian dollar and low metal prices. Ironically, the announcement coincides with the A$ slump to a six month low off the back of the situation in Europe but the slump has come too late to help this business.    

So how is this going to impact the local property market?   More importantly, will this impact the property market at all?  Of course it will, I hear them saying...but let’s take a closer look at this town and the underlying fundamentals.

Kurri is a small town with a population of just 14,000 at the last census.  However, its close proximity to much larger towns has made it a popular place to live for those who like the peacefulness of a small town.  It’s only 14kms away from Cessnock a major tourist and retail hub with a population of 46,000 and 13kms away from Maitland– the fastest growing inland town of NSW with a population of 63,000. 

Kurri is certainly not located in the ‘middle of nowhere’.

So the big question is how many of the 350 people who lost their jobs actually live in Kurri?  I’m going to ask the local property managers this question to establish the possible impact on the vacancy rates. But will they need to vacate at all?

Can people still continue to live in Kurri and work elsewhere?  The answer is yes.

The saving grace for Kurri and hopefully the people who lost their jobs, is the $1.7 billion dollar Hunter Expressway that is well under construction, currently employing about 800 staff directly on the project and more than 400 subcontractors.  

This massive, four lane freeway will have an interchange at Kurri.  This means that the expressway will cut driving time considerably from Kurri to the mining towns on New England Highway and also to Newcastle and the F3.  So people can still live in Kurri and work in the coal mines of Singleton – only an estimated 30 minute drive once the Hunter Expressway is completed or even Muswellbrook – a further 40 minutes or so.  A short 20 minute drive will see them arrive in Newcastle.  Kurri is a more affordable rental market than Singleton, Maitland and Newcastle.  Having the interchange makes Kurri a very central place to live.

Then there is the undersupply of workers in the Hunter resource industries.   A quick look on one recruitment website saw that there were 1,118 jobs available right now in the Hunter .  There has been an acute skills shortage for years with many businesses complaining that as soon as they train up an apprentice they are lured into the mines by well-paid jobs.  The Hunter Valley Research Foundation has reported that the region’s workforce grew by more than 8000 in the March quarter.

The Hunter is a diverse area with thriving industries including tourism, agriculture, manufacturing, coal and mining, power generation and wine making. When one door closes, another door opens so here’s to a bright future for the people of Kurri.

Are DA approved sites always the way to go?

I used to get very excited when an agent called me to say...”Jo, I’ve got a great DA approved site coming up...”   My little heart would pound as I’d eagerly keep checking my emails for the plans and consent to come through. 

As soon as they did, I’d open the consent file first and scan the conditions.  Any weird and wonderful requests would jump out at me like “...the developer shall construct kerb and guttering, construct and gravel the road shoulder, place a two coat hot bitumen seal to road shoulder...” that’s a really bad one.  It could mean up to 50 lineal meters for kerbing plus road works!  This condition really gets up my nose as council are basically off loading their road cost to us. 

Next, I’ll scan to the Council Contribution condition, the Section 94 as it’s called in NSW.  This can vary greatly from council to council and sometimes it’s reasonable, but mostly it’s highly unreasonable.  All these conditions need to be allowed for and are on top of the construction costs.  And, they won’t add any value to the project. 

Once satisfied with the Consent, I’d close that pdf and venture onto the others...

Usually the files I receive of plans are bad scans that the agent has tried to do off the large format plans he/she’s been mailed by the vendor.  I can just picture them trying to fit the big plans onto their scanner, capturing the vital bits.   If I’m lucky enough to make out the designer at the bottom, I’ll pick up the phone and call them to discuss the plans and get a decent lot sent over; in particular I’m looking for the stamped plans.   If they are not stamped then they may not be the final plans and I could be wasting my time. 

When I have a decent set of plans to review, the first thing I look for is the fall on the block.  Is it a flat block or are we going to need lots of site works and retaining?  Then my eyes would scan over the floor plan, and then skip down to the bottom of the plan where they usually mark up the gross floor areas.  Are the villas big enough?  Are they too big?  I’d check the site plan and look for the little compass rose which will tell me the aspect of living spaces.  North facing is good.  On first glance, most plans may look ok.

Then I’d forward all the details I’ve been able to find onto my builder for an estimate.

 In fact, this is exactly what happened this week as I looked at a DA approved dual occupancy site.  Then came the call from the builder...”Jo, I’ve got the cost in” he’d explain and I’d hold my breath with my analysis spreadsheet open on my computer, waiting, ready to drop in the number, the magic number.  Bang, there it is, the moment of glory...or defeat. 

Today it was a big noooooo that echoed through my mind (and my office) as I watched the bottom line, the most important line of the spreadsheet, turn red.  The bottom line of my spreadsheet shows the estimated equity that could be created for my clients from the development.  Red is not good.  This DA approved site was overpriced and been ill designed. It simply did not stack up. The designer had created a plan that was unfeasible to build.  After a few curses, I return my focus to finding a raw site, one that we can work on from the beginning to get the best results from. 

As a developer, it’s important to cross check the cost of your design before you lodge your DA. Sounds straight forward right?  But most DA approved sites I come across are on the market for one reason.  They don’t work.

www.propertybloom.com.au

Who is the most important person to approve the design of your project?

Is it the draftsperson/architect who is designing them?  Or, perhaps a town planner at council?  Or your lender?  maybe you?  In my opinion not.

I can’t tell you how many plans we look over and present to our builders for tendering.  Some come to us as DA approved sites, some also have the Construction Certificate issued - they are our favourites as all the fees & charges have been paid and we can start building immediately.

 But most often we will find a development site and have to start from scratch designing the development.

We may use an architect to design the project depending on the location and type of dwellings we want to build. Or we will ask the builder’s in-house drafting department to prepare plans based on a standard builder’s design.

I often find that the stock standard builder’s design works best because the builder has built it time and time again and they know how much it will cost and any issues with the design have been ironed out long ago.  We can usually make some small changes to the floor plan or façades to put our own stamp on it and make sure it’s different to what’s been built in the area very cost effectively. But every site is different so it’s important that the design you use, is adapted correctly to the site.

One of my biggest issues as a project manager is when the architect or draftsperson has not bothered to go to the site. 

Today I had one of my site managers phone me and the conversation went like this... ”Jo, did that @$##8 draftsperson even come to this site when they were working out their levels?” I said,” I don’t know, this site was DA approved before our client came to us to project mange it...what’s up?”

“Well I doubt it” he said “as the plumber has just installed the drainage pits to the level on the plan and now we have to bring in tonnes of fill and retain this area to make the drainage work”.

You can only imagine my response.  Three hours later, we’d worked out a better solution at no additional cost to the client, but it took several discussions between me, the site manager, the engineer and the draftsman.  So that’s where my morning went. This could have been avoided if the draftsman had come to site to see in real life what was there.

As a standard practise, we have the Construction Manager of the builder we are using to oversee all our drawings and plans and make sure he is happy with them from a construction perspective before they are submitted to council.  This has made the construction phase a lot smoother.  Often a draftsman’s lack of understanding of the actual building process or the site can mean costly corrections when under construction.

So the most important person for me to check our plans is the Construction Manager. He is going to be the one standing on the site bringing the project to life and if hasn’t picked up an unforseen issue then I don’t know who would have.  

www.propertybloom.com.au

Green Building a True Winner

Can you use a green builder and still have a cost effective result? 

In our experience the answer is yes. We found that using an Eco Builder not only added to our client’s bottom line, benefited their tenants but also gave peace of mind that they were doing their bit for the environment.

When it came to finding a builder for our granny flats, at first I had one thing in mind; cost effectiveness because this development strategy was all about creating the highest yield possible. We asked our regular brick and tile builders to price a two bedroom 60sqm flat by using their traditional slab/brick/roof tile construction but their price was coming in too high. 

Thus our search began for a cheaper way to build the flats without compromising on quality. We researched caravan park style cabins that could be trucked to site but found this method was about the same price as our brick builders, we even looked at converted shipping container ‘boxes’ but they were not up to our standards.  Then we found our Eco Builder. 

I’ll quickly explain what is involved with this development strategy.  First we locate a house in a strong rental area, one with ‘good bones’. By that I mean a large house with at least 3 -4 bedrooms and one that doesn’t need too much renovation. The property needs to tick a number of boxes but in particular be Complying so we can use our private certifier to fast track the Complying Development application to build the granny flat.   We bring the house up to the standard where we could maximise the rent, there is an income during the build phase and on completion the flat is rented usually to a separate tenant than the house. The result is a 9% gross yield.  

So back to our Eco Builder...I was impressed to see his company is certified as a Climate Friendly Business encompassing not only their corporate operations but every granny flat and house they build.  They undertook extensive assessment and calculations to estimate emissions associated with the construction of each home.  On completion, clients are supplied with a certificate from Climate Friendly, certifying that during the construction process emissions of greenhouse gasses were minimised and then offset. This reduces the adverse affects on the planet throughout the stages of design, construction and completion.

Their process includes using alternative building materials and construction methods. By using sustainable and lightweight building products and cost efficient design principles they achieve energy efficiency. They’ve even won lots of awards and are considered innovators in their field.  

Transporting products to building sites usually results in the use of large quantities of both fuel and other resources. This builder has put in place a system to greatly reduce the amount of transport required and therefore reduce the amount of greenhouse gasses being emitted during the construction process. One of the key facets of this is their ability to produce our granny flats to lockup in their factory, enabling a single delivery of the flats and all components needed to complete lock-up stage onsite.  The construction process takes approximately 50% of the time required for a typical slab/brick/tile house.

As well as the faster completion time and environmental benefits there are other positives as well, electricity bills are reduced, water bills are minimised and our clever granny flat design reduce the need for heating & cooling. Utilisation of natural air movement for cooling, solar or gas heating and appropriate positioning of the flat on-site is all part of the process. Research has shown that heating and cooling account for an average of approximately 40% of household energy costs across Australia. Homes designed to suit the climate of their location result in a significant reduction in the amount of energy required to heat and cool the home.

So we found a winner with our Eco builder, his tender came in 15% lower than the other builders, our flats are completed in half the time, tenants will save on their bills and we have a carbon neutral result. To me that’s a win-win-win!

http://www.climatefriendly.com

http://propertybloom.com.au/