Is developing property the right strategy for today's market?

This week we’ve been inundated by reports in the media about an impending market crash.  I watched in interest as one current affairs program sensationalised and dramatised a story by editing quick grabs of what a few different commentators were talking about. 

If you missed the host’s introduction that ‘some markets were at risk of collapse’ then you’d be thinking that we were all doomed and there was an impending national market crash fast approaching. Little cuts to the US property market didn’t help.  Later in the story we do find out they were talking about what was going on in two Queensland suburbs where two people had purchased units off the plan in a massive high rise complex in a very densely built up area (a risky investment strategy).  Further into the story up popped a list of other ‘difficult’ suburbs around Australia.  The interviews with several commentators were edited so much that I’m sure a lot of the really interesting detail they spoke about wasn’t included.

The problem with these reports is that they are designed to keep you glued to the TV and up the ratings, not necessarily to educate you on the topic.  So if you were thinking about developing property and watched that program, you would certainly be having second thoughts. 

It’s up to us to dig down to the detail, sift through all the noise and get to the facts.  We need to become a specialist in the areas we want to invest in. 

I do this by tracking a certain postcode’s medium quarterly sales going right back to 1997.  I buy this data from Residex and to me it’s the best investment I can make as I can see:

- How fast the market grew during its boom years;
- The actual number of property sales each quarter;
- The median price has stabilised and enjoys steady incremental growth over
   the past 6-7 years even though the number of sales seems to fluctuate; and
- I know the average 10 year growth rate is over 12% which works for me.  

This long term statistic can help you compare different suburbs.  I overlay this historical data with the current research I collect on these towns.  I read regional strategic council reports, I look for government and council spending on infrastructure and what is happening in the community.

A $1.7 billion freeway link is under construction and will have an interchange in one of the towns in this postcode.  We are seeing two major supermarkets opening in one of the towns and this is boosting employment. Another town under this postcode is enjoying incremental spend from the phenomenal concerts in the vineyards industry which is bring massive artists such as Elton John to the area and boosting the hospitality and tourism sectors. I know that the vacancy rate is under 1% and the type of dwellings that are in demand.  Armed with all this information, I feel very confident that developing property in this post code is going to continue to pay off. 

 As a developer you need to be extremely confident about the location of your development because there are so many other factors that can affect investment, the more you can sure up, the better chance you’ll have of a successful result.

So is now the right time to be developing property?  It will depend on the areas you are looking at. For me, it’s a resounding YES as I’ve done the research and know that my client’s projects in the Hunter Region of NSW are going to do well for them.

Infrastructure – Why It’s Important to Your Investment

When I first decided to develop property, I was overwhelmed with where to start.  I’d purchased four properties in Sydney and realised that I couldn’t keep buying negatively geared property, coming up with the short fall required certainly puts the pressure on.  By this stage, the major cities in Australia had become too expensive, so I began doing the figures on areas within a 200 kilometre radius of Sydney.... Wallah... the Hunter Region came up trumps!
I found that I could buy large residential lots of around 1000sqm and develop them a lot more cost effectively than if I was to develop in Sydney. Everything was cheaper from the land purchase through to consultant fees and building costs.  I also found the people there fabulous to work with.  Most importantly, I found that there was a lot of infrastructure investment being made in the area.
Infrastructure investment is very important to an area as it stimulates the local economy by creating lots of employment and attracts more people to the area.  Infrastructure projects create demand for rental property and other goods and services.  As the projects progress, money is spent in the local community and there is a flow on effect to associated businesses.  For instance, the local cafe sells more coffee and there is demand from contractors for convenience services such as laundry mats and take away food. Once the project is complete it adds to the local services. A great example of an infrastructure project is a new freeway being built where the benefits may be to cut travel times, improve efficiency within the roads network, relieve congestion of vehicles in certain areas and attract more people to the area as it is now quicker to access.
But you can’t just look at infrastructure investment when searching for a good location for your development; one of the other things you should consider is growth rates.  The latest RPData figures show that although values across Australia have fallen, New South Wales regional areas such as the Hunter and Illawarra are still performing well with median house prices up 2.2 per cent and 3.6 per cent respectively over the past 12 months. Both are in close proximity to Sydney and this is a key reason for their standout performance.  
John McGrath, CEO of McGrath Estate Agents points out that Newcastle is a great example of an area growing for local reasons.
“It’s shedding its steel city image and positive media attention is encouraging retirees, seachangers and investors from as far as Melbourne, Brisbane and Sydney. Great value is available and Sydney is just a two-hour drive. The median house price is currently $380,000, up almost 12 per cent since 2009,” said John.

Two weeks ago, the NEWCASTLE Herald revealed figures from BIS Shrapnel that house prices are set to increase 18 per cent in the next three years. It also states that residential properties in Newcastle are set to rise at the same speed as Sydney.

The Residential Property Prospectus for 2011-14 outlines an increased migration rate from Sydney, north to Newcastle and south to Wollongong with Wollongong experiencing higher price levels at the moment which will result in a slightly lower growth rate of 16 per cent compared to Newcastle and Sydney.

The migrations north and south of Sydney are the result of a housing shortage in Sydney and a combination of higher prices and increased interest rates according to the survey. It seems as though people are quite happy to commute to work one or two days a week to be relieved of the pressure of a huge mortgage.

When purchasing a property, we are told to “look for infrastructure” so just what impact can an infrastructure project have?
I’m seeing right now a massive tightening of rental markets in two major Hunter towns I’m developing in. One town has a large coal mine that is being expanded. After many years in the planning, this expansion has been approved and now contractors are flocking to the area to work on the infrastructure required within the mine for it to expand. Once the project is complete the contractors will be replaced with additional full time workers required to work the larger mine.
The other town is literally being put on the map by an interchange for a major expressway to be built.  It’s a $1.7 billion infrastructure project and the impact is being felt.  All of a sudden we have seen McDonalds, KFC, a new Coles supermarket and an Aldi store being built in this small town.  Consequently, there are a lot of contractors working on the road works looking for rental properties and rental returns are increasing. Employment prospects are bright now in this small town.
Whilst we love infrastructure spend, other boxes the Hunter Region ticked when I was researching the area include:
- Proximity to Sydney
- Affordability
- Strong rental demand and low vacancy rates
- Undersupply of new housing
- Strong population growth – Maitland has been the fastest growing inland town of NSW for a few   
   years running
- Diverse economy, whilst the mining industry supports the area, the wine, hospitality, tourism and
  retail industries are also providing many jobs
- Large lots of residential land
Developing property is challenging and getting it right takes a lot of time and research.  But we are lucky to have a plethora of information and statistics provided to us by qualified researchers, companies and the media. So it’s up to you to sift through it all and work out what may be a viable location for your property development.  Good luck! 

Planning Permission or Punishment?

Property developing can be very rewarding and can also be overwhelming, especially if you are building in an area that you are unfamiliar with for your first development. The best way to become familiar with your choice of location is to find out how the local council work and what they would like to see built in their area. Developing relationships with the local town planner could save you a lot of time and money and help make the difference between a frustrating development and a fabulous development.

To get off on the right foot, do some research on the type of new development you see driving around the town and what you would like to build.  Then call the council and organise a meeting with a town planner. Sit down with them to discuss your ideas and plans and find out what will help your development to get across the line with minimal stress.  You’ll also need to do some ‘light’ reading so you have the heads up on what is and isn’t permitted in the area. This way you won’t be wasting the town planners time asking questions that have been answered in their plans and you can go in with questions relating to your particular development.

Some documents to read include...

Local Environmental Plan (LEP). You will find this on the council's website.  An LEP defines the land zones and outlines permissible land uses within these zones. You will need to be familiar with this as this will determine what type of building you can put on the land, low, medium or high density. Right now, a number of councils in NSW are preparing Draft LEPs so ensure you check to see if your council is working on a new LEP as when processing your DA, they will take the Draft LEP into consideration, even if it has not yet been gazetted. 

Development Control Plan (DCP). This document contains more detailed provision than those in an LEP. Its information is specific to geographic zones or development types. It will give you a thorough understanding of the guidelines to follow when developing in your chosen area.

Regional Strategy Report (if the council has one), is used to locate areas with the greatest potential for development. The document will outline plans for land releases land rezoning, population and employment projections and will pinpoint specific areas that have been earmarked for future growth.

When you meet with a council planner, come prepared with the 149 Planning Certificate from the contract of sale of the property or land you are looking to buy. The 149 will inform you about things such as whether the land is in a bushfire or flood zone or if the land may be considered for complying development and it will tell you what may be prohibited on the site, whether it is heritage listed etc. If you are not sure about some of the information in the 149, then the planner can explain it to you.  Also bring with you a survey and sewer diagram, also found in the sales contract.

Council Meeting Minutes will sometimes give you valuable information on other DAs that have gone to a council meeting and comments made about the developments. You can also read other DA Consents to get an insight into the type of Conditions that council may include in your consent.

Some questions you can ask the duty planner:

What kind of development is council wanting to see in the area?

It’s important you work with your council rather than against it if you want a smooth process. You want to align your project with council’s vision for the community.

Can they see any problems in developing this particular site?

They may see a problem such as access onto the road if it is perhaps a major road or they may be privy to information on neighbouring properties for instance.

Is the land in a flood zone?
Although this will be included in the 149 Planning Certificate, it is really important to ask this question.  The planning certificate you have may be out of date or lacking in information. For example, the council might be working on a new flood study, but this won’t be reflected in the planning certificate. By the time a DA is lodged, the property's flood zone may have changed and it could be rejected. The council will have a flood and/or drainage manager who can give you up-to-date information over the phone. If the land is in a bushfire-prone area, be aware that you’ll need to comply with current fire-safety regulations, which will add to your building costs.
What is the minimum lot size?
This will be specified in the DCP r Subdivision Guidelines, however, sometimes council may be a little flexible on this, so it is an important question that will help narrow down your search for properties. If you are looking for land to subdivide, you will need to look for land more than twice the size of the minimum lot size.

Are there any issues that may arise in developing in this area?
This is a good question to ask a town planner, who will be aware of social issues outside the constraints of the DCP. For example I developed in an area where the local neighbourhood fought any DA that had been lodged for more than one dwelling on a title. I soon learned that the deputy mayor lived there and was rallying neighbours to fight these DA’s. I sought legal advice and was able to negotiate with council and gain consent as my DA met all the requirements of the DCP.

Once you have secured your development site, have your draftsman or architect put a concept plan together. You can use this to go back to council to show them your design and get valuable feedback from them at this stage.  Also check if there are any specific reports that may be required to be included in your development application. These may include acoustic reports or traffic reports for instance. You can easily make changes at this stage and ensure that your DA is processed as quickly as possible.

After your DA has been lodged, check to see if your council has a DA tracker on their website that you can follow the progress on.  If you see it is not progressing as forecast on the tracker, then certainly make a call to the planner assigned to your DA to find out what the hold up is.  If there is no online tracker then make regular calls to your planner to keep on top of the progress.

All councils work to different timeframes according to their resources. Sometimes I am surprised at the speed of council, but mostly we find the process does take too long. So staying in close communication with your council can help fast track the process.  Enjoy this important part of your development journey; you will learn so much from going through the planning process.