+ About John McGrath
John McGrath is considered one of the most influential figures in the Australian property industry. As Chief Executive of McGrath Estate Agents, he took the company from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, selling $10.1 billion in residential property in FY14.
A total solution company, McGrath Estate Agents currently has offices located throughout Sydney, North Coast, Central Coast, Southern Highlands, South Coast, the ACT and Queensland, as part of its growing franchise network.
In October 2008, he was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.
John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”. In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.
Tuesday, July 26, 2016
By John McGrath
Developers and high net worth individuals have always been the typical buyer demographic for blocks of apartments. But today, they are increasingly competing with a new type of buyer – mum and dad investors purchasing through self-managed super funds (SMSFs).
Let me give you an example.
Not so long ago, one of our agents, Ben Collier at McGrath Edgecliff listed a fantastic art deco block of eight apartments in Barry Street, Clovelly that attracted many SMSF buyers.
The gross returns were $264,160 per year and there was scope to raise the rent and add value with extra parking too.
Ben expected a sale price around $7 million but strong competition at auction pushed the price to $7.52 million. While the property did end up selling to a developer, three of the under bidders above $7 million were mum-and-dad investors.
Now, $7.5 million is a big price tag and a budget that is simply out of reach for most people. However, when you’re buying with a SMSF, you typically have more money available to you for the deposit than you could have ever achieved through regular savings.
This is especially the case if you’re in your 40s or 50s and have been receiving mandatory super payments from your employers, plus your own contributions, since super was introduced in 1992. That’s 24 years of accruing at least 9% of your income (9.5% from FY15), with compounded interest and potentially other gains made from good investments over the years.
This means, depending on your income (and how hard your nest egg was hit by the GFC), you probably have more than adequate funds for the deposit on an investment property.
Recent statistics from the ATO shows that property investment via SMSFs is an increasing trend.
As of March 2016, there were 572,424 SMSFs belonging to 1,085,286 Australians.
Over the five years to March 2016, the amount of superannuation money invested in residential property has increased from $14.6 billion in June 2011 to $24.4 billion today – that’s a 67% increase.
Most SMSF buyers still need to borrow to buy a property through their fund, and getting finance for an apartment block purchase is more complicated than single homes.
I asked Alan Hemmings, General Manager of Oxygen Home Loans (the mortgage broking division of McGrath) to give us his advice.
- Only a limited number of lenders will provide a residential loan for a block of up to six apartments, but they must all be held on one title (ie not strata titled).
- In assessing serviceability, these lenders tend to be conservative and might only use a percentage of the actual rental income the block is returning to calculate whether you can service the loan.
- Blocks with more than six apartments are considered commercial developments so you will have to use a commercial loan, which means a shorter loan term and a higher interest rate.
- Banks typically apply an 80% LVR cap on all SMSF property purchases.
Buying a block of apartments presents many exciting opportunities for investors, but it’s hard to do in major cities because big money is usually required to secure the block in the first place and blocks don’t come onto the market too often.
There are usually more options in regional markets, where purchase prices are lower and yields are typically higher than the cities.
A regional block won’t get the capital growth of a city block, but that might not be your aim. In retirement, many people just want to be debt-free with a few income assets to fund their lifestyle. So a regional block of apartments delivering a high rental return might be an excellent option, as long as the loan is small enough for you to pay it off before retiring.
For this strategy to work, you would need to buy in an area with a low vacancy rate over the long term, low unemployment, decent population growth and a diverse local economy.
Getting good advice is crucial when buying through a SMSF.
First, talk to your accountant as they’ll be able to advise you of the set-up and ongoing costs, including mandatory annual audits.
Then talk to a broker who really knows the ins and outs of SMSF investing to secure your loan.
Tuesday, July 19, 2016
By John McGrath
So … we finally got a result! Talk about drama in our political arena over the past couple of weeks, but in the end, the Coalition got over the line and the biggest thing that means for real estate is no changes to negative gearing or the capital gains discount.
McGrath joined with a number of other real estate companies across Australia to express concerns over Labor’s proposal to limit negative gearing to new properties and halve the current capital gains discount from 50% (if held for more than one year) to 25%.
We fundamentally disagreed with the suggestion from Labor that negative gearing mainly benefitted the wealthy. Our research shows two-thirds of people taking advantage of negative gearing have a taxable income under $80,000.
Moving forward, the end of the election period is likely to result in more market activity.
The usual decline in stock that we always see over the Winter period was partly exacerbated by the election, because a lot of people delayed their real estate decisions.
For example, in the week leading up to the election, there were 811 capital city auctions compared to 2,218 the week before, according to research house CoreLogic.
In many cases, an election simply provides another reason for procrastination among nervous buyers and sellers. But in this election, property tax policy was such a major issue that it’s not surprising many people, particularly investors, chose to wait and see how it all played out.
Now we know there will be no change to negative gearing or capital gains policy, the pathway to Spring is clear. We usually see a bump in listings in the Spring season as many people perceive it to be the best time to sell. This year, we might see a bigger bump in listings simply because a lot of would-be Winter sellers delayed their campaigns.
Lack of stock has been a major issue in many of Sydney’s inner and middle-ring suburbs this year, which has contributed to ongoing price growth (8.9% increase in Sydney property values over the first six months of the year) and consistently strong clearance rates in the high 70% range.
A spike in listings over Spring would bring more fluidity to the market and enable more Sydneysiders to make their next move.
The other big political news of late is of course the Brexit vote in Britain. What will this mean for property?
Well, it’s probably all positive for us because global investors always want to invest in ‘safe havens’ and Australia offers the political and economic stability they want. We also have a property market with an outstanding history of reliable growth.
I think Brexit will cause some political and economic uncertainty for the UK for quite some time, which will cause continued volatility in global markets. You’d have to expect that in these circumstances, more global investors might turn to the relative safety of bricks and mortar as their favoured asset class.
Tuesday, July 12, 2016
By John McGrath
It’s the Holy Grail for aspiring investors – picking the right suburb and buying cheap just before it booms. But how do you do that?
Research is key.
Start with the macro factors, including a suburb’s population growth, its major existing attributes (like a train station or sought-after school), and any plans for change in the short term (like an expanded shopping centre), then drill down to the market trends that will tell you what’s happening right now.
As an investor, you should be open to suburbs you don’t live in or don’t know much about because your primary aim is to make money. It’s all about identifying the suburb with the best capital growth prospects.
Some investors look nationwide or statewide for opportunities, but I recommend sticking to the city you live in. It makes the search much easier and you’ll always be close to your investment. The ability to drive past whenever you like provides great peace of mind.
You will also benefit from your existing knowledge of the city as a whole. For example, in Sydney, everyone knows that close proximity to CBD transport and good local shops and cafes are highly desirable for buyers and renters alike. These are the macro ‘no-brainer’ features you want with your next investment property.
So that’s your starting point for identifying suburbs on the move. They need to have great existing amenities that are ideally being expanded or improved, or new amenities on the way. Prime examples include a new train station or light rail station, a new or expanded shopping centre and new or expanded schools.
Once you have a few suburbs in mind based on these big elements, it’s time to drill down to market indicators.
The signs of a suburb on the move
Population growth – use Census data to identify suburbs with population growth above the state average over the last Census period (five years)
History of good capital growth – Look at the 10-20 year picture to get a better idea of whether the suburb will deliver reliable capital growth. Remember, suburbs overdue for growth might have a poor history over the past few years, so don’t be distracted by that. Look at statistics over the longer term
New infrastructure – projects such as new recreational facilities, expanding retail centres and new or better CBD transport will attract more tenants and later, more buyers. Rising demand means rising property values. Look for big retailers setting up shop too – think Bunnings, Woolworths, Coles and so on. These companies do significant research before spending a fortune setting up a new store, so take it as a very positive sign!
Employment – suburbs on the move will have good or improving local employment opportunities as well as good or improving access via roads and public transport to major employment centres like the CBD
Gentrification – a suburb on the move will attract the hipster renovators first. They buy for value and renovate, changing the look and feel of a suburb over a 5-10 year period. Also look into council beautification programs. Upgraded suburb villages, sidewalks, parks and so forth are a great sign
Positive resident profile – suburbs on the move tend to have a changing resident profile with more money flowing in. Ideally, the suburb will have rising incomes above the state average, a rising number of residents with high paying jobs and a rising number of tertiary qualified residents. This indicates more money coming into the area, which will flow into property prices and rents over time
The supply/demand dynamic – suburbs on the move have greater demand than supply. Here are the signs:
- Rising tenant demand – tenants are the first responders to positive change in a suburb because they can move around more easily than owner-occupiers. A suburb with a new Westfield, for example, will attract more tenants from neighbouring suburbs before it attracts more buyers. This tends to lead to rising rents and later, rising property prices
- Short stock – fewer properties for sale and rent indicates a tightly-held marketplace
- Low or falling vacancy rates – arguably one of the most important considerations when investing in property. While capital growth should be your No. 1 aim, you have to be able to hold the property long term and that means buying in a market with reliable long term tenant demand
- Low or falling days on market for sale – this is a classic sign of greater demand versus supply, which leads to capital growth
- More auctions and rising clearance rates – indicates strong market demand and confidence among vendors
- Reduced vendor discounting – indicates that sellers don’t need to drop their prices to get a sale
- Limited future supply – Ask council if there is any imminent increase in supply (such as newly approved apartment developments), and how much scope there is for new supply in the future (some suburbs have limited height restrictions, limited land and/or heritage orders that restrict building)
Finally, once you’ve gathered all this information on a few suburbs, you need to hit the streets. Stroll around the main village, look in the shops, and check out a few residential streets. Does the area have a good vibe? Do you feel safe?
Trust the numbers you’ve gathered and trust your instincts on the street. If it looks and feels right, you’ve found your next suburb for investment.
Tuesday, July 05, 2016
By John McGrath
One of the best things about Australian property buyers and renters is their ability to adapt to changing market conditions.
As we all know, one of the greatest challenges today is the ability to afford a place to live, and more specifically, a place to live in the area you actually want to reside in.
Over the past five years alone, we’ve seen some significant new trends in the marketplace that have come about purely due to Australians’ ingenuity in dealing with this challenge.
Among those trends are:
- First home buyers purchasing for investment in affordable areas to get a foot in the market and renting in their preferred area for lifestyle
- Parents going guarantor on a loan, or providing the deposit for their child’s first home
- Siblings or friends pooling funds to get out of the rental cycle and purchase a property they can live in together
- Young families leaving expensive cities like Sydney in favour of a better lifestyle and greater affordability of housing in major regional markets and;
- Families choosing apartment living over houses so they can afford to buy where they want to live
Another rising new trend to combat affordability is extended families living together – or multi-generational living. By extended families, I’m talking typically about mum, dad and their kids, plus grandparents.
The rise of multi-gen households
Research undertaken by UNSW’s City Futures Research Centre shows multi-gen living in Australia has been steadily increasing since the 1980s.
In 2006, around 1 in 5 Australians (and 1 in 4 in Sydney) lived in a household with two or more generations of related adults aged over 18.
You might not be surprised to find this is a trend in Sydney, where property prices are more expensive than anywhere else in the country. But the city that has experienced the greatest growth in multi-gen living is actually the far more affordable Brisbane, where the number of multi-gen homes increased by 51.7% between 1981-2006 compared to 36.1% in Sydney.
This demonstrates that there are other reasons for the rise in multi-gen living. Aside from financial pressure, the next most common reasons are the need or desire to provide care to a family member, usually a grandparent – a trend we should expect to see rising due to our ageing population, and children staying at home longer because they are delaying marriage and want to avoid paying rent so they can save more for their first home.
Multi-gen living is also a trend in the US, where 57 million Americans, or 18% of the population, lives in households with two or more generations. In 1980, it was 28 million. The trend spiked during the GFC and has continued rising, according to the Pew Research Centre.
The benefits of multi-gen living
Besides housing affordability, there’s a few other benefits to multi-gen living that people talk about too;
- Free childcare from the grandparents, with both mum and dad typically working to pay the mortgage
- Greater sharing of household chores, reducing the amount of housework done by each family member
- Security for the grandparents that someone will be there to look after them as they age and battle health issues
There’s another reason we’re seeing more multi-gen households in Australia – rising immigration, particularly from Asia.
In Asia, multi-gen living is normal. So when they come to Australia, it’s a culture they bring with them. As more Asian families move here, more multi-gen households will form.
The type of housing that multi-gen families target certainly varies depending on their budget, but also their relationships. For some families, separation and the ability to live independently of each other, while still being in the same property, is a priority.
In these cases, duplexes with separate self-contained levels or large homes that allow for some sort of division of space are sought-after. Properties on large blocks of land that allow for the construction of a granny flat out the back are also attractive to multi-gen buyers.
Multi-gens also do their fair share of knock-down/re-builds and major extensions of existing homes to accommodate their new living arrangements.
Most multi-gen households can be found in our cities’ middle and outer rings, most likely reflective of financial pressures among lower to middle income families and greater availability of larger homes with four or five bedrooms in these areas.
If you’re thinking of multi-gen living with some of your family members, my advice is be honest with yourself about how you want to live before proposing the idea to your relatives.
Consider where you want to live, how much space or separation you would need for yourself and how costs such as the mortgage, electricity, water and groceries would be split.
Tuesday, June 28, 2016
With just a few days to go before the end of the financial year, now is the time for investors to attend to those small repairs and maintenance issues you’ve been putting off. You may want to consider getting them done now so you can claim the cost in this tax year. However to do this you must move quickly as June 30 is only a couple of days away.
Tax deductions are a crucial part of cash flow management with property investment. They’re not a reason to buy – so don’t go purchasing a new property solely because of the depreciation or anything like that, but certainly take your deductions seriously because they can have a big impact on your bottom line and deducting everything you’re allowed to deduct is part of the drill.
I also think the end of the financial year is a great time for investors to take stock of their investment’s performance.
How much income did you receive and how much did you spend on outgoings, including the mortgage? Remember, you can claim a deduction for interest payments only, not principal payments (which is why most investors use interest-only loans).
Next question. Is there new equity in the property that could be used for renovations or a deposit on your next investment? In markets like Sydney where there has been significant annual growth for four years, it’s definitely worth asking your local agent what they think your property is now worth.
Remember, the new equity in a property might not be immediately accessible like your wages and rental income, but it’s still money you’ve earned over the year. The best part is you don’t have to pay income tax on the equity and your bank will give you a big chunk of it (usually 80-90%) in new borrowings if that suits your purpose.
Given it’s that time of year, let’s go over a few common questions about property investment expenses.
What’s the difference between repairs, maintenance and improvements?
1. A repair is usually partial and restores something to its original state, eg. repairing part of a fence by replacing two palings.
2. Maintenance is work that prevents deterioration or fixes current deterioration eg. painting your property or oiling the garage door.
3. An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form. They generally improve the property’s income production or expected life. For example, if you replace a crumbling timber carport with a brick lock-up garage, you are going beyond simply repairing the carport, you are replacing it with an improved feature.
What can I claim as an immediate deduction and what has to be depreciated?
Generally speaking, you can claim an immediate deduction for repairs and maintenance as long as your property is being rented out. With improvements, you can either claim a capital works deduction or depreciation, depending on the type of improvement.
What if I’ve lost my receipts?
If you paid with a credit card or EFTPOS, the ATO will accept bank statements as proof of purchase.
Can I do my own tax return?
Sure but I don’t recommend it. One of two things will probably happen – at best, you’ll make mistakes or forget some deductions that will result in you losing money; at worst you’ll get fined by the ATO for your errors.
Get yourself a great accountant, declare all your income and enjoy the peace of mind that your tax professional will identify every deduction you qualify for. And next year, you can claim a deduction for the accounting costs too.
EOFY Check List
Examples of common immediate deductions:
- Advertising for tenants
- Accountancy costs
- Body corporate fees and charges
- Council rates
- Water charges
- Land tax
- Gardening and lawn mowing
- Pest control
- Insurance (building, contents, public liability)
- Interest expenses
- Property agent's management fees
- Repairs and maintenance
- Travel undertaken to inspect the property, to collect the rent or for maintenance.
Examples of common depreciation expenses:
Examples of common capital works deductions:
- A building or extension, such as a new room, garage, patio or pergola
- Alterations – such as removing or adding an internal wall
- Structural improvements – such as adding a gazebo, carport, sealed driveway or fence.
Everything you could possibly need to know about deductions and depreciation can be found in the Residential Rental Properties section of the ATO website.
Tuesday, June 21, 2016
by John McGrath
It’s a great signal for the market that several lenders have recently changed their policies to make it a bit easier for investors to get back in the game.
Last year, the APRA-imposed 10% annual limit on investor lending growth put the brakes on investor lending.
Banks changed their criteria so that only the best investors with plenty of equity and serviceability were granted loans, which reduced their investment credit growth and created a better balance between their borrowings to investors and owner-occupiers.
CoreLogic reports that the latest housing credit growth figures shows investor housing credit has increased by 7.1% over the past year, which is the lowest it’s grown since November 2013. This has given some scope back to the banks to lend to more investors once again.
One recent change among the banks was Westpac’s call to reduce the size of the deposit they required from investors on new loans. While this merely brought them into line with many of their competitors’ policies, it’s a significant change because Westpac is Australia’s biggest lender to investors.
I think it’s a great signal that banks want to lend to more investors again now that they’ve got growth under the 10% cap. And demand from investors is clearly still there.
CoreLogic tells us that activity across their valuation platforms, which account for more than 95% of all bank valuation instructions, were up 6.7% over May, indicating an increase in mortgage-related activity.
The latest housing finance data for Sydney shows investor mortgages comprised 47.6% of new loans in March compared to the trough of 42.9% last November. This is the highest composition of investors in the marketplace since August 2015.
I had a chat about all these changes with Alan Hemmings, who is General Manager of McGrath’s mortgage broking division, Oxygen Home Loans. Alan says lenders are making changes right now for the following reasons:
- To gain market share by aligning their policies with their competitors
- To gain market share by bettering their competitors’ offers, or by creating attractive new policies such as Westpac’s changes to parental leave criteria
- To reduce market risk specifically on high density housing in major cities which are facing an oversupply of apartments; and lending to foreign investors
Alan has provided a list of the most significant changes over the past month:
- Many lenders began offering further interest rate reductions on a range of products, including Westpac Group, CBA and NAB
- Macquarie Bank reduced LVRs to 70% in certain high density postcodes such as Sydney CBD
- AMP announced reductions in LVRs based on foreign income types, down to 70% for Euro, British Pounds, Japanese Yen; and 50% for Chinese Yuan
- AMP also announced it would not lend to non-residents unless one of the applicants is a citizen or resident of Australia
- Bankwest reduced the benchmark rates used across a range of products to assess serviceability for a new loan, thereby improving clients’ borrowing power
- NAB changed their foreign resident policy by reducing LVRs and implementing a new verification process (contacting employer directly)
- Westpac Group (St George, Bank of Melbourne, BankSA, Westpac) made changes to parental leave policy. They will now use the income to be earned upon the applicant returning to work but the deal must service the loan during any unpaid leave period
A word from Alan …
“Speaking to a broker, who is across all the policy and product changes, is more important than ever. Lenders are making changes to credit policy and product pricing virtually on a weekly basis right now, which makes it very hard for the ordinary consumer to understand which lender is best for their circumstances.
“The last thing you want is declined applications on your credit history. It’s crucial that you approach the right lender from the start and a good broker will make sure that happens.”
Thanks Alan, great advice.
Today, the standard variable mortgage rate is at its lowest level since 1968.
Go back and read that again.
Today’s interest rates present a phenomenal opportunity for buyers, investors and home owners alike to get a better deal on their finance and/or to acquire their next property.
Real estate should always be a long-term play, so you need to consider how rates will change over the 20-30 years you’ll be paying off the mortgage. There will come a time when rates go back to the average of 7-7.5% or higher, so you need to take advantage of every opportunity to buy when rates are low.
I also think it’s worth considering fixing rates on your loans if you want that security and stability in your monthly expenses over the next 2-5 years.
Tuesday, June 14, 2016
By John McGrath
A recent report on Australia’s major regional markets has highlighted the Gold Coast as one of the country’s top performing areas, with a significant increase in prices and sales volumes over the past year.
The report, released by CoreLogic in May, shows the Gold Coast’s median house price increased 7.2% to $563,500 and 4.8% to $370,000 for apartments over the year to March 2016.
The number of sales is also up 7% and current sales activity is 24% above the five-year average for the city. The average number of days it takes a property to sell has also fallen by four days for both houses (70 days) and apartments (87 days).
There’s also good news in the rental market, with weekly rents up 4.2% to $500 per week for houses (an average yield of 5.1%) and 5.4% to $390 per week for apartments (average yield now 5.9%).
I’ve been talking about the Golden Triangle in South East Queensland for some time now as the pick of the Australian markets, and for different reasons, I see Brisbane, the Gold Coast, Sunshine Coast and Toowoomba being primed for good growth. The 2018 Commonwealth Games will provide an even greater boost to the Gold Coast in particular.
Demand on the Gold Coast is higher due to a lack of stock; more Chinese investors, more interstate investors (particularly from Sydney and Melbourne), and the generation of more new jobs mainly for Commonwealth Games infrastructure and many new residential apartment projects.
The picture right now is rosy, but the future picture is even better.
This is a city that suffered tremendously during the GFC. But in property, what goes down must eventually go back up if the fundamentals are good. And on the Gold Coast, the fundamentals making this an appealing market are improving every year.
Last year, the country’s most authoritative social demographer, Bernard Salt, produced a report called ‘Beyond the Horizon’. The reports seeks to forecast what the Gold Coast will look like by 2050.
Right now, it’s the sixth largest city in Australia with more than 600,000 residents. The population is expected to double in a city that is only 70km from north to south. What will that do to property prices?
This is a city ‘under renovation’ in many ways, the most important being the expansion of its economic base, so it will not be so heavily reliant on retail, tourism and construction industries, which have made the city vulnerable during economic downturns.
But a change is coming with the strategic development of a broader economic base focused on knowledge industries such as health and education.
Knowledge industries are important because it is envisaged that knowledge workers will have more scope to choose where they want to work and live, and the Gold Coast’s lifestyle and relative affordability will be a major drawcard for highly-paid, highly-skilled expert workers.
The city’s 200-hectare Health and Knowledge Precinct is rapidly growing. It incorporates the new Gold Coast University Hospital, research and allied health facilities; and a master planned mixed use community. It is also home to Griffith University, ranked among the world’s top 5% of universities with $500 million invested in recent years to improve its facilities.
Tourism will remain a huge sector for the Gold Coast. In 2013, the city was accommodating 62,000 visitors per night. By 2050, Mr Salt projects the city will host 99,000 on average per night.
Construction should also remain strong for two reasons – the ongoing desire by Chinese and local developers to build along the coast; and the need for more houses in the greenfield suburban corridor between Mudgeeraba and Pimpama.
The Gold Coast of the future will be an international city, with millions already being invested into the Gold Coast Airport to accommodate greater demand and more international routes.
China is the Gold Coast’s No. 1 source market for foreign investment and international tourists. The city is welcoming Chinese interest, with major Chinese developers such as the Wanda and Ridong groups building on the coast and the local council investing $6.8m to build a Chinatown in Southport.
According to Mr Salt, the number of Asian-born residents on the Gold Coast is projected to quadruple by 2050.
All in all, there are exciting times ahead. The Gold Coast, despite recent price growth, is still a ‘Buy’ market in my view. There is plenty of opportunity, especially for cashed-up buyers from Sydney and Melbourne, to buy well on the Gold Coast for investment or a wonderful lifestyle change.
Tuesday, June 07, 2016
by John McGrath
There’s an emerging trend in major cities like Sydney and Melbourne where neighbours are banding together to sell their conjoining homes in single ‘megalot’ land deals to developers.
This has been happening over the past few years in response to government infrastructure programs that include re-zoning land close to major new projects such as train stations and hospitals.
This re-zoning, which is allowing the construction of medium and high density apartment blocks on land previously restricted to single homes, is definitely the way of the future in major cities where population growth is high.
The great news is that separate to the actual need for more medium-to-high density living to simply fit everyone in; a lot of people actually want to live in apartments over houses these days anyway. So it’s a great marriage between the practical needs of growing cities and the lifestyle preferences of their residents.
Castle Hill case study
The latest case study of this trend is 25 neighbours in Castle Hill in Sydney’s Hills District, who have listed their homes as a single 24,000 sqm lot worth around $100 million. The site is located at 3-7 Ashford Avenue, 17-39 Middleton Avenue and 12-28 Partridge Avenue, Castle Hill.
The area is proposed to be re-zoned as part of the development of North West Rail Link, with the Showground Station being built nearby.
If the site sells for $100 million and the proceeds are split evenly, the vendors will pocket $4 million each, which is about three times the median house price in Castle Hill.
In the Northern Beaches suburb of Frenchs Forest, 62 home owners are offering their combined lots for about $200 million. The block totals 4.3 hectares and is bordered by Epping Drive, Rabbett Street, Frenchs Forest Road West and Bluegum Crescent.
Their site is also close to new infrastructure – about 200 metres from the new Northern Beaches Hospital, which is under construction and expected to be completed in 2018.
The home owners are expecting more than $3 million per lot, which would be more than double the suburb’s current median house price of $1.4 million (CoreLogic).
This ‘mega lot’ trend is a fantastic example of people power and creatively leveraging market conditions (including re-zonings) to your benefit.
Some home owners are motivated by the financial windfall that comes with selling to a developer. Others see it as making the best of a bad situation, feeling like they need to leave the suburb to avoid being surrounded by high-rise developments in the future.
Residents are either approaching each other to form syndicates on their own initiative following a re-zoning, or they are responding to letterbox flyers from developers either pre- or post re-zoning.
Some are approaching agents for an introduction to developers, while others are asking agents to approach their neighbours on their behalf.
Sydney ‘megalot’ sales
- In Epping, eight neighbours sold their homes to a developer for about $30 million, netting them $3.75 million each for properties that were individually worth about $1.2 million
- In St Leonards, nine home owners sold to a Hong Kong developer for about $66 million, netting an average of $7.3 million per vendor
- In Castle Hill, 15 home owners sold their combined 14,000 sqm lot for an undisclosed price
The ‘megalot’ trend is also happening in Melbourne. Sales include:
- In Glen Waverley – two owners sold to a developer for $2.54 million. Individually, the homes would have sold for about $1 million. The two properties created a 1,470 sqm site that drew offers from five parties
- In Bentleigh – three vendors sold to a Chinese developer for $5.76 million. In separate sales, the owners could have achieved $1.3m-$1.5m, but banding together enabled them to pocket $1.92 million each – assuming an even split, for the combined 1,985 sqm lot
- In Glen Iris – two owners sold to a developer for $3.4 million, a reported record land rate for the area of $4,096 per sqm. The owners of the combined 830 sqm site achieved about a 30% premium on the individual value of their homes
If you’re interested in doing something like this with your own neighbours, certainly get excited but also I’d advise you to exercise caution.
You’ll need an iron-clad agreement with your fellow sellers stipulating the terms of the sale (especially settlement periods and whether the sale relies on official re-zoning before exchange), the division of sale proceeds and a commitment from everyone to proceed.
Get a lawyer involved to make sure everyone’s rights are protected. Things can get messy when there are some lots larger than others, for example. You need total agreement between yourselves before you can begin dealing with developers.
You’ll also need an agent experienced in major multi-million dollar transactions with developers to market the property and act as your advocate and spokesperson.
Monday, May 30, 2016
By John McGrath
The Sydney market has certainly slowed down a bit this year in terms of price growth, but the city’s Saturday auction clearance rates have been consistently high – above 70% for most of the year.
The highest clearance rates so far were recorded over back-to-back weekends in May at 80.3% from 505 properties and 77.6% from 573 properties, according to Domain Group.
Clearance rates are an important indicator of what’s going on in the market.
Unlike many other statistics that have a lag time before publication, clearance rates tell us what’s happening week to week, so they’re a great yardstick for supply and demand.
One of the factors keeping Sydney’s clearance rates strong right now is a lack of supply. This time last year around 750 homes were going to auction every weekend, so that’s about a 30% drop.
In the meantime, buyer demand remains strong. There’s plenty of people out there who have been searching for their next home or investment for many months, or even for a year or more.
More new buyers are entering the market every week too, particularly following the surprise 0.25% interest rate cut in May and speculation of a further rate cut to come.
It’s become harder for buyers on tight budgets because property prices have grown so strongly over the past three years – and they’re continuing to grow now.
CoreLogic RP Data reports an increase of 4.5% in Sydney’s median house price from January to April; and a 4.2% increase in the apartment median.
To those buyers frustrated by high competition, I say don’t lose hope. Conditions are settling and the frenzy has gone out of the market, it’s just that very low stock is resulting in exceptional prices.
This low supply environment will continue throughout winter and the pre-election period so there’s every reason to expect a lot more stock to come onto the market this spring, so you will have more choice then.
The other important trend in recent clearance rates is the domination of the city’s premium areas.
These areas tend to perform well in pretty much any type of market, whereas outer ring markets can experience greater highs and lows in sales activity and short-term price growth.
The top performing areas have included Sydney’s Lower North Shore, Inner West, Northern Beaches and the City and Eastern Suburbs where clearance rates have recently been in the 80% to early 90% range.
This compares with the South, South-West and Western Suburbs where clearance rates have recently been in the 60% range, according to data from Domain Group.
Monday, May 23, 2016
by John McGrath
Next week marks the beginning of winter, a season where most real estate markets run a bit slower because fewer homes are listed for sale. And herein lies one of the greatest myths in real estate – that winter is a bad time to sell. Actually, the opposite is usually true.
Buyers have no reason to stop shopping during the colder months. For example, growing families and upgraders who need more space do not suddenly stop needing more space. Their motivation to buy doesn’t go away just because it’s a bit colder or raining on Saturday mornings. You also need to remember that most people with approved finance are only given six months to buy before they have to re-apply. So they don’t have time to take three months off over winter.
Thus, demand doesn’t change much. What does change is supply, which means more competition for the homes that do go to market over June, July and August. I think winter 2016 presents a particularly good opportunity for sellers in Sydney.
After three years of boom conditions, prices are still rising this year, just not as much as they were before. CoreLogic RP Data figures show Sydney property values up 4.5% between January 1 and April 30 this year compared to 6.9% over the corresponding period in 2015.
Despite this slowdown, one of the factors currently keeping prices strong in Sydney is a lack of stock, which is creating a favourable supply/demand dynamic for sellers. Add the ‘winter effect’ and it’s reasonable to assume competition could be stronger over the next few months.
This presents the best opportunity Sydney home owners have had to fully cash in on the capital growth they’ve achieved during the boom.
It’s important to remember that true market booms happen only every now and then. If you hold a property for 20-30 years, you’ll probably only go through two or three real booms over that timeframe.
If you’ve been waiting for this most recent cycle to end so you can sell your home for the maximum price possible, I’d strongly encourage you to consider selling this winter. If you don’t, you’re probably going to kick yourself in Spring when a flood of new listings come on to the market.
In 2014 and again in 2015, we saw a significant change in the strength of prices achieved during the final few months of the year, directly due to a higher volume of stock. Across the board, prices didn’t fall per se, but the number of people competing for the same homes declined and this meant fewer properties were commanding those big above reserve results.
Another great benefit of selling in winter is you get to buy in Spring. Ideally, you always want to sell when there are fewer homes on the market and buy when there are lots of homes on the market. A winter sale and Spring purchase fits this ideal scenario.
Some properties present better in winter, some in Spring/Summer. Talk to your preferred agent and weigh the pros and cons of putting your home on the market this winter. As experts in their local area, agents know how each change of season affects their marketplace. The more experienced agents, particularly those who have worked through previous booms, can also advise you how your local market tends to change in the immediate couple of years after a boom.
All of this will help you decide if a winter sale this year is the best option for you.