A Healthy Driver of Growth

It is estimated that around $5 billion will be invested in health care building projects in Perth over the next five years, but how will these significant projects affect the local property market?

Hospitals are rarely far from the news and it’s no wonder given the critical role they play in modern society. In Perth, much of the recent talk has surrounded the various major hospital projects that are planned or already underway.

A key question for property investors is how will these significant projects affect the local property markets? There will undoubtedly be both positive and negative consequences.

A quick summary

Let’s start by summarising the major hospital projects in Perth:

Fiona Stanley Hospital

The flagship project of the city is the $2 billion Fiona Stanley Hospital in Murdoch, which will be the state’s most sophisticated health facility. The hospital is one of the biggest infrastructure projects in WA history and is scheduled to open in October 2014.

New Children’s Hospital

A project that has seen its fair share of media scrutiny is the new children’s hospital, which will replace Princess Margaret Hospital for Children. Construction for this project began in January 2012 on the Queen Elizabeth II Medical Centre site in Nedlands and is due for completion in 2015.

Expansion of Joondalup Health Campus

The Joondalup Health Campus, the largest health care facility in Perth’s northern suburbs, has recently undergone an expansion and redevelopment worth around $393 million, delivering extensive new facilities and expanded services for public and private patients.

Midland Hospital

The new Midland Public Hospital, scheduled to open in 2015, will be the first new hospital in the area in more than 50 years and construction is already underway. The new facility will replace the existing Swan District Hospital, providing new and expanded services and a 50 per greater capacity.

Jobs, jobs, and more jobs

Hospital projects often involve enormous amounts of construction and therefore generate large numbers of construction related jobs, which can last many years.

But even after construction has finished, hospitals still require many permanent and part-time jobs making them a major local employer. It’s not just the obvious medical jobs required, such as doctors and nurses, but also positions in areas such as administration, cleaning, IT, security, accounts, legal, marketing, and HR. Jobs attract people and naturally increase the demand for housing.

Economic activity

The economic impact of a new hospital extends beyond the hospital itself. With its large workforce and ability to attract people from a wide area, a hospital can have a tremendous impact on the community in which it is located. It can spawn a variety of other businesses servicing the local population, from non-hospital medical services to cafes.

This increased economic activity not only injects life into an area and makes it more appealing, but it also creates even more jobs. A new hospital can also trigger new transport infrastructure, a further boost for the area.

The local property market

How does a new hospital impact on the local property market? Firstly, it could increase the demand for housing in the area, both from people who work at the hospital during or post construction, and from people who value living close to medical facilities.

New research has found that health infrastructure is a key driver of where Australians will choose to live, surpassing employment as the most essential consideration.

In a survey of more than 1,000 people by MWH Global, respondents were asked ‘Which of the following would improve the quality of your life if they were in closer proximity to you?’ The option ‘Better access to hospital/specialist medical care/24-hour medical care’ was chosen by 53 per cent of respondents.

The extra demand for housing triggered by a new hospital could put upward pressure on rents and property prices in the surrounding areas. And these areas should continue to experience the benefit of increased demand well into the future, fundamentally shifting the nature of the local market.

Any risks?

With the amount of people coming in and out of a hospital, there is a risk that increased road traffic could affect some properties in the immediate area. Previously quiet areas could suddenly experience more noise and congestion, devaluing properties.

Hospitals by their very nature can attract a certain degree of anti-social behaviour, which can spill out into local areas. This is especially true for hospitals in inner-city locations that report high incidents of drunkenness and violent conduct.

Could a new hospital encourage new housing developments that flood the market? While developers may be encouraged to build apartment complexes and other housing to cater to hospital staff, limited land supply often curtails the amount of development that is possible.

Is there a risk that a hospital closes down? Given the significant investment that goes into a new hospital and the vital services it provides, it’s unlikely that one would suddenly close down. But over many years, it’s possible that a hospital could scale back or move to another location. If this happened, there could be negative consequences for the local area.

Conclusion

A new hospital can certainly change the economic landscape of an area and therefore have a significant impact on the local property market. Buying close to the site of a future hospital can prove to be a wise investment, especially in the parts that will have good transport links, but the risks need to be carefully evaluated.

Perth Houses Leading the Way

Perth’s median house price rose 3.2% over the three months to April, according to Australian Property Monitors (APM).

This was the strongest amongst the capital cities, and took the annual growth in the median house price to 6.7%.

The unit market hasn’t performed so well. The median unit price rose a marginal 0.4% over the quarter, with the annual figure showing a drop of 0.6%.

Most experts predict growth in the Perth market will slow over the remainder of the year, as the market responds to changes in the mining industry.

Large WA mining projects are transitioning from a construction phase to a production phase.

“What’s happening in WA is not an end to the mining boom, it’s an end to the infrastructure boom,’’ said RP Data analyst Tim Lawless.

“If you find some indicators are weakening, they’re actually weakening from an exceptionally high level,” Mr Lawless said.

Local market commentators are expecting a slowdown in growth in the Perth market overall. However well selected properties should still generate strong capital growth.

Property Acquisitions: Why it Pays to Understand the Valuation Process – Part 2

This month we will explain the role that sales evidence plays in the valuation process, some of the challenges faced by valuers and how investors can get the most out of their valuations.

There is a saying you often hear in real estate circles that a property is only worth what someone is willing to pay for it. But if the property hasn’t sold and isn’t even on the market, how does a valuer determine its value? Just like a crime scene investigator, a valuer must examine the evidence. Specifically, a valuer will look at recent sales of comparable properties in comparable locations.

By using the information uncovered during the inspection and comparing the target property to similar properties that have sold, the valuer can determine a valuation. Of course, the more similarities there are between the target property and those used for comparison, the more accurate the valuation will ultimately be.

At least 3 properties will typically be used as sales evidence and these properties must have sold recently, say within the last 6 months. However, depending on the state of the market and how rapidly it is changing, valuers may choose to only rely on sales that have occurred within the last 3 months.

With the analysis of sales evidence complete, the valuer will compile a report outlining the properties that were used for comparison and how these properties differ from the target property. The report, specifying the valuation figure, will be supplied to the person that requested the valuation. If the valuation was commissioned by a lender for a loan application, the borrower may not be given a copy of the report. The borrower can however ask the lender for the valuation figure.

One of the major challenges facing valuers is performing their role under immense time and cost pressures. Valuation fees are typically quite low and this means that valuers can’t always invest the amount of time they would like into each valuation. Some people describe the valuation process as a production line.

There are also legal pressures facing valuers. If a borrower defaults on a loan and the sale of the repossessed property fetches less than it was valued for, the valuer could potentially be sued by the lender. Although this is a rare occurrence, many people believe the threat of legal action causes valuers to be overly conservative. Examples have shown that different valuers can provide very different valuations for the same property.

Why is it valuable for investors to understand the valuation process? There are a few reasons. Firstly, understanding the factors that determine a property’s value can help you to spot a bargain and avoid overpaying for a property.

Secondly, having knowledge of the process can help ensure you get favourable valuations on your new purchases or existing properties. Providing the valuer with information relating to relevant sales evidence can help you make a strong case for a higher valuation. Pointing out positive characteristics about the property, which might not be obvious to the valuer, can also work in your favour.

It’s important to remember however that valuers are experts in their field, so you don’t want to patronise them. But if you have information that may save them time, most valuers would be willing to look at it.

Finance: The Weird World of Lender’s Mortgage Insurance

Lender’s Mortgage Insurance (LMI) is a type of insurance that has been used by millions of Australians who have entered the property market, but it’s a product that isn’t widely understood. So, what is it, when is it used and who is it actually for?

LMI is a type of insurance that is generally required when you are buying a home or investment property and you don’t have a large enough deposit. Generally, it kicks in when you are trying to borrow over 80 per cent of the property value.

LMI is arranged by the lender during the loan approval process and involves a one-off cost, which can often be added to the loan. The premium, which can be many thousands of dollars, is calculated based on a sliding scale that relates to the value of the property, the percentage of the purchase price being borrowed and the loan amount. However, there are other factors that can impact on the figure, such as the type and location of a property.

The biggest misconception about LMI relates to who it actually protects. Although it is paid for by the borrower, its purpose is to protect the lender in the case of a default on the loan. It covers any shortfall that may arise if the lender repossess the property and isn’t able to recover enough money to repay the loan and relevant costs. The clue is in the name. LMI doesn’t benefit the borrower as the borrower would still be liable for a default.

LMI should not be confused with Mortgage Protection Insurance, which covers your mortgage repayments in the event of death, sickness, unemployment or disability.

Some people believe that LMI is overly expensive, especially when you consider that default rates in Australia, even among first-home buyers, are very small. Another common gripe is the fact that refinancing a loan can trigger LMI, even if it was paid when the original loan was approved.

How do you avoid paying LMI? One way is to save enough of a deposit, generally at least 20 percent of the property value. Another way is to have a guarantor, perhaps a family member, provide security to cover an agreed portion of the loan.

As different lenders have different criteria and premiums in relation to LMI, it makes sense to consult with a finance broker who can discuss the pro’s and cons of LMI. Borrowers still may choose to pay LMI if it means getting their home or investment sooner, particularly where costs of a rising market may outweigh the time it will take to save a larger deposit.

Property Management: How Changes to the Residential Tenancies Act Will Affect Investors – Part 2

Now that July 1 has passed, a new set of laws have come into place that govern renting in Western Australia. We discussed some important changes last month and we now continue with this theme, focusing on pets, bonds, security and repairs.

Expanded use of pet bond

Prior to July 1, you could only charge your tenant a pet bond (to cover fumigation expenses) if the tenant kept a dog or a cat at the premises. Now, under the new laws, it’s not just limited to cats and dogs. A pet bond can be charged when your tenant (with permission) keeps any pet capable of carrying parasites that can affect humans. This, however, does not apply to guide dogs that are kept on the premises.

Increasing the security bond

One of the reasons why you might want to increase the amount of the security bond is to keep it in line with increases in rent. Previously, this could only be done 12 months after the start of the tenancy or 12 months after the last bond increase.

With the new laws, you will be able to increase the security bond every six months as long as there has been a lawful increase to the rent in that time. A minimum of 60 days written notice must be given to the tenant and, as before, the security bond cannot be more than the equivalent of four weeks rent plus a pet bond (unless the rent for the property is $1200 per week or more).

Minimum requirements for locks and security

Under the old laws, you were only required to provide normal locks to external doors and ensure all opening windows can be secured by catches on the inside.

The new laws contain far more detailed requirements by specifying the minimum standards that need to be in place to ensure premises are reasonably secure. The minimum security standards relate to door locks, window locks and exterior lights.

Under the new requirements, the main entry door must have either a deadlock or a key lockable screen door. Similarly, all other external doors must have either a deadlock or, if a deadlock cannot be fitted, a patio bolt lock or a key lockable security screen. This excludes balcony doors where there is no access to the balcony except from inside the premises.

The new laws state that your property must have an exterior light that can illuminate the main entry and be operable from inside the premises. However, this does not apply if a strata company is responsible for the lighting to the main entry.

Luckily, you will have two years from 1 July 2013 to make sure your property complies with these new security requirements.

Don’t have to repair everything

Under the new laws, if you tell a tenant that a fixture or chattel is not working before they enter into a tenancy agreement, or if it’s obvious that it was not working at the time they entered into the agreement, you will not have to maintain or repair these fixtures and chattels. However a property must be habitable and safe so you will not be able to contract out of those items being in working order.

Property Tax Tips: Choosing the Right Investment Structure

It’s one of the most important decisions when buying an investment property. What structure should you use to hold the investment? Given that the there are numerous investment structures available including Individuals or Jointly, Partnerships, Companies, Fixed or Unit Trusts, Discretionary (Family) Trusts, Hybrid Trusts, and Superannuation Funds, how do you decide? Here are some important considerations:

Accessing negative gearing benefits

If you purchase property in a trust or company and the property is negatively geared, the losses will be trapped at the trust or company level (unless you have other income, such as business income you can “inject”) and cannot be offset against income derived by a beneficiary or shareholder. However, an individual (including a partner) can offset negative gearing losses against other income.

Whether the 50% CGT discount can be accessed

Companies are unable to access the 50% Capital Gains Tax (CGT) discount and superannuation funds are only eligible for a 1/3 discount. Individuals receive the full 50% discount and trusts can pass out the CGT discount to individuals.

Ease of accessing equity

As property prices rise, you may seek to draw down on the capital (by refinancing, for example) to use for other purposes. However, capital can generally only be accessed tax-free from discretionary trusts and by individuals (including in partnership). Capital cannot generally be accessed tax-free from a company, as any payment is generally treated as a dividend. In relation to unit trusts, any drawings by the beneficiary will reduce the cost base of the units, potentially triggering a CGT event.

Asset Protection

In an increasingly litigious society, protection of assets from lawsuits and creditors is an increasingly important consideration for people who may be at risk. Professionals, such as doctors or dentists, due to their exposure to professional negligence, may have asset protection as their main aim. Different structures offer different degrees of asset protection.

Ultimately the decision will be between you and your Accountant as to which structure is most suitable for you. However it’s important that you choose professionals such as finance brokers who understand the different structures so they can work with you to ensure you are structuring your loans in the most appropriate manner for you.

How an Off-The-Plan Apartment Can Instantly Lose Value Even in a Healthy Market

The value of an off-the-plan apartment can drop instantly, even without dramatic changes to the overall market. But how?

There are many reasons why an owner-occupier may be attracted to apartments that are being sold off-the-plan. They may desire, for instance, to choose a preferred position in the building and have an influence over the interior fit-out.

Off-the-plan apartments can also be enticing to investors looking to sell for a profit. The idea is that the value of the property will hopefully increase in the time it takes to complete the development, which could be several years. By selling the apartment after settlement, the investor can turn a relatively small deposit into a substantial profit, all while avoiding those nasty holding costs.

Of course, there are many potential pitfalls when buying off-the-plan, but I want to focus on what can cause the value of a recently completed apartment to seemingly drop in an instant. I’m not talking about a decline in the overall market but rather the things that can play havoc with the value of a property even when the market is healthy.

An overcrowded market

Generally speaking, the more supply there is of a particular product, relative to demand, the lower the price will be. When it comes to apartments, excess supply can certainly drive down values by increasing the competition amongst sellers. For an investor looking to sell a recently completed apartment, competition can come from three areas.

Firstly, there is a good chance that other investors who purchased in the same complex have had a similar idea to buy off-the-plan and then sell for a profit on completion. This means a number of almost identical properties would come onto the market at the same time.

Secondly, even if a large proportion of the development was sold off-the-plan, the investor’s property may still be competing against the remaining developer’s stock, which is probably untenanted.

Thirdly, depending on the location, there is a chance that other apartment complexes may have been built nearby, which only adds to the glut of properties and drives down prices. A classic example of oversupply happened in the Docklands area of Melbourne, where apartment values were significantly less than what investors paid at settlement.

Different buyers

With Australia’s growing population, strong economy and robust property ownership laws, Australian real estate is well regarded on the international scene.

Foreign investment regulations in Australia say that foreign buyers can only invest in Australian real estate if that investment adds to the housing stock. In other words, they can only buy new or off-the-plan properties. This is why apartment developers and marketers like to specifically target foreign buyers, particularly those in China and other parts of Asia.

Many foreign buyers have plenty of money to invest but not a lot of knowledge about the local market they are entering. Relying on advice from salespeople, these buyers can easily pay too much for their off-the-plan apartment.

Furthermore, foreign buyers may have unique motivations for buying property in Australia, such as a desire to emigrate in the future, help out a relative or get their money out of an unstable country. Again, this extra motivation can lead to overpaying.

Sales to foreign buyers at inflated prices can have a knock-on effect for local buyers, as the sales become a precedent for the remaining properties. Buyers naturally feel more confident with a purchase knowing that others have paid a similar price.

Valuers may also use sales to foreigners to justify the valuations required by lenders, further compounding the problem by giving buyers a false sense of security that the value ‘stacks up’.

But it’s not just misleading sales evidence that can hurt investors of off-the- plan apartments. There is also the fact that cashed-up foreign buyers are not permitted to buy established dwellings, so the ‘resale’ market comprises only of local buyers.

With weaker demand and potentially excess supply, properties will inevitably adjust to real market value and this could be significantly less than what investors paid.

Where’s the incentive?

It’s common for off-the-plan apartments to be sold with some sort of incentive, such as a rental guarantee or furniture package.  These bonuses can be used to justify a high price, or they actually inflate the price by adding additional costs.

The problem is that these incentives are no longer there when the apartment is resold by the original purchaser.

Subsequent purchasers don’t have the same incentives attached to the purchase and this will be reflected in the price they are willing to pay.

Conclusion

It’s easy to see how the value of a recently completed apartment could drop, seemingly instantly, to the shock of the investor who made the off-the-plan purchase. Even without any dramatic changes to the overall market, a newly purchased property can appear to lose its value either because the investor overpaid to begin with or because of different market dynamics.

For investors who plan to buy and hold an off-the-plan apartment, the damage can still be significant. A poor valuation after completion can affect the investor’s ability to access equity, which could halt the wealth creation process and take many years to recover.

Most Movers Want to Stay In WA

In a sign of the strong ongoing demand for property in WA, of the nearly half a million people in WA who plan to move house in the next three years, 87 per cent intend on staying within WA.

In a sign of the strong ongoing demand for property in WA, of the nearly half a million people in WA who plan to move house in the next three years, 87 per cent intend on staying within WA.

The figure comes from the 2012 WA Housing Motivations and Intentions Survey released recently by the Australian Bureau of Statistics. According to the survey, there is a strong push by renters looking to buy, with just over half of those intending to move being renters.

Of the 429,000 adults planning to move within WA, 61 per cent intend to move within the Greater Perth area and most said they would prefer their next dwelling to be a separate house. Interestingly, 47 per cent planned to move within the next 12 months.

The main reasons people gave for wanting to move were relating to the appearance and layout of their existing home or simply a desire for a better quality residence.

When choosing a future location, familiarity with an area was important, as well as being close to family or friends. Having access to facilities and services such as shops or schools also mattered to a high proportion of people.

Why it Pays to Understand the Valuation Process – Part 1

How does a professional valuer perform a valuation on a property, what are some of the challenges, and how can property investors use knowledge of the valuation process to their advantage?

The formal valuation process is an integral part of property investment and it pays for property investors to understand the ins and outs.

In this two part series we will look at how a professional valuer performs a valuation on a property, what challenges they face, and, importantly, how property investors can use that knowledge to their advantage.

What is a formal property valuation?

Put simply, a valuation is the estimated market value of the property on the date of valuation, based on what it would sell for under normal circumstances where both the buyer and seller are acting knowledgably and without undue pressure.  A valuation is performed by a professional valuer who has no stake in the property and the valuation is generally valid for a period of up to three months.

The difference between a formal valuation and a market appraisal (typically done by a real estate agent) is that a formal valuation can only be done by a qualified valuer with the prescribed education and training. An appraisal is intended to be more of a guide to what the property may fetch if it was sold, based on local knowledge and recent sales evidence.

There are a few different types of valuations, including a Kerbside Valuation, which involves no internal inspection of the property, just a ‘drive-by’, and a Desktop Valuation, which simply consists of research done at a computer. However, let’s focus on a Full Valuation, which involves the valuer undertaking a full inspection of the property, including an internal inspection.

Who uses valuations?

Valuations are most often used by lenders to determine the value of the assets being used as security for a loan, and to calculate how much they are willing to lend. Buyers, sellers and property owners may also order valuations to determine the value of their existing assets or those they plan to acquire.

The inspection process

Let’s take a common scenario where an investor is seeking a loan for a recent house purchase. Before the loan is approved and the amount of the loan finalised, the lender will order a valuation from an independent valuation company selected from its panel (list) of valuers.

The valuer will visit the property and conduct an external and internal inspection, taking pictures and even asking the owner questions about the property. The valuer will evaluate the land component of the property, which can make up a significant proportion of the property’s total value. Among other things, the valuer will assess the size, shape, aspect, and topography of the land as well as the zoning and development potential.

Inside the property, the valuer will measure the size of the building and take note of the number and type of rooms, the property’s age and condition, its fixtures and fittings, its design and layout, and any unique characteristics that could affect the value.

Interestingly, valuers look at many of the same things that a prospective home buyer would look for when assessing a potential purchase. The reason is that overall home buyers make up the majority of the market for real estate and therefore play a major role in determining “market value”.

Valuers are often acting under specific instructions from a lender. For example, they may be instructed to value the property as a single residence even if the property has potential as a duplex or triplex development.

Next month we’ll explain the role that sales evidence plays in the valuation process, some of the challenges faced by valuers and how investors can use this knowledge to their advantage.

My Credit Cards aren’t a Problem Because I Wipe Them Every Month, Right?

There is a common misconception amongst borrowers that if you pay off your credit card every month, it won’t impact on your application for a property loan. While some lenders may ignore credit cards that have been paid off in full for three months in a row, the reality is that most won’t.

The way most lenders treat credit cards when assessing a person’s liabilities for a loan application is to assume that the credit cards are fully drawn to their limit. Sound absurd? Perhaps a little, but the reason is understandable. Credit cards are a quick and easy source of unsecured credit. With one simple swipe, the bower can accumulate a lot of high-interest debt, which would affect his or her ability to repay other loans.

Even if a borrower doesn’t use a particular credit card, the card’s limit – not its balance – will be taken into account, most likely reducing the person’s borrowing capacity. It’s seen as a liability that the person may have in the future whether it is used or not. How much of a liability? Lenders can count as much as 60 per cent of the credit card limit as a yearly repayment. So, it’s easy to see how a credit card with a large limit can dramatically reduce someone’s borrowing capacity.  Every $1,000 of credit limit can reduce a person’s borrowing capacity by $5,000. A limit of $50,000 can reduce borrowing capacity by $250,000!

Credit cards can’t be “hidden” from lenders as they appear on your credit reference, so having numerous credit cards can cause a lot of problems when it comes to getting a home or investment loan. Ironically, some people believe having many cards means you are a good borrower with low risk. But generally speaking, lenders don’t like to see too many credit cards, as it implies a lifestyle supported by credit

What can you do to maximise your borrowing capacity? Speak to your Finance Broker before applying for your loan. They will be able to advise you on your credit card limits and how they will affect your borrowing capacity. This will give you time to adjust your limits if required.

How Changes to the Residential Tenancies Act will affect Investors

What are some of the more important changes to the Residential Tenancies Act and how they will impact on landlords?

Renting in Western Australia is governed by the Residential Tenancies Act 1987 (The Act). After a recent comprehensive review by the Department of Commerce, many of these laws will change as of the 1st of July this year.

Over the coming months we will discuss some of the more important changes and, specifically, how they will impact on landlords.

Making changes to a residential tenancy agreement

Previously, the owner/agent and tenant could agree not to comply with specific sections of the Act, as long as the tenancy agreement is in writing and signed by both parties. This process of ‘contracting out’ was discouraged but allowed if all parties understood the changes.

Any tenancy agreements entered into from July 1 must use a prescribed tenancy agreement and the clauses in a prescribed tenancy agreement will not be able to be altered.   You can add additional clauses into a residential tenancy agreement (Part C), but only if these additional clauses don’t diminish or detract from the prescribed agreement or attempt to ‘contract out’ parts of the Act.

For existing residential tenancy agreements entered into before July 1, which contain clauses that ‘contract out’ parts of the Act, the contracting out will continue to apply, but only for the term of that agreement.

Property condition reports

Previously it was strongly advised that a property condition report (PCR) be prepared at the start and end of a tenancy agreement. From July 1, this will be made compulsory.

At the beginning of the tenancy, 2 copies of the PCR must be given to the tenant within 7 days of them moving in. If the tenant disagrees with the contents of the PCR, they have 7 days from receiving the PCR to mark any changes on both copies and then send one copy back to the agent. If they don’t send anything back, they are considered to have agreed with the one you gave them.

At the conclusion of a tenancy, the tenant must be given reasonable opportunity to be present at the final inspection and must receive an updated PCR within 14 days.

Rent increases when you renew a fixed term tenancy agreement

Currently, if a fixed-term tenancy agreement reaches the end of the fixed-term and both parties wish to renew, all conditions including the rent can be renegotiated at the time of renewal. This means that a rent increase could take effect from day one of the renewed agreement.

From July 1, if a fixed-term agreement is being renewed, the rent cannot be increased in the first 30 days after the new agreement begins.

We’ll discuss more changes next month.

Suburb Snapshot: Spearwood

There are certainly many reasons for investors to take notice of Spearwood, as an abundance of activity increases the suburb’s appeal and desirability.

Spearwood is located around 20 kilometres south of the Perth CBD and 7 kilometres south of Fremantle. Part of the City of Cockburn, it borders North Coogee and Coogee to the west, Hamilton Hill to the north, Bibra Lake to the east and Munster to the south.

Rich in history and heritage, Spearwood was originally known for its market gardens but few of these gardens are left in the area with the land taken up mostly by housing. The suburb consists mainly of older, separate houses from the 1970s and 1980s, however newer housing is emerging.

There is a large, district-level shopping centre in the suburb, Phoenix Shopping Centre, as well as a smaller neighbourhood centre in the south. There are three primary schools, numerous sporting fields and clubs, and parks located within the suburb. Spearwood is also home to the Spearwood Library and council offices.

From within Spearwood, there is direct bus access to the city and to the nearest train station, Cockburn Central, as well as good access to major roads.  However, access to the freeway is a little convoluted. Residents of Spearwood have excellent access to medical facilities in nearby Fremantle and Murdoch, including the new Fiona Stanley Hospital.

There is relatively steady demand for property in Spearwood from buyers and tenants due to its excellent location near shops, the coast, schools and major employment areas. It particularly appeals to first home buyers.

Property in Spearwood is reasonably priced, with the median sale price below the Perth average and prices generally cheaper than the neighbouring coastal suburbs. The median sale price for a 3 bedroom house is around $453,500, and this sort of property would rent for around $415 per week. The median sale price for a 4 bedroom house is around $525,000 and this would rent for around $500 per week. Newer houses can sell for as much as $900,000.

The revitalisation that is happening both within Spearwood and in surrounding areas should be of great interest to investors. The nearby Port Coogee Marina will eventually provide many shops, restaurants, and cafes. The Cockburn Coast development just north of Spearwood will revitalise the old industrial area along the coast and transform it into a cosmopolitan hub of activity

A transport project of particular interest is the planned extension of Roe Highway that will extend the major arterial from the freeway to Stock Road, which will give residents of Spearwood direct access to the freeway. This project is still in the planning phase and a construction timelines has yet to be set.

Within Spearwood, a council-initiated revitalisation strategy is helping to improve the area by increasing density by around 50 per cent. Higher density is focused around the Phoenix Shopping Centre and allows many landowners to subdivide their properties.  Revitalisation is also happening in nearby Hamilton Hill and Coolbellup.

There are certainly many reasons for investors to take notice of Spearwood, as activity within the suburb and surrounding it gradually increases the suburb’s appeal and desirability. With a good location and steady demand for property, it offers sound investment options particularly for those looking to buy, hold and develop down the track.

Source: REIWA.com.au, May 2013

Property Development: Doing a Pre-Acquisition Feasibility Study – Part 1

You’ve been given a hot tip about a great development project that has just come onto the market. But before you rush in with an offer, it’s vital you do a pre-acquisition feasibility study to see if the project stacks up. Get it wrong and you could end up with a project that loses money.

It goes without saying that thorough research will be required. And you’ll have to do a substantial amount before you even place an offer to avoid wasting your time and the seller’s. Firstly, make sure you check the state zoning rules and regulations. You also need to check local council planning policies and guidelines. You’ll need a good understanding of building and subdivision costs and a fairly accurate idea of how long the project will take to develop. But one of the most important areas of assessment  is to complete a Real Estate Market Analysis, which involves  looking at ‘the 4 P’s of marketing’, namely Product, Price, Place and Promotion. In this month’s article, we will look at the first two of these and conclude our discussion next month.

Doing a Product analysis involves considering the type of product you should develop and the likely demand for that product. What product will be suitable for that specific area? Is it houses, units, apartments or townhouses? The choice of product will largely be determined by the type of buyers in the area. Are they first home buyers or investors? What do buyers look for? Be as specific as you can when specifying your product. How many bedrooms and bathrooms will it have? What level of finishes will your market demand? It’s also important to consider the supply side of the equation as well. Make sure there is not an oversupply of the type of product you are looking to develop.

If you are planning to hold your development over the long term, you’ll need to consider whether your product will still be in demand in 20 years time. To do this you’ll need to understand demographic trends and how these will affect the demand for property. Demographers tell us that our population is getting older, that people are getting married later and having fewer children, and that there are more singles and group sharing. It’s important to consider how these trends will affect the demand for your product.

Doing a Price analysis involves determining how you will price your product. Broadly speaking your development will be either a “price maker” or a “price taker”. If you develop a product that is fairly common in the market, your development will typically have to “take” the price that the general market is willing to pay. Comparable sales will largely determine the price you charge for your development. If, however, you decide to develop a very high-end product that is unique in the particular market you are targeting, your development could be a “price maker”. That is, you’ll have to set the price yourself based on what you believe your specific buyer will be willing to pay. While it sounds great to be in a “price making” situation you have to remember that your pool of buyers may be so small that it takes a great deal of time to sell your development. And when selling a development, time is money.  The vast majority of development projects are price takers.

It’s worth mentioning here that when you are doing a feasibility study, start with the estimated sales price and work backwards to include all costs and a profit margin to figure out what you can afford to pay for the development site. Do not start with the costs and add your desired profit to determine your sale price. This is a common mistake made by first-time developers.

Many beginner developers also come unstuck by over-valuing their final sale price. Make sure your analysis is supported by comparable sales evidence.

ALWAYS do your projections based on today’s market prices. Any growth in prices should be looked at as a bonus, not as part of the feasibility process.

Next month we’ll look at the two remaining P’s of the Real Estate Market Analysis.