What it takes for property developments to be successful – Part 2

 

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his is the continuation of my previous blog on what it takes for property developments to be successful.

To recap:

Did you know that one in three proposed residential projects never start in Australia? Or that just three out of five Qld new developments reported a sale over the last six months?

Or that one in five new approved detached homes across Australia have yet to commence construction? And this ratio lifts to one in two for new apartments townhouses?

So, what helps get a new project started?

4. Local market

The dwellings being offered need to be designed to suit the first two largest local occupier groups.buyer agent

These markets are going to be firstly, an investor’s tenants, & secondly (and importantly), potential buyers when it comes to resale.

So, if the largest local household group is say, single person households, followed by couples with no children – and assuming the site & general location supports such density – then buying a new one or two-bedroom apartment might have merit.

The product on offer needs to change according to local demographics. See here for more.

5. Valuation support

Unless ‘it sells & settles’ nothing happens in real estate.

That is so true & the key to getting sales (and settlements) is to have bank valuation support.

One of the first questions we ask about a new development that is seeking our assistance is about valuations.

Most of the time, developers have an overall project valuation (they need such to secure finance etc.), but not what the valuation industry call a ‘current market assessment’ for a selection of the dwellings to be sold.

Getting bank valuations done is vital when it comes to off-plan selling. New prices do not have to match the valuations – a 5 per cent (sometimes up to 8 per cent) variation is acceptable – but the closer they are the better. I like the “within $10,000” rule.

Despite the public flogging that investment sellers seem to cop these days (yes, some deserve it), the more successful agencies selling investment property will only sell new stock priced within an acceptable range of independent bank valuations.

Only new projects with independent professional support – such as bank valuations – get our stamp of approval too.

6. Flexibility

Many new residential developments take years to come to fruition. Some take over a decade. Even smaller infill projects – given the convoluted approval process these days – can take many years from concept to settlement.

Most new residential projects will go through several stages of the property cycle; some will go through several actual cycles.

In order to meet these changing conditions, new projects also need to be flexible. This flexibility comes in a variety of forms – product; price; incentives; marketing & timing to name just a few.[sam id=43 codes=’true’]

I remember working on several new subdivisions in regional Queensland in the mid-2000s. Everything was boom. Developers couldn’t get their 700 sqm allotments at $250,000 plus per allotment built fast enough. They were selling like hot cakes.

Well, wasn’t I as welcome as a wet fart when I started suggesting ‘downturn’ proofing their estates – getting some smaller allotments/plexes/townhouse pods in & around the better positions in the estate. This would allow for cheaper price points whilst catering for demographic demand & maintaining an economic rate of sale. Some took our advice, some didn’t.

The point being that projects that are designed from the onset to cater for the machinations of the property cycle sell better than those that don’t.

Final word

We do need to tackle one elephant in the room – what I like to call ‘reverse Darwinism’ or ‘survival of the unfittest’ – now either of those would have made for a better Missive title.

Sometimes it is not the better projects that get built, but the projects that look best on paper.

Too often, new developments are promoted to such a degree & at such a high cost that sales are bought; buyers often duped; but presale targets are met.

More often than not, it is the project’s location that is hyped plus the timing of the property cycle that is oversold to investors, rather than the attributes of the project itself.

Promoters, advocates & forecasters have financial incentives to under-report problems/bad news & over-estimate benefits of the location, stage in the property cycle & sometimes the project itself.

We are not immune to such behaviour.

Some reading this post will think us hypocrites.

Yet we have a system in which we critique a new project & help facilitate a better project outcome. We do provide advocacy support for those new developments we work on. But they have to go through the wringer first.



Want more of this type of information?


Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'What it takes for property developments to be successful – Part 2' have 1 comment

  1. November 5, 2013 @ 8:38 pm Bala Apparao

    Hi, Very well done thanks for sharing keep posting and before investing get complete report on property investment generated by experts.

    Reply


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