New vs Old - What do you think?

No vested interests Sash, I charge a fee for service, I can recommend new and/or established and still get paid the same amount. My only concern is achieving the best results for my clients, some of which have been with me for over 10 years.

Quite a few, this particular one was after a nervous investor asked me to look at another (2nd) H & L package offered to them by the same promoter. I offered to look at the previous one as well and the results are as per my post.

The main problem with this one is all the supply and the fact that there are nearby houses that are only 5 years old (or less) much cheaper and because they are on better blocks the rents will be the same. The depreciation wouldn't be much different either.

Do you sell yours after completion or keep them long term?

 

Yer right because every bit of land out there was bought for a steal from some poor farmer and then refined for squill ions.

That's the exception rather than the rule. Good luck getting a farmer to part with his land for less than telephone digits. Development margins are so tight these days, with capitalised interest there is very little profit until the later stages of a development.

 

Just another couple of provisos

• Because the land to building content ratio (LTB ratio) is upside down (i.e. 45/55)), I would want to ensure that I couldn't pick up a 3 - 5 year old house with a better LTB ratio at similar money - as that would have better growth. Land appreciates & buildings depreciate.
• I would also want to ensure if buying a small block, that small blocks were predominant in the suburb and not the other way around (especially if the above applies)
• It would need to obviously be close to all amenities and public transport
• There would have to be constrained land and I would need to be across current and potential future zoning possibilities (classic supply and demand)

 

Disagree on two counts:

• No strategy in property has the same returns as re-zoning (look forward to hearing contradicting views). Hence you see the likes of Salim Mehajer et al. turning to politics, or the retired politicians become lobbyists to secure favorable rezoning outcomes for mates. Small, unconnected developers are never in the game. Profits are made before the rezoning, not after. http://www.smh.com.au/business/the-...-in-land-rezoning-racket-20150929-gjx8nh.html
  
• Estate developers rely on equity (syndicates) and debt mix with a preference for equity, hence the risk is transferred to the share/unit holders and profits (capital raising fees, sales fees, development fees, progressive performance fees as high as 40% of pre-tax profits....) to the principals . E.g. Land Syndicates Australia | Land Investment Property Australia

 

Going with promoters is a big no no...too many people are not doing their due diligence. For example he bought a H&L and for 440k in Redbank Plains (Oz Investment I think with rent guarantee). To me that is really dumb.

I also feel that it is very hard to make H&L work in Brissie at the moment...I am primarily focused in Melbourne. Where the growth in land values on the outer suburbs has been 50-70k in the last 2 years. For example a bought a block in Mickleham for 125k...that same block is now 175k..all since June 2015. In the same time the house I built for 176k has now gone up to about 185k to 190k. There is now way this sort of growth has occurred in the outer areas of Brisbane. This is being driven by immigrants in Melbourne (about 60-70k go there pa) whereas Brisbane does not have this pressure yet.

I keep mine typically they have gone up 15-25% on building and take the equity out. This only works in growth markets...and NOT in all markets. It worked well in WA. The prices have also not gone under what I paid for them.

I am also have no aversion to buying older stock ..I have bought 5 in Brisbane over the last 2 years. And yes you are correct I have not done a new H&L land there as the numbers do not stack up yet..but I am watching things as in some place it may stack up.

 

Correct....take Satterley for example they have not reduced their prices in Perth so they are taking a bath there. They do offer rebates but only on asking...but the land value has already been inflated.

To protect their profits..they ventured into Melbourne and are under cutting other developers to get into that market. In the example of estates near Wyndham and Officer...they have now closed in the gap in prices...the work around the traps is they paid too much for their sites...but they are now selling like hot cakes and their prices have now not much cheaper than other estates.

Their was a small window of opportunity to pick up blocks for a large discount...which is when I jumped in.

 

Chris...the Melbourne market is very different to Brissie.

The immigration rates into Melbourne is driving up the prices in these areas. The queues are long..and typically you now can only get blocks well into 2017.

The apartment market is a different beast.

Remember ..how people view property in one market varies from Melbourne..to Sydney....Brisbane. This why you need to understand the local lense.

Thus why...Logan in particular the lower socio-economic sector from my perspective is capped in growth when investors pull out.

By the way...Cactus's assessment is spot on....in that particular area...the price has not even hit the straps. There are plans Town Centre and for potentially a Westfield down the track as the population grows.

 

It will be interesting to see the land developer margin

One of the reports I found for developer in Werribee
http://www.peet.com.au/PeetNational/media/PDF-s/Independent-Valuation.pdf


and Economist report
http://www.peet.com.au/PeetNational/media/PDF-s/Consulting-Economist-Report.pdf

 

Yes, agree all the states perform differently at different times. It all comes down to the same thing though - supply and demand. I know of nothing else that affects the price of any commodity.

Immigration policy, land releases, investor hot spots etc...............are all fundamentals that affect the - supply and demand equation.

So I think we are saying variations of the same thing.

• Have an investment strategy
• Buy well - in front of the heard
• Be well researched
• Have an exit strategy
• Diversify
• "Don't buy from property promoters" - selling fools gold

And ask the 'what if questions';

1. What is the potential for oversupply of land
2. What is the right price to pay
3. What if immigration policy changes
4. What if investors pull out of an area
5. Is there potential to add value to the property
6. Does the property offer a point of difference
7. What is my yield and worst case equity now and in the short term and can I recycle it

 

Yes agree with your points....for some reason half of India, China, and Southeast Asia wants to go to Melbourne! This is what is driving that market. I wins hands down in terms of affordability compared to even Brisbane!

The most important aspect is to have a strategy......I see lots of people here rush into to do developments in Brisbane in areas where they think it will perform like Sydney. No chance....the pressure for land is not there in Brisbane to the degree it is in Sydney.

 

"What do you think?" is a bit misleading in the title.

Otherwise interested to read the thoughts here

 

'A gated community without the gates' This article suggests H + L is pretty hot in Sydney.

 

Yeah..one reason why so many south asians prefer sydney and mel (as thr first port of call) compared to say brisbane is because its easier for them to get a job there whilst new and without pr/citizenship. Its tougher in brisbane no doubt. However..whats it going to be like in 10 years time ?? dont know. I suspect a fair few of them will jump the fence once they get citizenship and aust work experience. Will probably also see brisbane more attractive to that demographic in 10 years time to overseas as fundamentals are growing and more opps are created.

 

I think with any investment including land and house packages, comes down to what you buy, where you buy and most important element when you buy this will determine your success.

Land and house packages work best in rising markets, this is fact.

Understand the market you are playing in and what people desire in the specific area/suburb in terms of size of house, specification, land component, get this wrong and there may be issues selling and if holding it may likely effect end value.

Another point to remember when building in a rising market you may be best just buying established because of the timeframe, if its going to take 12 month to build you risk the market turning during this period, dependent how close you are to peak. If the boom has been running for at least 18 months it will possibly be at peak on completion? Some considerations before going down this route.

As I mentioned you can significantly reduce the risk by making sure that on completion the rent will cover the mortgage.

I would never touch land and house packages unless on completion I knew there was at least 20% profit.

MTR

 

I agree with sash,i have done a couple of H&L in point cook though my margins was skimming of the builder and organizing a lot of stuff like landscaping kitchens myself. there is a some margin of 30-50K in this per house if you do this different to margins achieved through sub divisions. IT really depends how much you know of the market and where to buy and the negotiations of with the builder. THough now i personally wouldn't do this again as intending to try something else

i think rockbank has some margins there the land is relatively cheap compared to anywhere else. Ppl lining up overnight to buy.

 

I likr thr avatar @MTR

 

Agree with that. Asians tend to group with where there is a large percentage of their demographics. Even if they have money does not mean they will go to different city. Many prefer similar restaurants, good schools and universities. Take LA for examples, there are many high end areas where the super rich chinese can buy but majority prefer to buy in arcadia which is known as the "chinese beverley hills". Universities where sydney and melbourne has the top share % of the best universities in australia will always attract the asian demographics. in asia, which uni you go to makes a difference.

To be honest, glen waverley and balwyn high school if compared to other schools in terms of extra curriculum etc isn't that great but they want to be around that similar demographics.

 

thanks.

Am I the only one around here who changes avatars, hang on @Leo2413 does

 

You need to give me some tips on how you create those awesome avatar

 

Bruce Lee V Mona Lisa,
and I can't stop starring..