WA Perth market 2018

BD
Is this a duplex site? cut in middle to make two frontages. ???
What do you think the numbers would look like? I have not been paying attention of late

 

Just being devils advocate here, and please don't shoot the messager.... just a very simple question.

If investors are developing and not selling because it wont make sense ie GST, sellilng costs etc, then are these new builds cash flow positive on completion?

To me it would make sense in this market to just buy a completed product from a developer? who has significantly discounted the product

 

I would say it doesn't work because often the product being developed that isn't selling is simply in an area that no one wants to buy / live / rent for whatever reason - or the product being sold is simply not appropriate (3 bed townhouse in a school zone, 2 bed apartment for the same price as a 3 bed villa etc).

 

Perfectly reasonable question. There is some completed product from developers that is discounted but that stock is generally heavily discounted due to the product not being quite right for the area, not quite right spec, oversupply of that product and might not be the best buy for the area in terms of CG.

For the people I know it's a strategy thing and they want to be investors not developers (by ATO definition) but have the upside of developing and control over the product. The deals I'm involved in from a project management side are blue chip areas and could be sold on completion if the owner wanted to but as you know when the ATO takes a hefty chunk as your JV partner it can sometimes make more financial sense to hold and access equity (subject to bank policies of course) and go again on another project.

 

I reckon that in either scenario rents rise but particularly in the worst case scenario.


Perhaps the only good thing about the Australians gorging themselves on investment properties these past 25 years has been that it has led to a pretty well supplied rental market.


This papers over the fact that we are almost at US levels of social housing and miles behind most European countries.


If house prices continue to fall, so too will construction starts = less supply.


If credit continues to be tight or tightens further, there will be less demand = less investors, and more renters staying put.


The only way this doesn’t happen (I believe) is if there is a renewed exodus out of the State as a result of rising joblessness.


If the last few years have thought us anything is that plenty of people living here have very shallow roots put down.

 

Yes split down middle with frontages from 10.5m to 12.5m. After factoring holding costs , GST etc probably 10 to 15÷ return in 6 months which is quite good in this market. They start the subdivision process and sales campaign immediately after settlement so they have their cash in hand in about 6 months

 

I call buwlsheet.

Maybe pre GST, pre sales comm, pre holding costs.

They might be able to generate "30% equity" at an "optimistic (ie 2 year sin the future) sales price" but they can only use 70-80% of that anyway on leverage....

Anyone making that kind of profit in this market is either buying depressed and selling optimistic (not impossible) or playing in single houses in the $2.5m+range - so rare.

 

The stuff I'm feaso-ing it's more common to be in the 17-20% inc holding but not inc GST/tax. It's conservative but it's not concrete until projects finish and valuations or sales are achieved. It's a crystal ball based on today's data.

 

He is in the process so not settled sales. Margin is before tax and it's actually a bit more than 20%. Doubt he'll pay much tax with the way it was structured inside SMSF.

Not Dianella, think even more inner ring. I better stop here before revealing too much lol.

 

I think the saving grace with this strategy/product in this market, is land is scarce in these suburbs so there I demand, its far easier product to sell, therefore less risk. Also shorter time frame.

 

We have just done practical completion on our project in Mount Lawley. Our intention was always to keep the end product but I'm now questioning that strategy. I'm thinking of selling one (of two) simply in response to the changes to the lending environment and how those changes may hinder my chances of funding another project in the future.

Our estimated margin now that end values have softened slightly is sitting at around 17%. If we sell 1 and incur GST etc that will drop a fair bit more. We don't really need to sell.. our LVR will be about 60% on completion.

Keen to hear comments.. especially on the effects of credit tightening on being able to refinance and move onto next project.

 

I wouldn't sell in this market. Rake in healthy depreciation for first 5 years. New build = good rental yield, use that for servicing.

Rough calculations: At 60% LVR and 7.25% assessment rate, If your rent is 6% or 4.8%(If bank takes 100% rental) of end valuation then it should have minimal effect on your servicing. Now 6% yield is on the high side so some of that can be covered by NG addback. Your broker is the best person to crunch these numbers and see how much of an effect it really has on your next project.

 

Find an inner city growth ring, between R10-R35 zoning, not quite a duplex, demo and subdivide.
DC2.2.

 

Scarce as hens teeth??

 

Buwlsheet. Minor mods to the existing house. R30.

11 Avonmore Terrace, Cottesloe, WA 6011

 

407m² - Subiaco's LPS5 has this as R60.

31 Commercial Road, Shenton Park, WA 6008

 

Also coming to R60 - but with a laneway.

48 Smyth Road, Shenton Park, WA 6008

 

Hospital locality makes these PERFECT for realistic short-stay accommodation / B&B style.

 

I would think the opposite would be more advantageous.
get your 10% GST credit on construction costs, to bump up your rental yield.

 

Rental market has improved for sure. I have 4×2 in Darch which was 2 months vacant in Oct/Nov last year. Most of viewings in those 2 months - no one turned up. Same house is now rented for 10$ more and was taken up last week in first viewing and there were 3 groups who turned up for inspection. I have heard similar story from another investor friend.