By Michael Janda from

The Australian Council of Social Service (ACOSS) national conference has heard that the lack of affordable housing has reached crisis levels.

Housing experts say there is a shortfall of tens of thousands of social housing homes – a number that will grow unless funding increases.

The new Housing Minister Brendan O’Connor told the conference he was there to take suggestions about how to tackle Australia’s housing affordability problems.

He said the Government needed to explore future options “with an opening and enquiring mind”.

But his open mind closed quickly when it came to the question of reducing negative gearing and capital gains tax concessions.

“The fact is that there are some things that the Government will not, at this point, consider,” he said.

“The Treasurer made it very clear that he expressly excluded some of those matters to which you refer. I understand that disappoints some people, but our view is that we can focus on a whole range of other issues.”

‘Perverse benefits’

It is not just former treasury secretary Ken Henry who has recommended the removal of tax breaks on residential housing.

One of Australia’s pre-eminent housing economists, Associate Professor Judith Yates from the University of Sydney, made many similar suggestions to the conference.

“Benefits that go to owner occupiers are perverse,” she said.

“The biggest benefits go to the people who are already established and they don’t go to younger households at a time when they need it.

“They’re inequitable. The biggest benefits go to high-income households, lowest benefits go to lower-income households.

“Treasury in 2011 estimated the value of these was around $35 billion.”

Professor Yates says the Federal Government could also save money by doing away with negative gearing, which currently allows investors to claim investment property losses against their other income.

“It’s perverse because what it does is encourage investment in existing housing,” she said.

“There’s no notion of expanding the new supply. It’s biased towards existing housing because that tends to be better located and it tends, therefore, to have a greater probability of capital gain.”

If Treasurer Wayne Swan would like to raise some extra revenue as well, then Professor Yates says he would do well to take another read of the Henry Tax Review, which recommended a national land tax.

“Land tax is sort of like a resource rent tax. People are benefiting from an unearned, incremental increase in the value of their land,” she said.

“So I think that we really need to push on land tax very hard and very strong to try to reduce some of the excess consumption, effectively, of land.”

While the idea was popular at the conference, Sarah Toohey from Australians for Affordable Housing says it will be hard to beat the powerful home owner lobby.

“I think wresting back a fairer share of the nation’s housing wealth might even be a harder prospect than getting some of our mining wealth back off Clive Palmer and Gina Rinehart was,” she said.

Urgent need

But the conference speakers were united in saying the need to redistribute housing wealth was urgent.

Greg Cash from Western Australia’s Department of Housing says one rental property in the Pilbara is now leasing for $4,000 a week, and the mid-range rent there is $1,700.

In Perth, even people on good incomes are struggling to afford a mid-priced home.

“The purchased price of a median priced house in Perth is out of reach for somebody on nearly $100,000,” he said.

“So that causes significant problems and it has a flow-on effect to the rental market, with people staying in the rental market that would like to be owning a home.”

Professor Yates says high prices are the main contributor to a dramatic fall in home ownership levels for those under 35 and, in more recent years, even for those in their late 30s and early 40s.

“It’s home ownership that has protected a lot of households from poverty and disadvantage in old age. So we’ve got potentially severe problems coming through,” she said.

“It’ll still be another 20 or 30 years and that’s part of the problem. It’s so far into the future that politicians don’t worry too much about it.”

Aside from the threat of poverty for future generations of renting retirees, current estimates already put the shortage of social housing at 90,000 homes, which will rise to 150,000 in eight years’ time if nothing is done.

Professor Yates says it needs a $7 billion a year investment in public and community housing just to fix that immediate problem.

by Sophie Elsworth in Herald Sun

ONE in four homeowners are on the hunt to buy investment properties, new data has found.

Research by LJ Hooker Finance has shown 26 per cent of existing homeowners are looking to buy a second property and, of those, 28 per cent have owned their own home for three to five years.

LJ Hooker head of finance Peter Bromley says investors are now considering delving into the property market.

“We are seeing people really start to think about coming back to real estate investment,” he says.

“Even Gen Ys now look at buying an investment property rather than an owner-occupier as an alternative simply because it gives them a chance to get into the real estate market in the first step.”

Bromley says the volatility surrounding the share market and a combination of other factors have made now an appealing time for investors to buy a second property.

“It’s a great time, rates are still fairly stable,” he says.

“Vendors are looking to move on, so people looking to buy property are going to get a good deal out there.”

Bromley says competition remained high in the mortgage industry, with plenty of good home loan deals on offer.

The results were compiled from a survey of more than 1000 people and found 42 per cent believed interest rates were a deciding factor when considering a home loan.

Mortgage and Finance Association of Australia chief executive Phil Naylor says potential property buyers still remain cautious but now is a good time to snap up an investment property.

“What we are seeing at the moment is people are a bit reluctant to borrow money because they’re a little bit uncertain about what’s happening in the world,” he says. “The time is probably right in that we have seen in some areas falls in housing prices.”

Naylor says with inflation levels remaining under control and unemployment levels stable, the only thing holding people back from borrowing finance to buy property was an uncertain global economy.

“Is something from Europe going to blow up again and impact on the global finance environment?” he says.

Simon Pressley, the founder of 6-Point Property, which buys properties for investors, says he was not surprised by the results.

“What we’ve seen post-GFC is, even though the Australian economy has been very solid, there’s been a lot of negative sentiment about what’s happening externally,” he says.

“People are saving more than ever. You’ve seen greater capacity, you’ve also got interest rates with a couple of recent drops … so things have been working in the investor’s favour.”

The Reserve Bank of Australia will announce its monthly rates decision tomorrow, with experts tipping they will fall.

(New Property Investors are priced out of the Melbourne Property Market.)

Over the past 5 years I have witnessed a lot of new property investors in Melbourne being completely priced out of the market, with the house median price in Melbourne reaching an all time high of $601,000 in December 2010, currently hovering around the $560,000 mark as of March 2012. Looking at the situation closer, top tier suburbs like St Kilda, Elwood, Brighton, and Hampton in the bayside, or Kew, Camberwell, Hawthorn in the Eastern side, it is difficult to buy any 3 to 4 bedroom house under $800,000 to $1,000,000 with a decent land component.

The preferential inner city fringe suburbs, which are positioned roughly within the 10 km radius of the CBD are in most cases completely out of reach for most new investors entering the market. Hence, the only viable option for these investors is to purchase an apartment or a townhouse, but in many cases, even 2 bedroom apartments in St Kilda, Bentleigh, and Sandringham, are coming in at over $550,000. In fact, these sought after inner suburbs of Melbourne have soared in price over the last 20 years, as the figure below shows.

Whilst many new investors are becoming either discouraged from investing all together, some are turning to the largely untapped regional areas, such as Geelong, Balart, Shepparton, and Bendigo in order to get their foot in the door, and many are finding this strategy very lucrative, with some surprising capital growth and rental returns.

Before we explore the viability of investing in regional centres, it is important to reiterate the key fundamental components that experienced investors look for in an investment property, then apply that template of regional centres to see objectively which one really does pass the criteria and constitutes a good long term investment opportunity.

The following is a short list of the top 6 key fundamentals that I look for in an investment property – insights which I have gained over the past decade as a real estate agent, and ex-banker, working closely with sophisticated property investors.

1. Capital growth of at least 10 per cent over the last 10 years. (RP Data)
2. Low vacancy rates of 2.5 per cent or less. (REIV)
3. Proximity to CBD and infrastructure, transport, shopping, schools.
4. Positive population of growth of at least 1 per cent. (ABS)
5. Rental yield of at least 4 per cent per year. (REIV)
6. Maximum depreciation on building and fixtures and fittings. (Quantity Surveyor)

Although this is a very short list, it can be used as a rule of thumb to eliminate more than 50 to 60 per cent of the properties currently listed on the property market. And just in case you are curious, the next few key fundamental points relate to the land component and density of the project; in a nut shell, the bigger the land component and lower the density of the project, the better.

After applying this criteria to all the major regional centres in Victoria with a population greater than 100,000 people, Bendigo shines with flying colors. In fact, apart from advantage of the major price difference, Bendigo beats Melbourne on all key fundamental components when it comes to analyzing the viability of buying an investment property.

Bendigo is experiencing a second ‘Gold Rush’, but this time investors are scouring for investment properties

Over the last 10 to 15 years, Bendigo has become a destination of choice for ‘Tree Change’ for many Melbournians who are wanting to escape the fast paced, and expensive lifestyle of Melbourne, whilst not willing to sacrifice unique cafe culture and architectural heritage of 150 year old suburbs like St Kilda and Brunswick.

Bendigo, located 130km north of Melbourne, only 1hr 45min by the fast train, with a population of Greater Bendigo LGA of 216,000 as at 2011, Bendigo is experiencing record population growth of 2.7% and a potential housing shortage in the near 5 to 10 years. This has resulted in an unprecedented vacancy rates dropping to 0.2 per cent in 2012 according to REIV.

With substantial infrastructural redevelopments in the pipeline, such as the $630 million dollar redevelopment of the hospital precinct over the next 6 years, not to mention Bendigo benefiting from the $4.3 Billion dollar Victorian Government regional rail link, key areas in Bendigo have the future potential of outpacing the capital growth of some of the most favored Melbourne suburbs.

Here is a snapshot comparison of Bendigo vs Melbourne;

Here is a snapshot of the capital growth of the main areas in Bendigo over the last 10 years.

Surprisingly, a number of key areas in Bendigo, have outperformed some of the best suburbs in Melbourne in terms of capital growth and rental yields over the past 10 years. What makes this even more attractive for investors is the low entry price point, as the median house price in Bendigo is only $285,000, virtually half of that of Melbourne’s $563,000.

Furthermore, upon closer examination of the driving factors of the local economy, it’s surprising that Bendigo is not reliant exclusively on one specific economical drivers such as tourism or mining. Rather, it has a diversified economy consisting of manufacturing, financial services, health, education, mining, agriculture and engineering.

It’s also worth noting that Bendigo has one of the few provincial stock exchanges which was founded in the 1860′s, as well as the headquarters of the Bank of Bendigo. The area also has a strong education sector, including Bendigo Regional Institute of TAFE, La Trobe University, Monash University, Bendigo Senior Secondary College and Bendigo Catholic College. Bendigo also boasts the oldest and largest Art Gallery in Australia, which made headlines recently due to the Grace Kelly iconic exhibition that was hosted there.

With a significant wine region and splendid architecture stretching back 150 years to the gold rush era, Bendigo has a sophistication that is completely unique compared to that of any other regional area in Australia. Having ranked number 69 on Your Investment Property’s Top 100 in 2011, no wonder so many savvy investors are looking at Bendigo as their foothold into the property market.

Bendigo is definitely a hot-spot, but is by no means the only regional area worth investigating. The point is, that whilst a lot of investors avoid regional areas because of a perception of low capital growth and high vacancy rates, nothing could be further from the truth. That’s why smart investors, who know how to conduct unbiased due diligence, are winning the game, compared to those who hold false and limiting preconceived ideas of regional property markets. And with so many excellent investment opportunities outside of the major cities, before your next purchase, it really is worthwhile casting your eyes over greener pastures.

Treasurer Wayne Swan has ruled out any changes to negative gearing arrangements for property investment despite the NSW Labor leader John Robertson saying there should be a debate about its effects on the property market.

Robertson is concerned about the potential of negative gearing to push up property prices and make property unaffordable for the next generation of home owners.

“Everyone, I think, is concerned about how their kids are going to buy a house, how they’re going to get into it,” said Robertson in an interview on Sky News.

“In many circumstances, these are people who’ve got two or three investment properties and there’s no real appreciation of what negative gearing is doing in terms of putting pressure on housing prices for their kids to get their first foot in the door.”

A spokesperson for Swan says the government is committed to the current tax arrangements after ruling out changes to negative gearing in the 2010 Henry Tax Review.

According to ATO figures, about 1.7 million property owners used negative gearing to claim a net rental loss of $6.5 billion for the 2010/2011 financial year.

Robertson’s call for debate on the effects of negative gearing is backed by Cassandra Goldie, chief executive of Australian Council of Social Service, and was also flagged as a potential area of reform in the Homes for All report, the first public policy document released by the Sydney-based McKell Institute.

Goldie says the McKell report highlights that “negative gearing is at the heart of the problem with inflating house prices” while at the same time not increasing the supply of housing.

“We’ve got a crisis here so let’s have a little bit of courage to deal with it,” she told Channel 10’s Meet the Press program.

Negative gearing is considered a cornerstone of property investment, allowing property investors to claim any loss made on an investment property as a tax deduction and thus reduce their tax bill.

The McKell institute’s Housing for All report says that “federal and state governments should favour tax policies which encourage housing supply over demand”.

It goes on to say that “all politicians of all parties recognise that negative gearing and untaxed capital gains add wealth to existing home owners to leverage for second homes and investment properties without any evidence that they increase overall supply significantly; and that increasing effective housing demand in a constrained housing supply results in an increase in house price inflation and in problems of affordability for those seeking to buy”.

“Tax exemptions such as negative gearing have allowed many people to purchase second, third or even more properties.

“In the past, these may have supported the rental market, but in a market where supply is constrained it simply increases the price of housing for everyone,” the report says.

The institute says consideration should be given to “phasing out of negative gearing over the long term in relation to existing properties but perhaps retained for new properties to stimulate supply”.

The report says that those opposed to removing negative gearing argue that such a move will increase rents or lead to less supply.

“There is little evidence for this argument. Our consultations with the banking industry suggest that housing will remain an asset class with or without negative gearing.

“Housing is an investment class which is easily understood, unlike shares or other financial instruments. It has a permanence – ‘bricks and mortar’ – and certainty which many investors like,” says the McKell Institute.
ANZ head of property research Paul Braddick agrees on the need for supply-side reforms but says removing the ability for property investor to negatively gear both existing and new homes would be “very risky”.

Last year ANZ Australia CEO Phil Chronican raised concerns about negative gearing saying governments should investigate whether negative gearing tax breaks are “fostering an unhealthy focus on housing as an investment vehicle, thereby compounding affordability issues”.

In contrast to the sometimes hysterical media coverage yesterday of a minor Fitch report claiming that Australian home loan delinquencies had risen over the second half of 2011, the RBA’s Financial Stability Review released today corrects this error and finds quite the opposite.

The difference between the two reports is explained by what they cover. The RBA’s analysis includes all home loans on bank balance-sheets plus “securitised” loans: more than $1.2 trillion worth in total. In contrast, Fitch’s research only covers securitised loans, which amount to less than $100 billion. To be clear, these loans are included in the RBA’s sample, but represent less than 10% of the total.

The RBA concludes that total home loan arrears in Australia declined – not increased (as Fitch argued) – in the second-half of 2011. Specifically, the RBA comments:

“The arrears rate for housing loans (on banks’ domestic books plus securitised housing loans) declined to 0.6% in December, from 0.7% in mid-2011. The non-performing rate for credit cards has also improved, falling from 1.4% in June 2011 to 1.2% in December, while the rate for other personal loans has been broadly unchanged since mid-2011 at around 2%.”

The RBA’s chart below shows that while home loan arrears have risen steadily since their nadir in 2003, they remain no higher than they were in the mid-1990s. The drop-off in delinquencies in the latter half of 2011 is clearly visible at the end of the time-series.

The improved debt-servicing performance of Australian borrowers was also reflected in a trend decline in applications for repossessions of homes across most Australian states. The RBA has been building up its analysis of foreclosures, and the latest Financial Stability Review presents the best parsing yet. The second chart below illustrates trend changes in foreclosures for New South Wales, Victoria, Western Australia, and south-east Queensland through to early 2012. In this context, the RBA observes:

“Possession rates have generally either stabilised or improved in most other states. Bankruptcy rates have [also] broadly fallen across states since 2009, although less so in Queensland and Western Australia. Overall, though, the number of households whose financial difficulties have deteriorated to the extremes of bankruptcy or lender property possession is very low in absolute terms.”

Another unique RBA data-set released today is the share Australian borrowers who are repaying their home loans more quickly than what is actually required by their lenders (under their “amortisation schedules”). The RBA’s research reveals that these so-called “excess repayments” increased significantly over the course of 2011, which in turn implies that household stress was on the decline (refer to the third chart below):

“Many borrowers are repaying substantially more than required: data from lenders suggest that the rate at which borrowers were making excess repayments on their mortgages increased over 2011. Total excess repayments were roughly the same as required repayments in the December quarter 2011, up from about 80%in the March quarter.”

Finally, the RBA confirms my recent arguments about advances in home owner affordability, noting, “At the national level, the ratio of dwelling prices to income has fallen over the past year, and is below the average of the past decade, while rental yields have begun to pick up, assisted by stronger rental growth as well as lower prices.”

It will be fascinating to see how much media prominence is given to the RBA’s findings vis-à-vis the coverage yesterday of Fitch’s report.

Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.

Back in 2004, superannuation was really considered the poor cousin to property trusts when it came to investing your money tax effectively. Back then superannuation was hard to understand and awkward to deal with just like that strange cousin of yours who used to sit in his room and play on his computer all day.

That was in 2004….but in 2012 self managed superannuation is the sexiest investment vehicle in town and that weird cousin of yours is probably Mark Zuckerberg or some other online millionaire.

What really changed the game since 2004 were 2 things:

1. The Global Financial Crisis
2. Allowing self-managed superannuation funds to borrow money to invest.

The global financial crisis certainly changed the world and the way most people view investing, but also empowered people to take control of their finances and investments, which in turn saw the number of SMSFs grow rapidly in Australia.

The other factor that really changed superannuation to be the “it” way to invest was the ability to borrow inside a self-managed super fund.

This ability to borrow can allow some clients with balances lower than the traditionally accepted threshold to have a cost competitive SMSF.

Why is property and borrowing becoming so popular?

First and foremost when investing in property within a Superannuation Fund, your initial deposit on property can be from funds already in super, meaning that if your boss is contributing into your superannuation fund then they are effectively helping pay for the property. You can simply establish your own Self Managed Superannuation Fund (SMSF), roll the amounts over to your SMSF and use those funds as a deposit on the property you want to buy.

Also it is likely that depending on your bank you can borrow between 50% and 70% of the purchase price of the property subject to the property type. There are no limits imposed by legislation on the ratio of the loan amount to the value of the underlying asset acquired. However, bank lenders will typically impose lower loan to value ratios (LVRs), or charge significantly higher interest rates.

Another great benefit of the C structure is that it also lets you pay less tax on your loan principal repayments.  Apart from having your employer make their 9% compulsory contributions to your SMSF, you could also salary sacrifice additional amounts into your SMSF to pay off the loan quicker.

This way you are only paying 15% tax on the principal loan repayments instead of the 31.5% to 46.5% at your marginal tax rates if the investment was in your personal name.

You may also consider some of the following arrangements where this property borrowing strategy might be beneficial:

• Your business no longer wants to rent or wishes to upgrade their existing premises.
• People looking to buy a property that they plan to retire to in, in years to come.
• Residential or commercial property investors.
• Commercial property is held outside of super (you can transfer the property into a SMSF).

As you can see a Self Managed Superannuation Fund is a tax efficient investment vehicle.

So how does borrowing in superannuation work?

The Superannuation Act states that a super may borrow money or maintaining a borrowing of money, providing the arrangement entered into satisfies each of the following conditions:

1. The borrowed monies are used to acquire an asset that the fund is not otherwise prohibited from acquiring.

2.  The asset acquired is held by a security trustee under a bare trust arrangement so that the fund receives a beneficial interest in the asset.

3.  The super fund has the right to acquire legal ownership of the asset (or, if applicable, the replacement asset) by making one or more payments after acquiring the beneficial interest.

4. Any recourse that the lender has under the arrangement against the super fund is limited to rights relating to the asset acquired. That is, the lender is able to have the right to recover monies where there is a default on the borrowing by repossessing or disposing of the asset acquired, but cannot have the right to recover such monies through recourse to the fund’s other assets.

Basically all of the above results in an investment structured as follows:

As you can see it really is a pretty simple structure to set up, so long as you play by the rules the Australian Tax Office sets.

While it is a simple structure to set up and administer it is still recommended that you should seek independent financial advice on anything to do with your superannuation and how you should structure your financial affairs.

The last thing to remember with regards to your superannuation is that you cannot touch any of your superannuation assets until you’re at least 55 years of age (and probably older) and retire.

So while borrowing and investing in your superannuation may be a great way to build wealth in the long term you won’t be able to touch this until you retire.

Maybe just ask your strange cousin for a loan until then.

About 1200 new residents are expected to move to Melbourne every week for the next 40 years as the city’s population swells to more than five million in 2025 and 6.5 million in 2050.

Just under 60 per cent of new arrivals will settle in one of seven growth areas: Casey, Cardinia, Hume, Melton, Mitchell, Whittlesea and Wyndham.

A detailed analysis of Melbourne’s growth by the Property Council of Australia paints a daunting task in term of future transport, health, education and housing needs.

Those include an extra 10,000 childcare spots by 2025 and 29,000 by 2050, about 3350 new hospital beds by 2025 and 8600 by 2050 and 5700 new classrooms by 2025 and 10,000 by 2050.

An extra 13,600 aged-care places will be needed by 2025 – a figure which will rise to more than 60,000 by 2050.

The council also estimates the city will need to build an extra 380,000 houses and apartments over the next 12 years and close to a million by 2050.

Melbourne drivers will also be clocking up an extra 10 million kilometres by 2025 and 24 million by 2050.

Demand for energy will rise from 81,905 terajoules to 100,483 TJ in 2025 and 120,324 TJ in 2050 while water use will increase from 260 gigalitres to 318 GL and 412 GL over the same period.

Urban planners, local councils and key business figures are increasingly voicing concerns that little progress is being made on rolling out major infrastructure items needed to maintain the city’s quality of life.

“We need to get smarter as a city,” Property Council of Australia state executive director Jennifer Cunich said.

“Melbourne residents want to see progress on major strategic initiatives that will guide growth and make sure Melbourne keeps moving in years to come.”

RMIT planning expert Michael Buxton said major transport items such as railway lines had been consistently put off by both Liberal and Labour governments unwilling to run a budget deficit.

“The reason governments haven’t done these things is because they have become obsessed with a private model of infrastructure and budget surpluses rather than borrowing to fund some of these large items,” he said.

Committee for Melbourne acting chief executive Andrea Gaffney said top infrastructure priorities needed to be:

PUSHING forward with the Melbourne Metro project to improve rail links between the city’s northwest and southeast.

ELIMINATING the city’s 30 busiest railway level crossings.

BUILDING dedicated rail links to both Melbourne and Avalon airports.

CREATING a dedicated freight and logistics strategy to prepare for increased freight movement to and from the Melbourne, Hastings and Geelong ports.

DEVELOPING Fishermans Bend, near the West Gate Bridge, as part of a wider urban renewal project.

“A visionary, long-term plan is essential to ensure Melbourne can get better as it gets bigger,” Ms Gaffney said.

CASE STUDY:

Family: Adam and Judy Cooper

Children: Scarlett, Chantel and Jack

Live: Pakenham

PAKENHAM resident Adam Cooper, 30, has called one of Melbourne’s fastest-growing suburbs home all his life.

Married with three children – the oldest in primary school – Mr Cooper said the suburb’s rapid growth brought with it pros and cons.

”There have been plenty of changes and some have been good and some have been not so good,” Mr Cooper said.

The good include new sporting facilities and a new shopping centre.

The bad include a lack of recreational activities for children, public schools in need of upgrading and congestion on major roads.

Mr Cooper, who works as a civil engineer with the local council, said while the area’s rapid growth was a sore point for some residents, he supports a bigger Melbourne.

”Overall I think growth has been good for the area,” he said.

”For me it means more work so I have that interest, but we are also getting a better range of shops in the area and that makes the local ones more competitive.”

Given a wish-list Mr Cooper nominated a new hospital for the area.

”We do have a hospital in Berwick but it’s what I would call a bush hospital – you can’t get all the services there,” he said.

TOWARDS 2050: BY THE NUMBERS

POPULATION

2011: 4.12 million

2025: 5.05 million

2050: 6.53 million

MEDIAN AGE

2011: 36

2025: 38

2050: 41

HOUSEHOLDS

2011: 1.76 million

2025:2.16 million

2050: 2.79 million

HOME SHORTFALL

2011: 27,622

2025: 381,573

2050: 1 million

CHILDREN (0-5) IN CHILDCARE

2011: 95,604

2025: 105,225

2050: 124,435

CLASSROOMS

2011: 25,134

2025: 30,809

2050: 35,204

HOSPITAL BEDS

2011: 14,743

2025: 18,084

2050: 23,381

POLICE OFFICERS

2011: 12,100

2025: 14,897

2050: 19,262

PEOPLE IN RETIREMENT VILLAGES

2011: 15,967

2025: 23,206

2050: 37,779

PEOPLE IN AGED CARE

2011: 30,231

2025: 43,813

2050: 90,777

TOTAL KMS TRAVELLED

2011: 36.15m km

2025: 46.1m km

2050: 59.88m km

ENERGY USE

2011: 81,905 TJ

2025: 100,483 TJ

2050: 120,324 TJ

WATER USE

2011: 259.44 GL

2025: 318.24 GL

2050: 411.45 GL

Land Banking is just like winning Lotto…

You might have read a recent article in the Herald Sun published on the 16th of February 2012 titled “Like Winning Lotto’, documenting the case of a small group of 12 families in Melbourne’s outer fringe area of Rockbank who were offered $47 million dollars for their combined parcel of land from a developer. The couple featured in the article, Mark and Judie Sobotnicki, who bought their property for only $200,000 a decade ago which consisted of 13.5 hectares. The combined parcel located between Caroline Springs and Melbourne probably represents the biggest privately owned sale of freehold land in Victoria over the past 5 years according to selling agents Oliver Hume.

The interesting aspect of this story is that the perception by the public at large is that these are rare and isolated cases, as the headline suggested just “Like Winning Lotto”. And whilst this may be true for the general population at large, there are a group of people who have been making a killing from the process of adding value to land, for well over a century, and largely this market and methodology has been inaccessible to the everyday investors due to a number of barriers of entry – until now that is.

So what is Land banking?

In a nutshell, the concept of land banking is simply the process of rezoning land into a zoning that has a higher usage and dollar value. This could, for example, be rezoning farmland into residential land or residential land into commercial land. The most commonly practiced land banking strategy is the process of rezoning farmland into residential land and building Master Planned Communities on the fringes of all the major capital cites in Australia.

If we look at Melbourne, most of the new 96 land estates that are located on the fringes of Melbourne, for example, Point Cook, Tairneit, South Morrang, Pakenham, were not so long ago simply farm land that was owned by private individuals. In fact, every suburb in Australia, over the past 200 years has been in the process of being rezoned from farmland to residential land and commercial land.

A more lucrative strategy, though much less practiced due to the complexities of dealing with councils, is the process of rezoning inner city residential land into medium to high density commercial land. Examples of this can be seen in new high density developments springing up in Melbourne’s Richmond, South Yarra, Doncaster and St Kilda.

Who are the Players in Land Banking?

Historically, land banking has been exclusively practiced by commercial developers and institutional investors. These include household names like Delfin, Peet Limited, Australand, Vic Urban, Simonds, just to mention a few. Then there is a myriad of small to medium project management and town planning companies who operate exclusively in the commercial space indentifying potential parcels of land based on the Housing Strategy reports of the local council, and on selling them to large developers in order to turn them into the suburbs of tomorrow.

There is also a range of companies such a SMEC Urban, SBE, and Urban Design Architects (UDA) who provide sustainable architectural, engineering and project management services in the area of urban development for projects around Australia. These companies are essentially engaged by developers for the purpose of creating a master plan of sub-division which is to be submitted to the council with an application to issue rezoning permits on the specified parcels of land.

The final players in the game are the sophisticated investors, and speculators who are hoping to create millions of dollars through the process of identifying parcels of land which have the potential to be rezoned, and sold or optioned to large property developers. Although very few individuals end up successfully pulling off a land banking deal (for later discussion), many are seduced by the large potential profits which run into the millions and tens of millions of dollars.

What are the potential returns?

It’s just like asking the cliché question, ‘how long is a piece of string?’ The returns vary drastically from site to site depending on a number of factors. In the original example mentioned at the beginning of the article, the Rockbank site which consisted of 12 owners controlling 13.5 hectares of land had an end value realization of $47 million dollars, with an average parcel worth only $200,000 ten years ago or a combined value of $2.4 million. Other examples in Regional centers such as Shepparton or Bendigo yielded a multiple of 10 to 20 times the original value once the land was rezoned from rural land to residential land. So a parcel of farm land worth $1million dollars can end up being worth $10Million or even $20Million dollars once rezoned residential.

What makes land banking even more lucrative and attractive is that a significant portion of all land banking subdivisions are originally secured by option agreements, whereby the original outlay to ‘tie up’ a parcel of rural land for 24 to 36 months can be as little as $1000. Once the site is rezoned during the 24 month or 36 months time frame, the option is simply on-sold to the end developer, for millions of dollars.

In a nut shell, an ‘Option Agreement’ is simply a legally binding agreement that gives the Option holder the right, but not the obligation, to buy a parcel of land, during the specified option period of time, at a specified strike price, before the option expires. Needless to say, the grantor of the option is 100% legally bound to honor the terms of the option agreement during the option period. There have been many documented cases over the years where farmers have tried to sell their farms during the option period, or cancel the agreement once they have been rezoned by developers, and realizing that now their land is 10 to 20 times more than previously, with some cases ending up at the supreme court. In all cases, the option holder won, forcing the farmer to sell his land at the agreed option ‘strike price’, which is usually above fair market value at the time of entering into the option agreement.

The reality of Land Banking is, is that it is the skill set of the developer, or entrepreneurial ‘deal creator’, and their ability to add value to the land and get it rezoned, that is where the money is. In the above example, if the farmer or land owner truly knew and understood the process of rezoning, she or he would have capitalized on it. With the fringes of our major capital cities ever expanding, there are literally thousands of land owners that are sitting on gold mines who are completely oblivious to the potential of having their land rezoned and realize a fortune that would last them generations to come.

If it’s so good, why isn’t everyone doing it?

When I first heard about the concept of ‘Land Banking’ and the fact that a significant portion of deals are secured via an option agreement and only $1000 down, my initial reaction was ‘it’s too good to be true’, and ‘why aren’t more developers doing this?’. Then I personally got involved in one. My experience with it was from the very inception to the end retail product being sold to end buyers, i.e. farm land being rezoned residential, and individual land blocks of 300sqm to 750sqm being sold to both investors and the ‘mums and dads’ who chose live in the estate. What I found was that it was extremely difficult to orchestrate such a project.

After spending 2 years, some $2million dollars in investors funding outlay on resources ranging from legal advice, urban design, town planning, right down to creating a master plan of subdivision, I realized that ‘Land Banking’ was not as easy to pull off as I initially anticipated, and this was working in a team of 6 to 10 people full time to create the end product.

The barriers to entry into this lucrative and seductive property investment strategy range from the capital that is required to successfully submit a rezoning application to council, but more so the specialized knowledge and unique skill set that is required, not to mention the time that is required for a parcel of land to be rezoned form rural to residential. In some cases this could be as fast at 24 months to 36 months, however, many can take up to 5 years or more, depending the population pressures of a particular area, and how keen the council is to get a new estate approved. This time frame is based on a parcel of land already falling into the council’s housing strategy report as an area that warrants future rezoning.

The diagram below depicts a conservative time frame for rezoning a parcel of land from rural farmland to residential. The diagram takes into consideration the initial identification by the local council of an area where they would like to see new residential developments take place, to lot construction, marketing and sales by agents, to the end buyers building houses on their residential zoned land blocks.

How can I do Land Banking?

So here is the million dollar question (literally); ‘Can I do it?’ Well, that all depends on your level of skill, knowledge of legal contract law, town planning, and deal making. And looking back now, having just been involved in a second land banking deal in the last 3 years, I can honestly tell you that you can outsource most of the consultants and skills, at a price. There is no limit to what a person with complete determination and conviction can achieve, especially when it comes to the world of property investing.

Before starting, I would strongly recommend that you familiarize yourself with RP Data www.prdata.com.au and if you are in Victoria, you will unfortunately need to complete an Agents Representative Certificate, otherwise you will not be able to access it. You will need to have a complete understanding of zoning in Australia, and one of the best websites to visit is http://services.land.vic.gov.au/maps/ whereby you can scan every area, suburb, and street, and correctly identify the zoning of any property.

Furthermore, you will need to pay a visit to your chosen area’s local council’s town planning department and get a copy of the latest Housing Strategy Report of the area, which identifies all the zones and key future areas that the council has identified as having rezoning potential.

Finally, as my gift to you, I recommend that you watch an online video recording of a workshop on Land Banking that was recorded last year, featuring a number of speakers detailing the exact process that is required to identify land pockets, tie them down with an option agreement, rezone them and create the end product, a master planned estate. You can access this by going to www.LandBanking.com.au and pay very special attention to the section which includes the solicitor discussing the various legal contracts and relevant terminology involved in Option Contracts and land banking. You can also see a recording of a webinar that I did late last year covering land banking. Maybe the strategy is a perfect fit for your skill set; if so, it maybe could be just ‘Like Winning Lotto’ for you.

Konrad Bobilak
CEO of 21st Century Property Direct

This is a great article that depicts this point perfectly.

Konrad.

Hotspots: Villages like Elwood and Richmond better for investors than Docklands: WBP

Original article from Property Observer
By Larry Schlesinger
Wednesday, 14 March 2012

Period flats and houses close to Melbourne “villages” such as Elwood, Kensington, South Yarra, Prahran and Richmond Hill offer great investment potential, according to Greville Pabst, chief executive of property valuation and advisory firm WBP Property Group.

Speaking at the WBP Melbourne Property Outlook breakfast, Pabst said Melbourne had been built on villages and that being able to walk to the village to get a coffee was very important when looking at a potential property investment.

He says that “1960s and 1970s flats in low density are going to perform well. The high rises will struggle to perform”.

“In suburbs like Elwood, Prahran and South Yarra we are starting to get some really good results such as a two-bedroom 1960s flat in South Yarra that sold at auction recently with two strong bidders for $713,000.”

Pabst says he is also seeing competition for good-quality one-bedroom flats in East Hawthorn and South Yarra with prices approaching $500,000.

WBP is forecasting growth of between 2% and 6% for established houses and units within 10 kilometres of the Melbourne CBD in 2012.

However, the outlook for modern units in places like Docklands is poor, with WBP forecasting no price growth in 2012 and a potential drop of 5%.

“Investments must have high land value and an element of scarcity. Owning one apartment out of 200 in Docklands has no scarcity value,” Pabst says.

“You also have to think about the underlying land value,” he adds.

WBP Housing performance predictions for 2012

Pabst provided examples of actual sales to show the merits of investing in period properties within villages instead of cookie-cutter units in suburbs with less history.

WBP advised on the sale of a 1960s two-bedroom flat in this block (below) on Tennyson Street in Elwood.

The flat sold for $632,000 in May 2011, having previously sold for $475,000 in 2008, equating to annual growth of nearly 10%.

The flat is close to the St Kilda Botanical Gardens among a “leafy streetscape” and is within walking distance of the St Kilda shopping strip that begins at the intersection of Barclay and Acland streets.

Pabst contrasted this with a flat on NewQuay Promenade in Docklands, which sold for $540,000 in 2010 having been purchased for $495,000 in 2005 – annual growth of just 2%.

“You’re better off putting your money in the bank,” he says.

Furthermore, Pabst says the higher corporate ownership costs on this particular unit made it unviable as an investment

In October 2009, WPB advised on the sale of this three-bedroom Edwardian two-storey home. It sold for $780,000 having previously sold for $270,000 in 1998, representing annual growth of 10.12%

Pabst contrasted this with the 2012 sale of this three-bedroom house in Derrimut (pictured below), for which WBP acted as vendor’s advocate. The property was bought for $330,000 in 2004 and sold for $335,000, representing annual growth of 0.2% over eight years.

“She (the vendor) could have bought a flat in South Yarra that would be triple that value now,” says Pabst.

WBP also advised on the sale of a top-floor one-bedroom flat in this low-rise complex in Rowena Parade in Richmond Hill, which looks out of the MCG.

The unit sold for $468,500 last year, having previously sold for just $79,500 in 1998, equating to annual growth of nearly 15%.

In contrast, a Docklands apartment in this complex (below) on Bourke Street sold for $422,000 in 2010, having previously sold for $410,000 in 2007. This equates to annual price growth of 0.25%.

Pabst says investors need to burrow down not just into the suburb but into street level and even go as far as considering one side of the street versus the other.

“In Richmond, we don’t like to go south of Swan Street because of freeway noise or too far north of Bridge Road because the streets are narrow and as you get closer to Victoria Street you compete with restaurants for parking,” he says.

I mentioned a few weeks ago my top 5 Investment Strategies for 2012.

What came in at Number 1 was Land Banking.

However many people are still not aware of what Land Banking actually is, and how the average person can now potentially access such strategies for as little as $35,000. Purchased with Super or cash or syndicated with family or friends, this strategy means you can acquire residential land blocks and profit from the capital growth for years before you even pay for them.

I love the strategy as I can control a lot of land without borrowing a cent and control an asset that has a strong track record of rising in value.
It’s also a strategy where I can own houses for virtually zero outlay.

Some people don’t know what the strategy is and so we’ve made available our $997 Land Banking Homestudy for free to better explain the finer details! Visit www.LandBanking.com.au

Now that’s impressive and something that requires a fair bit of explaining to allow my subscribers to potentially model and replicate.

Once you know how, you’re likely to never consider conventional real estate again when you realise how superior this strategy is.

And hardly anyone knows how to do it. Other than bulk property developers who are not going to let retail investors access their money making recipe.

And there are no other seminars actually teaching this particular strategy as this is a one-off strategy exclusive to 21^st Century Property Direct. We are trying to keep it amongst ourselves and our select members.

For Land Banking I target areas that have a high housing demand.

Growing regional centres are the best for this.

My focus for the last year has been buying up land in the growth corridor near Bendigo (see article below and you will see why).

I’m into what we call a ‘Super lot strategy’, where you can tie up not just one, two or three blocks of land. But bulk lots of land in one go.

I’m soon going to reveal how my subscribers can also replicate this super lot strategy.

It’s brilliant.

Although it’s only for those that can raise at least $200,000 whether it be their Super, line of credit, cash or syndicate of family and friends. When you see the likely returns you will be creative about raising $200,000 quickly.

I mean why would people leave their money in a managed fund or super fund at the mercy of the share market and ineffective investment managers and be exposed to massive risk?

The future of managed funds is not healthy and fool’s gold as a retirement strategy. Particularly when a strategy exists with a fraction of the risk, no need to borrow so no interest or holding costs and the option to simply walk away at any time.

Ultimately the strategy means you can end up with fully paid off houses effectively for free by cashing in some of your land blocks to build houses at cost price.

You can then sit back and rent out the houses or borrow against them to invest elsewhere or live off your investments in retirement.

A blog article can’t explain the strategy to the full extent, nor do it justice.

However it received a number one investment ranking in 2012 for a reason. And that was just the standard purchasing 1 to 3 land blocks.

The Super lot strategy is at a whole new level again.

To check out the basic level strategy visit www.LandBanking.com.au and access a free online Homestudy on this strategy (valued at $997). If you want to find out more, feel free to give our Property Specialists a call on 1800 999 270.

If you’re a bit more of a sophisticated investor with a few hundred thousand to invest with either a combination of your Super, cash or line of credit, or pooled Super between family or friends then you’d need to ask to speak to Konrad and beg to be able to attend a small closed board room session to learn how to qualify.

Of course as much as I like to help people replicate what I’m doing, I simply can only help a limited number of people with the super lot Land Banking strategy due to the nature of the strategy. However if you qualify my team will be happy to let you in on what I’m up to in a big way.

It’s a brilliant strategy and I’m glad I discovered it.

First step is to watch online Homestudy on Land Banking www.LandBanking.com.au

Then second step is to see if you can make it to the hotlist for the super lot strategy.

Clue – be very nice to Konrad.

Send him gifts. Whatever it takes. Quite frankly bribe him if you have to. Whatever it takes to get on that super lot Hot list.

Bendigo’s housing squeeze targeted

by Josh Fagan

BENDIGO’S rapid population growth has forced a review of residential planning and the long-term development of the region.
The state government yesterday announced it would reassess Bendigo’s housing strategy.

High-density housing and ‘infil’ developments have been raised as potential solutions in a review of the city’s development. New housing styles would also be considered in the review to address the issue of affordable housing.

Parliamentary Secretary for Regional Development Damian Drum said the initial Bendigo Residential Development Strategy, launched in 2004, no longer reflected the city’s rate of growth. Mr Drum said the region’s population had blown out beyond expectations and would continue to grow.

“This review has become necessary because of the sustained strong growth in Bendigo over the last six or seven years,” he said. “The plans that have been put in place in 2004 may not be adequate in the future.”

Mr Drum said that within six years Bendigo’s population would have gone past the 40 per cent mark of the initial 25-year plan forecast in 2004.

He said the rapid growth was due to a range of factors.

“There’s over-arching pressure coming out of Melbourne, contributing to people moving to places such as Bendigo,” he said.

“As well as the fantastic opportunities for a great lifestyle here, it’s very appealing.”

The state government allocated a $50,000 grant toward the Bendigo residential review.

City of Greater Bendigo director of planning and development Prue Mansfield said the review would end up costing between $150,000 and $180,000

“The new growth in the strategy is not just about new suburbs or greenfields development, it’s about new housing styles,” she said.

“We need an increased diversity in the amount of housing stock, so part of our strategy is about where and how we do that well.”

Mrs Mansfield said 40 per cent of new houses in Bendigo in the past five years were two- and three-lot subdivisions. She said that trend would continue and would help ease the shortage of affordable housing.

Bendigo Property Management director Hunter Gill said the local property market had struggled to keep up with demand for a long time.

“It goes back as far as 12 years ago when the market tightened. It’s remained tight ever since and is only getting tighter,” he said.

Original article at http://www.bendigoadvertiser.com.au/news/local/news/general/bendigos-housing-squeeze-targeted/2443591.aspx

Jamie McIntyre is a corporate authorised representative (ASIC No: 321315 ) of CLEARING AND SETTLEMENT SERVICES LTD (AFSL 238796)
DISCLAIMER: Any information presented in this document is given purely as illustrations and should not be construed as specific investment recommendations; It is general in nature and does not take into account your objectives, financial situation or needs. The laws relating to investment, taxation, benefits, and the handling of money are constantly changing and are often subject to changes in government policy. Whilst every care has been taken to ensure the accuracy of the material contained herein at the time of publication and presentation, the author, presenter, promoters nor the publishers will bear any responsibility or liability for any action taken by any person, persons or organisations on the purported basis of information contained in the documen t herein. Without limiting the generality of the aforegoing, no person, persons or organisations should invest monies or take other action on reliance of the material contained herein but instead should satisfy themselves independently (by seeking expert advice or otherwise) of the appropriateness of any such action. Any general financial advice or financial product advice is only provided by licensed individuals who hold all the appropriate licensing required by ASIC for events held within Australia. | All investing carries some risk and you should seek professional financial advice prior to investing. 21st Century Education Holdings Pty Ltd is a corporate authorised representative (ASIC No: 396633 ) of CLEARING AND SETTLEMENT SERVICES LTD (AFSL 238796)