While there is little doubt that an environment of subdued returns has settled in for the better part of 2019 (and potentially into the 20’s), there is also little doubt that, in time, the next cycle will eventuate. In the meantime, smart developers will be doing two things: securing cash returns and positioning themselves to capitalise on the inevitable swing.
It’s hard to ignore the news at the moment (and for all the wrong reasons). A general dis-ease prevails, with the likes of election mayhem at home, faltering growth in China, Brexit uncertainty and investors snapping up billions of dollars worth of negative yield bonds in Europe. But while local and international headwinds will continue to buffet Australia’s property market for some time, smart developers will be using this time wisely, to underpin longer term strategies.
The term ”buy to hold” implies a degree of passivity – and in many cases this is an attractive and suitable proposition. But for those developers who are looking to maximise an opportunity, the “buy to hold” methodology is a far more complex and lucrative field that, in a labouring market, brings with it the luxury of time and the rewards of planning.
It’s a strange time indeed when even developers with strong track records are complaining about the lack and cost of finance. The subsequent market slowdown comes as a challenge to many – but for the tactical developer it presents a number of powerful opportunities; not least of which is the time to simply contemplate, plan and implement strategies that will set the path for maximum returns as the cycle begins to turn.
Secure your cash and clear the path for future plans
Whether looking at residential, commercial, retail or industrial opportunities, the criteria are simple:
First of all, a healthy and reliable income stream is cost of entry, mitigating the risk of delays in DA and rezoning application processes by providing ongoing cashflow.
Development opportunity is the other critical component. Market movements will of course serve up a degree of capital appreciation in time, however the major upside lies in the potential for rezoning and redevelopment through a smart planning and approvals process during this period of market upheaval.
A decelerating market is a chance to acquire value assets with track records of returns – and importantly, accompanied with upside events such as population growth, infrastructure spending and the potential for future gentrification and precinct development.
Look for opportunities in those areas most likely to benefit from the enormous infrastructure investment rolling out over the next five to ten years.
Understand transport networks and demographics to best serve incoming communities. The recent NSW election results will see the government forging ahead on its record-breaking $89.7 billion infrastructure investment, expanding the state’s capacity to absorb growing communities and creating tens of thousands of jobs.
The Western Sydney North South Rail Link, for example, will run from St Marys to Sydney’s new airport at Badgerys Creek, supporting significant population growth and demand in time.
The airport itself is set to create 15,000 direct and indirect new jobs by 2030, suggesting a future demand for residential dwellings from Camden, through to Campbelltown, Liverpool and Penrith.
Stay abreast of local developmnet approvals to see where new amenity is planned to support growth.
Develop your plans with an activation strategy in mind. Ground floor retail and F&B infuse a locale with life, generating convenience and an important sense of community which underpins the value of an asset as Australia’s densification forges vertical neighbourhoods.
An important factor in positioning any future works for a smooth start is the renegotiating of lease agreements with current tenants. In particular developers must be mindful of putting in place demolition clauses in order to open the door to expeditious redevelopment when the time comes.
Today’s pressures are tomorrow’s opportunities
A depressed market offers many opportunities that are hard to come by in more buoyant periods.
Today’s market presents a rare opportunity for developers to acquire and plan. Today’s difficulties should be tomorrow’s opportunities – and if the history of our market has taught us anything, it is that fortune favours the long term thinkers.
Byron Rose is principal of Rose & Jones, one of Sydney’s most respected Buyer’s Agencies and specialists in development site acquisition.
Byron is a founding member of the NSW Real Estate Institute Buyer’s Agency chapter.
Additionally, he has served as president of the Real Estate Buyer’s Agents Association (REBAA).
Rose & Jones manage in the region of $600 million worth of property for clients.
To consult with Byron, call
+61 2 9327 6944 or visit