Bodies Corporate at risk though negligence + In demand properties of the future + What people are prepared to sacrifice to get a property

Bodies Corporate at risk though negligence + In demand properties of the future + What people are prepared to sacrifice to get a property

Highlights from this week:

  • What type of property will be in strong demand in the future?
  • Three looming changes all investors must prepare for
  • Why Friday settlements could be a mistake
  • A warning about apartment blocks fire and safety risks
  • What people will tolerate just to get into the market

Transcripts:

What people will sacrifice to get a property – Bessie Hassan

Kevin:  As property becomes harder to get into, it’s only a matter of time before people start to put aside some of their prejudices, some of the reasons why they wouldn’t want to live in a certain area. That’s according to some research that was done recently by Finder.com.au. From that organization, Bessie Hassan joins me.

Bessie, I’m not real surprised about this, but let’s go through some of these results. Firstly, hello and welcome to the show.

Bessie:  Hi, Kevin. How are you?

Kevin:  Good. Not really a surprise – is it? – that people would forego some of their predetermined thoughts, I guess, things like the number 13 not being unlucky.

Bessie:  Yes. The good news is that 78% of Aussies say that they are willing to compromise to an extent. We are understanding just how difficult it is to buy a property in today’s market and that there really is no such thing as the perfect home, so we are willing to make some compromise there – and it can certainly go a long way, too.

Kevin:  What are some of the things that they wouldn’t compromise on, Bessie?

Bessie:  You mentioned number 13 there. That’s been deemed an acceptable issue, as is the deceased estate. People are really seeing the potential in those sorts of properties as well.But when it comes to unacceptable issues, the top one there was a bad smell. If the property itself or the suburb has a bit of a bad smell, there’s a bit of a health concern associated with that, so that was the top one.

That was followed by asbestos, a high crime rate, abandoned vehicles in the same street, or being located in an industrial area.

Kevin:  Is it surprising that people aren’t concerned about… Well, I suppose deceased estates, but a property that had a murder take place in it, did that come up in the survey at all or does that come under deceased estate?

Bessie:  It came under here. We didn’t specify exactly. But even then, we’re noticing that the mindset is shifting. I’m not suggesting that someone goes to actively seek a property with asbestos or anything like that, but if you are serious about breaking in, you are going to have to look past some issues, certainly.

Kevin:  Here is a really interesting one, I think, for anyone who is looking at putting their property on the market: a street that contains abandoned cars, trailers, or boats.There’s nothing worse than driving down the street and seeing this all on the footpath and so on. It’s a big turnoff for buyers.

Bessie:  Yes, it can take up valuable parking space as well, and it can be a sign of crime in the area – something that people don’t really want to fit into. They don’t want to live in that sort of community.

But I have personal experience with this. I actually had to compromise on three of those supposed deal-breakers. I live in an industrial area. We have a red bus that appears and disappears from time to time; nobody knows who owns this red bus. And also, our rear extension was completely asbestos. We had to get rid of that safely, as well. And it turned out to be more affordable than we were expecting as well.

While these aren’t things that you wish for or are actively looking for, you need to decide if they really are deal-breakers or really just flaws that can be looked past.

Kevin:  What about things like fast-food outlets? Did that come up at all?

Bessie:  It sure did. That was actually deemed an acceptable issue.We asked people if they’d mind living within two kilometers to a fast-food chain. It seems that people do not mind at all. They don’t mind that late night McMackersrun for a thick shake.

Kevin:Bessie, what about male and female? Were there many differences between the sexes?

Bessie:  There were a few. It seems that overall, men are more willing to put up with anything just to get on the property ladder. Women were more willing to put up with pets fur. We did ask people about whether evidence of pets would turn them off. It seems that women are more likely to put up with that. Men are more likely to tolerate things like brothels, high crime areas, and deceased estates.

Kevin:Interesting. What about state by state? Were you able to relate at all to any kind of affordability study?

Bessie:  South Australians are the most desperate to get into the property market, so they told us that they’d put up with just about anything to get onto the ladder, and that was followed by Sydneysiders, perhaps unsurprisingly there. Queensland is the least likely to put up with a lack of suburb trendiness, it seems. Only 42% are willing to do so. Also, South Australians are the most tolerant of asbestos in the walls and ceilings.

So, there were some differences between the states, definitely.

Kevin:  Bessie, before I let you go, were there any people in the survey who said that they’d be willing to accept all of the above just to get into the market?

Bessie:  There were, indeed. Nine percent of property hunters tell us that they’d be happy to put up with all of these things just to have their chance at home ownership.

Kevin:  Wow.And we can probably expect that to grow, I would think, Bessie.

Bessie:  Yes, absolutely. I think it’s a sign of things to come.

Kevin:  Bessie Hassan from Finder.com.au.Thank you so much for your time, Bessie.

Bessie:  Thanks so much, Kevin.

 

Apartments at safety risk – Colin Archer

Kevin:  As fears mount over the possibility that many Australian unit blocks are cloaked with the same cladding that led to that deadly London Grenfell Tower file, one strata company is urging unit owners in Australia to focus on fire safety compliance as a priority.Archers are strata professionals. Their director Colin Archer has said the time is now to address fire safety compliance in Australia’s residential buildings. He joins me to talk about this.

Firstly, welcome to the show, Colin.

Colin:  Thank you, Kevin.

Kevin:  I would have thought that this is a bit of a no-brainer, but are there any body corporates simply adopting a“Don’t want to hear about it” because the remedy may actually come up as a substantial cost or even lead to a valuation downgrade in the building?

Colin:   The impact of this Grenfell fire is certainly heartbreaking, as is any fire, and it should be considered a wakeup call for all Australian apartment owners. Certainly in Queensland, the last big thing we had was the Childers Backpackers, which made a substantial change in our fire safety regulations.

In Melbourne, we’ve had a similar cladding issue in the Lacrosse building. That was fortunately solved and the fire was put out without any fatalities.

Kevin:  Apart from those two examples you’ve given us there, have we got any feeling about how many buildings could be impacted? Is it worse in some states than others, Colin?

Colin:  There haven’t been too many refurbished buildings, and this Grenfell one was a refurbished building, quite an old building. There are a number of buildings being refurbished in Sydney and Melbourne with similar type materials, but I wouldn’t be panicking too badly.

The big issue of the one in Grenfell was that it was refurbished with a non-fire-resistant cladding. If they had actually spent $2 extra a meter, which would have come to about $5000 in a total £8million budget, they would have had fire-resistant cladding and the effect wouldn’t nearly have been as devastating.

Kevin:  Is that same material being brought into Australia at all?

Colin:  I believe it has. It’s called Reynobond, but I believe the Reynobond that comes into Australia is the fire-resistant panel. which is slightly more expensive.

Kevin:  So, given that there may be some buildings that have been impacted that are going to have to be rectified, have we got any idea as to what that could cost potential per unit?

Colin:  Yes, there is. I suppose we’ve only got the Lacrosse building to use as an example, and it’s been reported that the cost of refurbishing there is circa $15 million. $15 million divided by their 320-odd owners would be about $50,000 per owner, per lot.

Kevin:  I would imagine that a number of owners corporations would need to be moving fairly quickly to find out if they have been impacted, because this could actually also have some implications for insurance if they don’t take quick action on this.

Colin:  I shouldharkback to that thing in Childers. It took about eight years for regulations to change. We need to understand with this fire cladding that this has been an issue that goes back to 1991, that there have been at least a dozen substantial fires in various parts of the world, and cladding will exist.

The main issue in Grenfell was that they didn’t have fire safety compliance. That can’t happen to that extent in Australia, because in Australia, any building over 25 meters has to have a sprinkler system. Grenfell didn’t. Any building over 25 meters high has to have two fire escapes. Grenfell had one. And over 20 stories, they have to have fire pressurization in the stairwell, which forces the air into it and the smoke out of it.

Kevin:  Are these Australian standards that you’re talking about?

Colin:  These are Australian standards, yes. They’re actually state standards, but they’re adopted through each state.

Kevin:  Colin, just before I let you go, what should owners corporations be doing now? What would you recommend they do right now?

Colin:  I suggest they wait until this Senate inquiry to look at their cladding, but certainly right now, they need to have a wakeup call, look at their fire safety standards, particularly look at their evacuation plans, because it is without doubt known throughout the world that residents who have been trained in correct emergency procedure and know where to go in the event of a fire are likely to get out of a building ten times faster than those who don’t know.

That’s probably the real issue that people should take up. And certainly, it’s hard to get residents to train for fire safety. We all sit in an office and we all have our couple of times training a year and know that, but when we go home, to comply with the building manager’s request to come and do fire safety training, people get very complacent about it.

Kevin:  Yes, I’m always amused when I’m in a building where there’s a fire drill that happens. The alarm will go and everyone sits inside, “It’s just another test, don’t worry. Just ignore it.” We do become very blasé because of some of those tests, don’t we?

Colin:  In an office and in the big towers, you can get people to do it. But we have 80-story residential towers all around Australia now. We really need to somehow get our residents focused on looking where their evacuation plan is, understanding it, and participating in the training.

Kevin:  Very good advice.And it’s such a terrible thing that we had to have a disaster like Grenfell to wake us up to this. But this is, as you say, a wakeup call. We should take notice of it and do something about it.

My guest has been Colin Archer, director of Archers, the strata professionals. Thanks very much for your time, Colin.

Colin:  Okay. Thanks a lot, Kevin.

 

Startup’s shake up the industry – Paul Broadfoot

Kevin:In our industry, in the real estate industry – and in many industries around the world – there’s one thing that most people are talking about right now and that is disruption. Modern businesses have never faced so much disruption.

Technology is evolving so rapidly that it’s driving new business models, bringing with it new market innovation opportunities with start-ups like Uber, who we’ve discussed on the show before, and Airbnb also we’ve talked about, shaking up and transforming industries.

How can leaders ensure that their own organizations stay relevant? I’m referring now to a book that’s been written by my next guest,Paul Broadfoot, and it is called Xcelerate.

Paul, thank you very much for joining us in the show. I’m keen to talk to you about this because it relates very, very strongly to our industry. The two examples that we gave there are two classic examples of what we’ve talked about in the real estate industry for what seems like a year or two now.

Paul, welcome to the show.

Paul:Thanks, Kevin. Glad to be here.

Kevin:  Firstly, the book is a great read. I’m just curious to know why current innovation efforts aren’t working for businesses.We’ve been very aware of disruption, but why isn’t it working in all instances, Paul?

Paul:   I think there are a couple of reasons for that. Certainly, as organizations get larger, we know that they’re harder to change. Something like 70% of change initiatives fail according to studies in the Harvard Business Review and things like that. Change is harder the bigger you get; that’s one reason.

But I think there’s also a lack of application at the moment. There’s not enough time spent scanning at the market level. There’s a bit going on looking internally at your own organization and there’s a fair bit going on looking at customers, but you have to go up another level to disruption. You have to go up to the market level, and there’s not enough time being spent on that.

Kevin:  Of course, when we talk about ways to combat this, we look very much at just our own products and our services because we think that’s the weak point. But I think one of the points you make in the book is that we need to innovate the way we work. Could you talk a little bit about that?

Paul:  Yes. For example, you mentioned Uber and Airbnb, and they’re poster children for the disruption that we see. There are two interesting things about both of those. The first is theyhave different business models. You would find that they’re often mentioned together as having the same one, as in the sharing economy. But if you flip them, if you change them, you don’t get any choice of the ride that turns up for Uber but you can get on Airbnb and you can choose from a selection.

If you flip them, if you press the button, if you are late out of a meeting – in Sydney, for example – you miss the last flight out, you hadn’t booked accommodation for that night, and you just hit a button and you got “Request Airbnb now,” you’d have a close by hotel room booked for you and off you go.

That’s one thing. People need some frameworks to look at disruption and see how to go about it. That’s very important.

And Uber and Airbnb also didn’t invent anything. The cars and the passengers were already there for Uber. They didn’t invent the technology of location-based technology on phones. It’s the same thing with Airbnb; it’s just bookings over the Internet.But they changed the way the market operated.

Kevin:  In the book, there’s a huge amount of research, obviously. I believe you’ve looked at about 5000 businesses and looked at the average life span of those. What did you learn about what they do in terms of developing new growth?

Paul:  At the moment, with disruption, new growth is about creating some new demand. There are two things. You have to worry about what’s happening to your current market share, what’s happening to your current pie, what’s happening to your slice of that pie, but a lot of disruption can actually unlock new demand and can expand markets.

More people have entered the ride-sharing industry. The actual taxi industry has increased in size because if people are running late for work and it’s raining, they’ll grab an Uber because it’s cheaper, whereas in the past they would have just been late to work. One way to generate new growth is to expand the size of the market – have your disruption change how people buy.

Kevin:  It’s identifying a need, too, and then catering to that need.

Paul:  Yes, that’s one way of looking at it and that’s the customer innovation side of things. The market innovation side of things is leading people to something new. If you ask them, they may not know – that old adage of you ask the customer what they want and in the old days they would have said a faster horse; they wouldn’t have said a car.

The frameworks that are in the book actually show people how to disrupt markets and create some new demand, not just ask customers for what they want.

Kevin:  Could that lead to a lot more business failure because maybe what you perceive they need is not what they really want?

Paul:  Yes.Or someone could be doing something else that could change the game on you. That’s the danger of disruption. You can’t always see where things are coming from.

There was a study done in South America about why the car-wash industry had declined by half over 10 years. They went through everything – competition, pricing, types of cars, economy, and all that sort of stuff – and they actually found better weather forecasting was the reason for the decline. So, it is hard to see disruption coming sometimes.

Kevin:  You know how we go through the process of doing research to find out what our customers will think about us but also what they need, trying to determine what direction we should take a business in. Is that a mistake that we ask those sorts of questions in this new age?

Paul:  It’s never a mistake to engage with customers; that can only be a good thing. But if it’s not done in conjunction with looking at potential changes of business models in your market, then you’re still going to be prone to disruption. It’s a very important thing to do, but it can’t be done to the exclusion of looking at what’s happening.

Kevin:  The book is called Xcelerate. The author is Paul Broadfoot. It’s available, I guess, at all good bookstores, Paul, is it?

Paul:  Yes, it certainly is – all the good bookstores that are still around that haven’t been disrupted by Amazon. Yes, it’s on all the online bookstores as well.

Kevin:  It is on Amazon, is it?

Paul:  It is on Amazon, yes.

Kevin:  Paul, thank you so much for joining us. I wish I could spend more time with you because it’s a fascinating subject. Read more about it – as I certainly will – in the book called Xcelerate.

Paul, thank you so much for your time.

Paul:  Thanks, Kevin. Great questions. Thanks.

 

In demand properties of the future –Michael Yardney

Kevin:  Here’s a great question: what property is going to be in strong demand in the future? What a great question, one that I guess property investors ponder quite often. To help us answer that, Michael Yardney joins me from Metropole Property Strategists.

Hi, Michael.

Michael:  Hello, Kevin.

Kevin:  How would you answer that?

Michael:  I think we have to have a look at the changes that are ahead for us, the changes with our economy, our demographics, the way we live, and our property markets, because that’s an important question for all investors, as you say.

It’s not what the next hot spot is going to be or what’s going to be important in the medium term. What’s your property going to look like in 20 years’ time? Who’s going to want to buy it, who’s going to want to rent it?

Kevin:  Let’s talk about the demographics first. What impact will they have?

Michael:  In my mind, our changing demographics will be more influential in the long term than the short-term influences of interest rates, bank lending policies, all those things that we tend to get worried about day to day.

It’s no secret that our population is aging, but the latest Australian Intergenerational Report shows that by 2055 – and that’s not that long away – the number of people over 65 is going to double.

Perhaps a bigger threat, though, is going to be the ratio of people in the workforce compared to the baby boomers – people in your and my age group – who are going to be retiring. We’re going to have less people in the workforce for every retired person. And what that’s really going to mean, Kevin, is we’re going to have to keep growing our population – and it won’t happen by natural growth but really by immigration – so that we have enough people in the workforce who are going to pay the taxes and allow the economy to keep going.

So, I guess the big, big factor we have to pay attention to is where are all these new people coming into Australia are going to want to live and what sort of properties they’re going to want to live in?

Kevin:  Great points. What about the economy, Michael? That’s obviously going to have a big effect.

Michael:  Yes. The mining boom is over, and we’re not really manufacturing things anymore either, so another important factor to property markets is what sort of jobs are people going to have and where are they going to want to live?

In general, as an investor, we’re going to want to find those areas where affordability is higher – not because properties are lower or cheaper, but because people can afford to buy and want to buy, because they have high wages.

Really, we’re going to be a service-driven economy in the future. IT, education, health are going to be the areas that are going to grow. That’ll translate to wages growth, the ability to pay for more properties. And in general, that’s going to be in our three big capital cities, and Kevin, in general, it’s close to the CBD. Those are the areas where property values are going to increase more proportionately than outer areas.

Kevin:  From what you’ve told me, Michael, we’re obviously headed for a period when the Australian market is going to be pretty well fragmented, I guess. Tell me about that. How are you preparing for that?

Michael:  What’s going to happen is that the requirement for living close to work, close to where the action is is going to create a disparity between the inner and middle ring suburbs and the outer suburbs of the capital cities. In fact, even the capital cities are going to be much more important than regional Australia.

It’s very different from the turn of the 1900s. At federation, more people lived in regional Australia and we lived off the land. And then coming into the period after the Second World War when we started to become a manufacturing country and people moved into our cities near the factories.

But nowadays, as our cities grow, how are we going to cope with that? Sydney is at 5 million people, Melbourne is at 4.6 million people. Cities over 5 million people start to become a bit unlivable. So, proximity to transport, proximity to public transport, and good infrastructure is going to be even more important, and I believe, Kevin, people are going to pay a premium in the future to live near those locations.

Kevin:  Obviously, Michael, just listening to what you’re saying now, we’re changing in terms of demographics, how we live, where we live, and so on. But there’ll always be a popular demand for detached houses. But we have to be aware that where people want to live is changing, isn’t it? A much more higher density.

Michael:  I think it’s a combination of more older people – remember that people over 65 are going to double in the numbers – more single households, one and two people households, and therefore we really don’t need those big McMansions with three or four spare bedrooms.

When they do the studies, Kevin, they find that most houses have got one, and many houses have got two extra rooms. They’ve got more TVs than they’ve got people in them. We’re going to have to live a bit differently. It’s a first world problem, isn’t it, Kevin?

Kevin:  It is. And I guess as investors, we’re going to have to take a long-term view, change our view about the style of property, Michael?

Michael:  Sure. There will always be people who are going to want to live in detached houses with a front- and backyard for their families, but I believe there’s going to be more requirement for medium density dwelling, townhouses, villa units, and apartments as people trade their backyards for balconies and courtyards, Kevin.

Kevin:  Well said. Michael Yardney for Metropole Property Strategists. Thank you for your time, Michael.

Michael:  My pleasure, Kevin.

 

Why Friday is not the best day to settle – Peter Maloney

Kevin:  It seems fairly traditional that when you buy a property, you probably want to settle on a Friday, thinking that maybe you can move in over the weekend. There might be some good reasons why you might want to rethink that strategy. A recent survey of conveyancers has brought to light some interesting insights into when it might be best to settle a property and why.Joining me to explain it, the GlobalX CEO, Peter Maloney.

Peter, this is some research you did. Were you really surprised about the busiest day being a Friday?

Peter:Kevin, thanks for having us on.

Not really. It’s been a long-held tradition in Australia that property settlements would occur on a Friday. It flies in the face of what you’d normally say contractual settlement times are because if you were signing up for a 30-day settlement, the calendar would suggest you settle on a Monday, and for 45 days, you should be settling on a Tuesday, and a 60-day settlement, you should be settling on a Wednesday.

But it appears that the long-held tradition of consumers wanting to settle on the Friday so that they can move in over the weekend has held true for a very long time.

Kevin:  There might be some good reasons why you shouldn’t. I was surprised to hear out of the research that one in five settlements is actually delayed due to human error. That could cause a lot of angst and grief, especially if you’re looking at a settlement at, say, 3:00 or 4:00 on a Friday afternoon.

Peter:  Absolutely. And Kevin, that is one of the most popular times. Settlements peak on a Friday between 2:00 and 4:00, so there is not much wiggle room between then and close of business on a Friday at 5:00 p.m. in the day.

Kevin:  You cite in the outcome of the research that some of the conveyancing errors include things like missing signatures. These small things can actually derail that settlement, but I would have thought a lot of that would be found well in advance of the day of settlement.

Peter:  You’d think so, but the small things that fail a property settlement occur every single day: misspelled names, inconsistency of the names between the contractof sale and the mortgage instrument. In those situations, you have two different groups preparing documents for one property settlement, and when humans are involved, errors creep in.

Kevin:  Is it becoming easier because a lot of these documents are done online? Are we doing away with paper?

Peter:  That’s the emerging great change that’s set to hit the property market in Australia. The emergence of electronic conveyancing would, in essence, remove virtually all human error from the settlement process but also give consumers the opportunity to settle on any day of the week and at any time, because we’re not relying on human capital to facilitate the property settlement.

Kevin:  Of course, there’s nothing to say that you’d have to settle one day and then move into the house the next day; there could be several days.And in fact, just thinking about this, if you had a settlement set for a Monday and there was a bit of a hiccup, it gives you some time to actually work through those issues. You don’t have to settle right then, but you may want to settle the next day.

Peter:  Absolutely. Yes, we would recommend to all your listeners that when you’ve just bought your property and you’re looking to negotiate a settlement day, try and aim for the middle of the week – aim for the Tuesday or the Wednesday. If anything does go wrong with your property settlement, it gives you two days through to that Friday and you can still bump into your new property on the weekend.

Kevin:  Buyers are entitled to have a pre-settlement inspection. If you go into the property and see an hour or two before the settlement is due that there is something wrong, it doesn’t mean the property can’t settle; you can simply withhold some funds at that point, Peter.

Peter:  That’s right. Final inspections is the third largest reason why scheduled settlements don’t take effect. And everything that your listeners would be aware of: it could be damages to the internal property or the description that they thought they were buying doesn’t actually hold true.

Final inspections, if they are done early in the week, it still does provide enough time to negotiate a final payment that is withheld or have the problem remedied.

Kevin:  That withholding funds is something a lot of buyers and sellers are not aware that they can do, but I imagine most solicitors would.

How many settlements are disrupted like that, Peter, in your experience?

Peter:  I’m not sure of the actual number, but overall around the country, around about one in five – so 20% – of property settlements don’t occur on the day or the time they’re scheduled to occur.

The most common reason is inconsistency on the documentation – and that is largely around names – or insufficient settlement funds being prepared on the day of settlement, and then comes final inspection, so it would be a large number.

Kevin:  I’ve been to a couple of settlements in my career, and I was so excited when I went to the first one. I thought there would be this wonderful ceremony, but it was almost like a non-event, just passing paper over.These massive checks were handed over, and it was all over in a matter of seconds.

Peter:  Absolutely. The settlement clerks require a meticulous eye for detail because the ultimate outcome is a proprietor’s name is registered on title. But there isn’t a lot of fanfare at a settlement. It is really document checking, exchange of checks, and the handing over of the title deed.

Kevin:  I wouldn’t recommend anyone go to it thinking there is going to be popping champagne. It just doesn’t happen.

Peter:  No, wait until they get into the new house to pop the champagne.

Kevin:  Absolutely. Peter, it must be a nightmare for conveyancers and property lawyers when everything comes to a head and everyone wants to have a settlement around 3:00 or 4:00 on a Friday afternoon. How have you got staff to cover it all?

Peter:  That’s a bit about the nature of the industry. The industry largely works on human resources that are relatively flat during the week and then on Fridays, the volume of staff working in property settlements jumps by about 50%. That gap is largely filled by casual staff, and most of those casual staff are studying law.

Kevin:  Yes, great experience for them.

Peter, great talking to you, mate. Thank you very much. Peter Maloney is the GlobalX CEO, and a brief explanation there about maybe changing your thought about when you should settle that next property. Peter, thank you very much for your time.

Peter:  Terrific. Thanks, Kevin.

 

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