08 Jun Class 1B buildings offer high returns + The 8 golden investment rules + Why all property managers are not the same
Highlights from this week:
- An untapped area of investment
- Frenchs Forest picked as a boomer
- A book about the game that teaches great investment lessons
- 3 styles of property management
- Emotions and property decisions – do they mix?
Emotions and property investment – do they mix? – Veronica Morgan
Kevin: My next guest on the show is Veronica Morgan. Veronica, of course, worked with Bryce Holdaway. You’ll still see them both, in fact, on Location, Location, Location, a great show featuring buyer’s agents helping people find properties in different parts of Australia. Veronica joins me.
Good day, Veronica. Long time no speak, but lovely to talk to you again.
Veronica: Nice to be back. Hello.
Kevin: Veronica has her own buyer’s agency based in Sydney called Good Deeds Buyer’s Agency, and I want to talk to you in this conversation – if I may – about emotions, property investing, and how some people say they probably don’t go together. Do you agree with that?
Kevin: Okay, a one-word answer. Is it something we should avoid, though, getting too emotional about a property if it’s going to be an investment?
Veronica: Look, I think that emotion plays a part, and I think the problem with people and how they address emotion in property investment is that we’re all taught or were told you have to buy with the numbers, buy with your head, don’t buy with your heart.
But the problem is who and what drives up prices in property? It’s not the head buyer; it’s the heart buyer. So, if you’re not buying a property with the idea in mind that this is a property that people are going to live in – and I’m talking residential here, of course – then if you’re forgetting or trying to forget the emotional part of that, then you are forgetting and omitting to consider a massive part of what drives capital growth.
Kevin: Okay. I’ll play devil’s advocate for a moment, if I may. The emotional part of this, though – if you’re not careful – can drive you to buy at any cost.
Kevin: And that is where the real danger lies, isn’t it?
Veronica: Yes, absolutely. And so what I’m coming at there is if you don’t acknowledge that there are emotions at play… And also even investors – even the coldest, hardest investors – sometimes their emotions cause them not to buy a property that they should buy, or they refuse to pay $10,000 extra when, really, that would be a good investment.
So, emotions go both ways. It’s still emotion even if you’re being hard and calculating. So, by acknowledging how emotions come into play – whether it be yourself or whether it be in future buyers or other buyers – then you’re aware that they do play a part, and then you can be more conscious of whether they are impacting you in a negative way or not.
Kevin: How do you work out if you’re becoming too emotional about a property? And if so, how do you avoid it?
Veronica: This is a really good question. Just last week, we launched a new podcast called The Elephant in the Room, and it is all about this. In the first episode, we actually interviewed a behavioral scientist who went along to his first-ever auction in Melbourne and observed all these subconscious biases that are being appealed to by not just the auctioneer but the whole auction process.
What is really interesting… And I’d encourage the listeners to go and check out the first episode of the podcast, because we outline a lot of the biases that are being appealed to. This is behavioral science. And so by acknowledging and recognizing how you can be impacted, that’s the first step. Awareness is the first step in being able to do something about it. And I’ll give you one example.
If you go to an auction, for instance, the auctioneer will often use a technique called anchoring, and that’s where they’ll enter into their preamble, for instance, or throughout the auction process, they’ll put in a number that is meant to draw your expectations up to it.
So, it might be that the agent, for argument’s sake, is quoted $500,000 for a property, and the auctioneer might be saying “Look, properties around this area are going for $600,000.” So, he or she is actually using an anchor to get buyers thinking a certain level.
Now, this isn’t conscious. The reactions that we have to these sort of anchors are not conscious; they’re actually deeply in our subconscious, but they can often encourage us to actually go over what we initially thought we would at an auction.
If you ever go and ask people and talk to people, many people… Because I ask people after auctions, “Did you bid higher than you thought you would?” And quite often, they’ll say yes. It’s that sort of thing. They’re open to the power of suggestion.
And by being aware of that and being aware that that can happen very easily, you can counteract that by actually making a very conscious decision to do your research before you go to auction, be very clear on the value of that property and very clear on your walk-away price, and have the discipline to remind yourself throughout the auction of that.
Kevin: Is there an opportunity at any time to use emotions to your advantage?
Veronica: Yes. I think if you are aware that other people are emotional, in an auction for instance, you can actually scare people off as well. So, yes, absolutely.
Kevin: And that is with the king bid? Is that what you’re talking about?
Veronica: Yes. There are a number of different ways that you can use it. That’s one. Another way, because of social proof – that’s another one of these biases, for instance – people look to other people for reassurance.
If you’re at an auction, the whole process of an auction is very much along those lines of social proof. So, you look to other people. “Well, they’re bidding, so therefore it’s a good idea to buy this property.”
Whereas in the current market, if things slow down, you might go to an auction and nobody else is bidding. And the lack of social proof is what other people are looking at, and they’re taking a negative cue from that.
But if you know it’s actually a good property and you’ve done your research and you know what it’s worth, you can still act reticent – because you don’t want to encourage anybody else – but you can be aware that others are being affected and impacted by that lack of social proof, and you can make a clearer decision yourself.
Kevin: Yes, because that social proof is alive and well in things like open houses. When you go to an open house and you can see a queue of people going in, you know straightaway that this is a popular property, and it reinforces your decision to buy it.
Veronica: Exactly, yes. And you start that mental game in your own head of going up in price.
Kevin: Yes, justifying why you may have to pay a higher price?
Kevin: It’s amazing how at the end of an auction if someone has paid a premium price for a property, how quickly they can justify that to themselves. I’ve seen it happen, and it constantly amazes me.
Veronica: There is actually a word for that – probably bias or auspices bias or something like that.
And it is about that thing. It’s such a big decision that you will then look for positive reinforcement because the concept of admitting that you made a bad decision is just too painful to bear, so I’m going to do everything I can to find reasons to reinforce why I made a good choice, why I acted well.
Kevin: Yes. language is a funny thing, and I have seen on many occasions where someone sold a property, they may have wanted, say, $700,000 for it and they might have gotten $650,000. To their mind, they’ve actually lost $50,000, but in the conversation with the neighbors, they’ll say “Oh, yes, we got our price.” They won’t talk about the price, but once again, that’s a case of justifying it, really.
Veronica: Yes. We don’t want to look stupid, do we?
Kevin: No. Language is a funny thing, how we justify these things. I also recall if I were having a conversation with a seller, as an example, and we were talking about figures, like a price range, if I said “$600,000 to $700,000,” I’d guarantee you they’d anchor themselves to the $700,000.
Veronica: Absolutely. In fact, this anchoring goes way back. It goes back to that appraisal process as well. There have been studies done with real estate agents where they’ve blind tested. Some have gone in with no idea of what the vendor’s expectations are and others have gone in with the understanding of what the vendor expected, and it absolutely impacts the appraisal the agent will give to those vendors as well.
And, of course, that then starts that whole snowballing of the entire campaign. It goes back to the impact or drawing up of people’s expectations or drawing down of them.
Kevin: Yes, it’s one of the reasons why in their training, agents are trained to try and get a price by saying “Can you give me an idea of the price range you’d be looking at?” before they go to do the appraisal.
Kevin: Fascinating. It’s a great subject.
My guest has been Veronica Morgan. Veronica is a buyer’s agent out of Sydney from Good Deeds Buyer’s Agents. You may have seen her on Location, Location, Location with Bryce Holdaway.
Always great talking to you, Veronica. We’ll get you back on the show more often, because I love talking to you. You just make a lot of sense.
Veronica: Thanks, Kevin.
Class 1B – first class investment – Frank Days
Kevin: More investors are becoming aware of the great investment opportunities offered in property, but there is an area that remains largely overlooked that can deliver impressive returns to investors.
Defined as a boarding house, guest house, hostel, or the like by the Australian Building Codes Board, Class 1B category buildings require far less paperwork and planning compared to traditional dwellings, so investors are able to circumnavigate the reams of red tape that is often associated with property development.
Frank Days is a property specialist, he’s from Modo Project Builders. He’s an expert in the field, and he talks about that in the latest Your Investment Property magazine. He joins me.
Hi, Frank. Thanks, and welcome to the show.
Frank: Thank you for having me, Kevin.
Kevin: This is something that very few investors are aware of, to my knowledge. Tell us a little bit more about the benefits of this, Frank.
Frank: Absolutely, Kevin. And I do believe it’s one of the untapped areas of investment, and not just from a providing affordable housing perspective but also for the investors themselves returning fantastic yields.
There’s a growing demographic of Australians out there looking for this type of accommodation, which means that our uptake… We can have these built within six months from breaking ground, and once they’re completed, hand over the keys. We can typically have these fully tenantable in four to five weeks.
They offer incredible yields, positive-cashflow properties, deriving multiple streams of income from the one asset, which means reducing your risk of vacancies, and the overall timeframe is really condensed compared to most of your projects that would return this type of yield.
Kevin: Yes. The moment we say things like boarding house… My memories of boarding houses are that they were very problematic in terms of maintenance and the type of tenant that they attracted, but that was largely because they were just old homes that were converted into boarding houses.
How has that changed, Frank?
Frank: Good question, Kevin. And that’s not an uncommon perception. We’ve taken that old concept of a boarding house and brought it into the 21st century. As you’d mentioned, the old-school way of doing these was taking an old property, slicing and dicing it. We’ve actually built these built for purpose.
We’re a small boutique building and design team that specializes in the shared housing space, and I do prefer to call it shared housing or shared accommodation as opposed to boarding houses because it does give it that back of the mind [2:52 inaudible] when you do hear that word “boarding house.”
Kevin: It’s a bit of a stigma. In fact, in your article in Your Investment Property magazine is a really good example of the layout, which we’ll get into in just a moment.
Frank, can I just ask you, is this type of development being encouraged by state and local governments? And if so, what sort of incentives are on offer for investors?
Frank: At this point in time, they are being encouraged by state and federal governments through land tax incentives, but I personally believe that we’ll see more incentives come along as the pressure for affordable housing comes upon us.
Kevin: Yes, it’s a very practical way for people to live, especially people who don’t mind living in shard accommodation. But there are some great benefits, because each of these accommodation places is pretty much self-contained in a sense, aren’t they?
Frank: Absolutely. Each room is self-contained with its own living area, bedroom area, and its own en suite, and we include a wet bar, which is effectively a small kitchenette setup as well.
Kevin: It all sounds fantastic, but there are always pros and cons with all of these things. Take me through some of the pros and some of the cons as well that we should be aware of before we jump into this.
Frank: I could list a large number of the pros – we’ve already talked about a couple – minimizing your risk with multiple streams of income, the yield that’s available, the fact that it’s a zoned res 1, so your red tape through council is reduced dramatically, so the timeframes are reduced, there’s no middle man, so you’re dealing directly with the builder, so there are no commissions involved with your real estate agencies as such.
The only con I can think of off the top of my head is at this point in time, we’ve been doing this for six years and we don’t have any resales yet, so it’s a little bit of an unknown quantity what these will look like as a resale product.
Kevin: My experience with boarding houses – and I use the term “boarding houses” because that’s exactly what they were, not shared accommodation like what we’re talking about now – the take up on those for investors is quite good because the returns are quite high. So, if you’re valuing it on return and you’re getting a better quality tenant, I would have thought the resale value is going to be fairly good.
Frank: The closest we’ve had is one of our early adopters was able to complete his project for $900,000. He did take it to market and got an offer as much as $1.3 million. And he knocked it back because he felt like he was better off keeping the product for himself and cashing in.
Kevin: Of course, one of the cons in the old days was that it was very hard to get insurance, but I understand now that that’s totally changed and there are insurance companies who will take on these shared accommodation properties.
Frank: Absolutely. And I think it’s much more tightly regulated these days, which has made things a lot easier for both insurance companies and financers to look at the product.
Kevin: You mentioned about no commissions, but does that mean that to get your help, we’d have to come to you to get the site as well? What about if I had a site that I thought was suitable and just brought that to you?
Frank: Most of our clients do come to us with a site in mind. They may already own it or they’re looking at a particular site. If that’s not the case, we do have a network of agents who will come to us with off-market properties, suitable properties they think we could use for our projects, and we then put that out to our database.
Kevin: Frank, what makes an ideal site?
Frank: Ideally, Kevin, the perfect site is 600 square meters – so 15 meters across the front edge and 40 deep – and flat. That is ideal. We can do the most. We can fit the most car parks. The site costs are reduced dramatically by making sure that it is flat. We can work with any size block. We will look at alternatives, but that will be the ideal block.
Kevin: You mentioned zoning. What sort of zoning would you need for this?
Frank: Res 1. That’s it. We don’t need any special permissions through council. There are no zoning requirements. It’s just a res 1, same as building a family home.
Kevin: Let me ask you then, from start to finish, once a site is found, to finish it, to complete construction and ready for tenants, is there an indicative timeframe? I think you mentioned a number of weeks, but what would it be from the word go?
Frank: Once the planning is completed, the build time is six months, so completely determined by the planning stage, which could take a month or two depending on the individual’s requirements. But yes, a soil test, survey, and we’re into it.
Kevin: So, we’re looking at about eight, maybe nine months if you have a site.
Kevin: You mentioned there about the experience you’d had. In closing, are there any other successful 1B developments that you’d like to mention?
Frank: The only thing I could say is they’ve all been successful. They all maintain over 95% occupancy rates. They all provide exceptional returns. Each one is specifically built for the owner, so they reflect their requirements. But they do continue to evolve, so if we were to say what was the most successful recently, you’d always say the last one, because they are evolving.
Kevin: Well done, mate. Okay. Frank Days has been my guest. Frank is a specialist in this at Modo Project Builders. We’ll put a link, I think, in this commentary as well. Your website?
Kevin: Frank Days has been my guest, and you can read a lot more about it of course in the current issue of Your Investment Property magazine.
Frank, thanks for your time, mate. Catch you again soon.
Frank: Thanks for having me, Kevin.
8 golden rules of investment – Stuart Wemyss
Kevin: Like me, you might have grown up playing Monopoly, a fantastic game. I can’t think of a better game to teach young people about money management and investing in property. We’d teach our grandkids. We’d play it with them. That’s why I was delighted to receive a copy of a book written by Stuart Wemyss called Investopoly, a very creative name.
In the book, Stuart details the eight golden rules to help you win at the game of building personal wealth. Stuart is a Melbourne-based financial advisor with over 20 years of experience. He joins me to talk about the book and his experiences.
Good day, Stuart. How are you?
Stuart: Very well, Kevin, and thank you very much for having me.
Kevin: Congratulations on the book; it’s a really good read. In the first few pages, you make a great point about questions and answers. Sometimes, it’s not knowing the answers but more importantly the questions to ask. Let’s talk about that.
What’s the most powerful question that we should be asking as property investors, Stuart?
Stuart: Without a doubt, Kevin, I think it’s the question “What actions can I take today so that I’m far better off financially in 20 years’ time?” I know that seems like a long time and a lot can change over 20 years, but what it really does is force you to think long-term.
And I think not only property investors but human beings tend to think too short a term, particularly with regards to finances.
Kevin: Yes, sometimes it’s important who you ask that question of, too, isn’t it? There are so many advisors and each one of them has a system or a theory about the best investment strategies. Is there one strategy that you think fits all situations?
Stuart: Probably not, but I guess one methodology fits all situations, and that would be an evidence-based approached. When I talk about evidence-based approach, I think most financial strategies – so if someone is recommended a particular course of action – can be proven or disproven – more importantly – with simple math and logic.
Nothing is too difficult that can’t be explained with simple math and logic. And if it can’t be explained, then that’s a red flag.
If you’re thinking about investing in a particular type of property or location or property investment strategy, it’s really a case of just sitting down and doing the numbers, and do they all add up? Is it actually going to help you stop work one day and generate a passive income?
Kevin: Yes, it could be a problem if you, one, didn’t understand and you’re just willing to take another person’s advice. You really have to make that proof yourself, don’t you?
Stuart: Exactly right, or ask the advisor to prove it to you. Again, if a strategy is fundamentally flawed – that is that there’s no evidence it’s going to work – they’re going to struggle to be able to do that. And if that’s the case, my advice would be just walk in the other direction.
Kevin: This is a property show, of course, and your book deals with investment and assets such as cash, shares, bonds, and property. How do you advise people going about developing a mixed portfolio of assets?
Stuart: At the risk of losing some of the listeners, I’d like to draw a golfing analogy. Obviously, a golf bag will have a whole bunch of different clubs, and the different clubs will do different things depending on what you need. And the same is true with investing. Property and shares and bonds and cash are all different assets and you need them at different times and they all do different things.
So, it really depends on what stage you’re at in the investment cycle, how close you are or how far away you are from retirement. Also, as I discuss in the book, different assets have different risk profiles, and one thing that I found while writing the book is there really wasn’t much discussion around volatility in property.
Volatility is the amount the price of an asset will change over time. We all understand the share market is relatively volatile, and it has a 20% volatility rate or risk rate, if you like. Property has… And what I did is took the average of Melbourne and Sydney as they’re both very diversified and developed markets. Property has a volatility rate of 10%, half of that of shares. And bonds have a volatility rate of somewhere between 5% and 7%.
So, if you’re a risk adverse investor, that would suggest that property is probably a better asset depending on your life cycle and stage of life than shares.
Also, different assets have different correlations. When property rises, interest rates are going down, and vice versa. I found that there’s no correlation between Australian residential property and the share market, so you can invest in those two assets and that’s okay, but there’s a strong negative correlation between bonds and property prices, which makes sense because bonds are really about interest rates.
So, that says to me that if you’re a property investor and you’re heavily invested in property, then probably you should have a more conservative asset allocation in super – so there’s more exposure to bonds – because that will work at a portfolio level.
Kevin: Talking about property, developing a portfolio, we do know that very few people get past one or two investment properties. What stops them, Stuart?
Stuart: I’m not sure. Maybe failure to think longer term. I think we all over-estimate how much time we have left before retirement, and time just seems to get away from us.
So, I think it’s just about sitting down and developing a bit of a strategy. What does it look like? Is it buy one or two or three investment properties and then contribute to super, or something along those lines? Develop a strategy and then just go about implementing it rather than thinking “Oh, it’s something I’ll get to at some stage,” and one day you wake up in your 50s and you think “Oh, well. I have to retire at some point.”
Kevin: In rule number three in your book, you deal with cashflow. What are your golden rules for good cashflow management?
Stuart: It’s actually really simple, Kevin. It’s the old adage: you can’t manage what you don’t measure. So, it’s really just about measuring it, understanding where your cashflow is going, and then you’re able to make deliberate decisions.
And I find people mostly waste money. My definition of wasting money is spending money on things that really don’t matter, that really don’t add to your standard of living. And you’ll find that if you don’t measure your money, you will be spending on things that actually don’t add to your standard of living, which you can cut out and you don’t actually feel it.
The simple answer is to really just know where it’s going, and there are lots of different apps, and the banks are providing different data and facilities there for Internet banking to help you do that.
Kevin: You’re talking there about banks. The Banking Royal Commission has unearthed some astounding facts about our relationship with lenders. Do you think that’s going to drive more and more people to brokers?
Stuart: I think so, Kevin. And look, I might have a conflict of interest here, obviously. My business is part mortgage broking as well. But I think there are probably three things that people can consider. The first one is that most brokers offer whole of market advice, which means they’ll typically have more than 30 lenders on their panel, which would represent probably 99% of the mortgage market.
The second thing is that it doesn’t cost people anymore to use a broker than going direct. More often, a broker would negotiate a better deal.
And lastly, if you find a broker who’s an investor themselves, it’ll actually pay a lot of dividends, because if they’re investing themselves, they would have been faced with the same challenges that they’re trying to help you with, and they’ll be able to give you good quality advice into how to structure and really how to maximize your property portfolio.
Kevin: Yes. Great advice. Stuart Wemyss is the author of a book called Investopoly. Have a look for it. It’s available at all book stores, Stuart, is it?
Stuart: Yes, absolutely.
Kevin: Excellent. Okay, and Stuart’s company is ProSolution.com.au. Stuart Wemyss has been my guest. Stuart, thank you. Congratulations on the book, I look forward to talking again soon.
Stuart: Thanks very much, Kevin.
Not all property managers are the same – Tara Bradbury
Kevin: As property investors, we quite often think of property managers all being the same. But you see, inside each property management, there are different systems – different management systems. There are three main ones: portfolio, task, and pod management.
Joining me to talk about all three, and to give you a bit of an insight as to how they work and maybe help you decide – next time you have to pick a property manager, you can ask them what kind of management system they use – Tara Bradbury is one of Australia’s best property management trainers. She works with great property management businesses in Australia and overseas, and she joins me now to talk about these three.
Tara, thank you very much for your time.
Tara: My pleasure as always, Kevin.
Kevin: Let’s have a look at these three: portfolio, task, and pod. Just tell me the differences between each one.
Tara: Absolutely. And I agree that it’s a great question for everyone to know and ask about, because there are lots of different dynamics as to how the property can sit within a department. It’s important for everybody to know.
The task-based side is where as a landlord, you’re going into a business and you’re focusing more individually on the specific task, which means that you can have someone in that key area who is very talented in that area.
So, they could be a strong communicator, and then they’ll be put in a role that’s more communication-based, which could be during the routine inspection with the tenant and having those strong conversations – it could be around rent arrears – and they could have heavier strengths within that communication side and that could be really relevant.
However, once you separate all those roles, then there are quite a few people to be talking to, and that can sometimes be confusing for the client.
Kevin: So, from an investor’s point of view, if they’re dealing with a property management business where they’re getting input from a number of people, it’s a possibility that it is a task management-style operation?
Tara: Yes, absolutely. And sometimes, businesses do need to do that – if they’ve had a staff member maybe leave, if they’ve gone on maternity leave, or they’ve had maybe a sudden sickness that nobody expected. So, the best situation for them to do might be to get a certain person or another assistant person to help solve that problem in the interim, and both heavily qualified, but sometimes you might need to then talk to more than one person.
I don’t say that it’s not the way to go in the way of how you should set up a property management business, but it is certainly one that I found very more popular in the areas of up to that first 200 properties.
Kevin: The portfolio style is typically where an investor will be dealing with one person who covers off everything for them, but I guess the frustration here is that if that person leaves, then you get the feeling that “Oh, goodness, here we go. Here’s another one,” you get the feeling of a lot of change in a property management business.
Tara: Yes, that’s right. I find that it’s a mixture of feelings around the portfolio. To me, it’s still definitely a popular way to go, and people like to know who they’re talking to and feel that ownership of that one person to talk to. Because many other industry providers, you have to go through call centers just to get to a person in the beginning, so there’s always that frustration there.
But again, we always want to try to make sure that who we are talking to is the right person, and I found that portfolio is good for that because they’re going to be the main set of eyes on your investment property consistently through the entire process. So, from the very beginning, doing the initial condition report, routine inspections, that maintenance conversation with you, all that process is done with them one on one.
Again, yes, there’ll be times when they’re out of the office and they won’t be there for you to have access to them because they’ll be in other meetings or appointments, which is fair. It’s not just the one property that they look after for yourself.
So, that can sometimes have its moments because we all like to have answers for everything yesterday. But at the same time, there’s certainly value in knowing you’ve got that one person to speak to.
Kevin: Okay. Then the final one is pod management. Tell me how that works.
Tara: It’s probably something that’s come in the last couple of years and I’m finding appears to be a bit more of a popular structure because there is more than one person. So, you’ll find that if your property is involved in a pod situation, it can tend to be a larger portfolio but it has multiple staff.
Most will have at least up to two working in a pod, and sometimes they might attract an assistant as well, if need be, and you then are talking to two different people. It could be that one might have had a bit more experience in the business and the industry and then they’re inviting someone into that pod who’s in training, and that’s a really good training model to teach them along the way what needs to be expected of them rather than putting them straight into a portfolio and having to go from start to finish in the early stages, which can be quite eye-opening for that person.
But the communication side I found is one area that the client is really enjoying, because they know if one is out and about doing routine inspections or they might go on leave – which we do do; we have our four weeks throughout the year like everybody else – they know that there’s somebody in that pod who will know what’s going on.
There’s always going to be one who might know a little bit more and is retained in the trust program to be able to share information of conversation points that have happened, but you have two people to talk to.
Kevin: So, the experience that an investor would have in a pod style is more the team relationship, so you’d be getting experience across a team. It could only be a couple of people.
Tara, it’s been fantastic talking to you. Thank you.
Portfolio, task, and pod are the three management styles we’ve talked about today with Tara Bradbury. Tara is from BDM Academy. You probably won’t be dealing with her if you’re an investor, but I’ll tell you what, if you talk to a property manager, they’ll know about Tara Bradbury, I can tell you.
Good on you, Tara. Great talking to you.
Tara: My pleasure. Thanks, Kevin.
Sydney hidden gem – Michael Ossitt
Kevin: As we know and we’ve identified many times in the show, there are different markets all around Australia. It’s very easy to put all your eggs in one basket, to say that the Sydney market is tanking or the Sydney market is going to be improving, but once we dig deeper, we find that even though a market may be slowing down a little bit – which are all the signs coming out of Sydney – there are markets within markets. And one of those that we’re going to feature today in the show and talk to a buyer’s agent about is Frenchs Forest.
I’m going to introduce Strand Property Group director and Sydney buyer’s agent Michael Ossitt, who joins me.
Michael, it’s interesting, isn’t it, when we dig deeper into an area like Frenchs Forest to find that there are some absolute hidden gems in amongst what could be a declining market.
Michael: Absolutely, Kevin. This is the thing about what’s reported in the media about the strength of the Sydney market – or not the strength of the market, as the case may be – and when you dig deep into smaller markets, you actually see demand still outstripping supply, which I believe is the case in this area.
Kevin: One of the indicators we like to look at in the show is how long it takes to sell a property, and looking at your figures – or I think the figures that may have come out of Location School – it takes on average 52 days to sell a house in Sydney, but in Frenchs Forest, it’s only seven days. What’s behind that? Is it a shortage of stock? Is it realistic prices?
Michael: It’s definitely a shortage of stock. What we’ve had in Frenchs Forest over the last couple of years is a proposed rezoning of the area. Many people might know there’s a brand-new hospital under construction at the moment, which will open at the end of the year, and the council and now the state government have actually proposed to rezone the area around the hospital to create more dwellings.
What’s happened is existing residents around the area are sitting on their hands to see what happens, because there’s potentially obviously an uplift in valuation of their property if it does get rezoned to medium density housing.
Kevin: Just a couple of points come out of that, and one is I wonder what the reaction is of locals who don’t want to sell. Always when you get an indication that the council are going to put more density in, you get a lot of objections to that.
Are you seeing that at all, Michael?
Michael: Absolutely. There’s definitely quite a bit of tension in the area, just the uncertainty of what’s going to happen. You have residents who have been there since the 1960s when the suburb was first established. These people have grown up in the houses, had families there, and now with the introduction of new development, it has shaken things up a little bit. And some people don’t necessarily want to sell, and so it has been forced upon people somewhat.
So, yes, there are definitely two sides to it in that respect.
Kevin: Those people who are holding on, waiting for a better time to put it on the market, maybe when things get a little further down the track… I think the hospital is due to open in October this year; is that right?
Michael: Yes, end of October.
Kevin: I think it’s a false premise – isn’t it – to think “I’ll sit on my hands and wait,” when probably the best time to be selling is right now when the demand is so high and stock levels are low.
Michael: Yes, you definitely have more buyers than there are sellers, so to negotiate a good price is certainly a good opportunity.
I think what’s happened in reality is that you have vendors with maybe too high an expectation at the moment because of that. They’re taking sentiment from the rest of the Sydney market. You probably have a case of vendor expectations being too high, and maybe buyers looking at the moment a little lower, although things are obviously moving a lot quicker than the rest of Sydney.
But in terms of the long-term projection, I think it’s a good opportunity for both sides, really, certainly buyers.
Kevin: Is there still talk of a second harbor crossing?
Michael: That’s on the cards for the long-term. I know the state government wants to make that happen. I don’t expect anything to actually come to fruition for maybe another ten years. It would take that long to build it.
But if that does happen, it certainly opens this area up in terms of much quicker access into the city. The proposal is for a tunnel to go under Middle Harbor, which would bypass the notorious Spit Bridge, which is obviously a bit of a bottleneck.
Kevin: That’s a bottleneck that one, for sure. I’ve been caught on that one for a few occasions.
Of course, Frenchs Forest is pretty close to the city, isn’t it? We’re only like 10 or 12 kilometers away.
Michael: Yes, probably 13 kilometers from the CBD. So, it’s been under the radar in terms of people’s knowledge of the area, but you still have close proximity to the city. You’re probably less than five kilometers from the beaches, Dee Why, Manly and Queenscliff, those areas.
Yes, we find that a lot of people are looking at the area now from close to the city or close to the beaches and actually seeing more value in that area.
Kevin: The median has grown a bit too, I think, just looking at some of the stats, from $1.5 million up to just a touch over $1.6 million this year.
Michael: Yes, and that’s what we’re seeing. We’re definitely seeing a trend in the Sydney average median. It certainly peaked at the start of last year, and it has slowly eased back through the end of last year and again in the beginning of this year, but what we’re seeing in the data is that the median in Frenchs Forest has gone up from $1.58 million in March last year to $1.65 million at the beginning of this year.
So, it’s actually continued to strengthen while the rest of the Sydney market has cooled off. I think that just goes to show that demand that’s there.
Kevin: Good work, Michael. You enjoy your time in Frenchs Forest. Happy selling, and thank you very much for joining us.
Michael Ossitt has been my guest, and Michael is from a company called Strand Property Group. He is the director and buyer’s agent for them.
Michael, thanks for your time.
Michael: Thank you, Kevin. Have a good day.