Introduction
Our Company aims to take the worry out of residential property development/investment from parties seeking to enter the residential market in Melbourne.
The objective is to select suitable property, obtain the relevant permits (Town planning through to Building) arrange finance, construction of the dwelling(s) and sale of the property.
We are able to provide all or part of these services depending on the level of service required by the client. Please note, that we do not provide financial or investment advice, and you should seek suitable advice in relation to the suitability of any investments you make.
Objective
Our objective is to locate properties that are suitable for development or re-development, and can provide a return of approximately 15% to the client.
Experience
Our experience is diverse and ranges from Construction and Property Development to Banking and Finance and Construction Insurance Risks.
Our Property Development and Project Management experience ranges from single home projects through to multi unit developments. The largest project managed by us is a 22 dwelling apartment re-development.
Proposition
The proposal is to seek suitable Partners/Investors who wish to start a property development business in Melbourne, and need assistance and guidance in going through the process.
Our method is that the client must at all times be able to control the process. Therefore in most cases the client will be the owner of the Property. All Ownership as well as liabilities will rest with the client, which enables our clients to control the entire process with guidance and assistance from us from purchase through to sale of the property.
Our aim is manage the investment for the investor from purchase though to sale in order to ensure appropriate risk management and protection of returns to the investor.
Return on investments (ROI)
The ROI is generally dependant on the nature and risk of a project and the investor's appetite for risk. It is also dependent on the level of gearing available in developing the property.
As an example, a single dwelling development may achieve a return of approximately 10% of the project cost. By using gearing this can be increased to over 25% of invested capital. A single dwelling is generally considered a lower risk proposition and therefore the return is commensurate with the level of risk.
Multi Dwelling propositions will generally provide a return of approximately 15% of total investment and over 40% of invested capital using gearing. The annualized rate of return will depend on the scope and length of time required to complete the development from purchase through to completion.
It should be noted that using gearing strategies to increase the rate of return on the investors capital also increases the risk profile of the investment. Please refer to Risks in Development segment.
Market Overview
In the last 2 years the overall housing market has shown a drop in prices and a fall in capital values. In 2013 the market has stabilised with improved auction results in the inner suburbs and good sales results in the outer suburbs of Melbourne contributing towards a small increase in prices experienced in the quarter to March 2013.
Our view for 2013 is that investors should approach the market with cautious optimism. The improved market conditions seem to be progressing at a slower than anticipated pace into higher property prices. In fact the market is showing static values indicating a bottoming out of the market. However, it can be argued that static house prices coupled with the low home loan interest rates offered by the banking sector has contributed towards an ideal buyers market.
In conclusion among the many forms of investment available history has proven beyond doubt that one of the safest assets to invest in is the property market.
Purchase Price
As simple as this sound's this is a significant risk that is often not considered. Most often when a buyer becomes emotionally attached to a property or its appeal, it is likely that they will pay in excess of the market value believing that they can "save" money in another area of the project.
This risk is sometimes magnified in a rising (or falling) market as it is difficult to assess the true value of a property.
We manage this risk by starting with the resale value of the property and working backwards from profit requirements to achieve the estimated value or purchase price. It is our aim to buy the property at or lower than our estimated value.
Development Risks
This is risk involved with the objectives of the project. There needs to be consideration given to the possible uses of the land and any restrictions placed on a buyer in terms of what can or cannot be constructed on a property. When undertaking a single dwelling development this risk is negligible. However, it is a very high risk when considering a multiple dwelling development.
Management of this risk comes down to experience and understanding of property development. Where necessary we obtain second opinions or technical expertise from specialist consultants. It is a risk that can be challenging to manage and even the experts sometimes get it wrong. However, when successfully managed it brings a good return on a project.
Construction Risks
An increase in construction cost is also a common occurrence and can bring unknown and significant costs to a project. The reason for this is that at time of purchase construction costs are at best an estimate, and cannot be accurately established until the works are finalised and priced.
Even after all works are finalized the costs can increase due to issues that may arise while works are in progress. This risk can also be amplified in the event of the builder not being able to complete the project on time or by the builder becoming insolvent.
Management of construction risk starts prior to a property being purchased by assessing possible difficulties with site access etc and any possible hurdles to construction. Then right through from Architectural plans through to completion of Construction. It does not stop until the property is handed over to a purchaser.
We also aim where possible to complete the construction ourselves to avoid the risk of being impacted by a third party.
Sales Risks
This is without question the most significant risk in Property Development. The prime reason for this is that generally there can be a significant time lag between purchasing a property and completion of a sale. In that time there can be changes in the market place and sentiment.
Our method of managing the sales risk is to add a "WOW factor" or point of difference to most developments. By doing this we expect that a prospective purchaser looking at 10 similar properties will choose our property over the others.
By constructing the buildings ourselves we also expect to have a price advantage over other similar products. We will also put in place strategies to sell the properties before and during construction so as to minimize the impact of changing markets.
