BANBURY VILLAGE - BOTANICA

Transcription

1 HEADING BANBURY VILLAGE - BOTANICA HEWITT AVENUE, FOOTSCRAY, MELBOURNE VIC 3011 Due Diligence Report GROWTH CASH FLOW Blue Wealth Property l 1

2 DISCLAIMER DISCLAIMER The information in this document is not investment advice. The information in this document has been published as an information service. The information contains general information and does not take into account any investor s particular circumstances and needs. Each investor should consider whether the information is appropriate for his or her particular needs, financial situation and investment objectives. While the information provided by Blue Wealth Property is believed to be accurate, Blue Wealth Property does not accept responsibility for any inaccuracy or any actions taken upon reliance of the information in this report. No returns or performance is guaranteed. Any forecasts are dependent on the current market conditions and knowledge available at the time of producing this document. Important Notices This information is subject to change without notice. Updated information can be obtained by contacting Blue Wealth Property on (02) or their authorised Business Partner. Blue Wealth Property 2014 l 2

3 Contents BANBURY VILLAGE - BOTANICA HEWITT AVENUE, FOOTSCRAY, MELBOURNE VIC 3011 Project Summary Who is Blue Wealth Property? Research Methodology City Overview Location Overview Developer Profile Project Details Financial Analysis Risks Rental Appraisal Visuals Floor Plans Blue Wealth Property 2014 l 3

4 PROJECT SUMMARY Ø101 apartments Ø57 one bedroom apartments priced from $315,000 Ø44 two bedroom apartments priced from $418,000 ØWell designed and finished ØASX listed developer ØFootscray is in the midst of an evolution that has begun to change the face of the suburb ØStrong arts and cultural scene ØFootscray is a major public transport hub for Melbourne s west Blue Wealth Property 2014 l 4

5 WHO IS BLUE WEALTH PROPERTY? Blue Wealth Property is a specialist research house that studies the Australian property market and identifies growth areas and investment opportunities. We are leaders in the industry. Our research methodology is the result of over a decade of experience and years of refinement. Our team has a proven track record in identifying investment properties that outperform the market, and by doing this we have helped thousands of Australians create wealth. Blue Wealth does not work directly with the public; instead we distribute our research and approved properties through a national network of business partners. This Due Diligence Report has been produced to provide our business partners and their clients with information to assist them in making their investment decisions. scan the QR code to watch the Blue Wealth video Blue Wealth Property 2014 l 5

6 RESEARCH METHODOLOGY Blue Wealth s research methodology has been developed by a team of industry professionals and combines years of experience, study and analysis. It is the country s most comprehensive, up-to-date research methodology. Our methodology adopts a macro to micro approach and has three steps: STEP ONE - MACRO RESEARCH This step uses macro economic analysis to identify geographic regions that are likely to experience strong capital growth. Our research indicates that the following key drivers impact capital growth in the property market. f f Population & Demographic Changes f f Economics & Employment f f Infrastructure Spending f f Supply & Demand STEP TWO - MICRO RESEARCH Once a region has been identified as having strong growth potential, Blue Wealth s process of micro research is then conducted. Our micro research includes analysis of: f f Value f f Transport f f Quality Supply & Demand Rent Amenities Economics & Value Employment GROWTH CASH FLOW Design Infrastructure Spending GROWTH CASH FLOW Transport Quality Population & Demographics f f Design f f Amenities f f Rent STEP THREE - BLUE WEALTH INDEX Every property is then rated on a scale of 1-10 for its potential: f f Growth f f Cash Flow Growth is the key for creating long term wealth, however we recognise that many clients are sensitive to cash flow and as a result Blue Wealth only approves properties that have scored seven out of ten or above for both these categories. The Blue Wealth Index provides investors with a simple way to compare investments and ensure they acquire properties most suitable for their portfolio. RATING: BANBURY VILLAGE - BONTANICA, Footscray Blue Wealth recommends the property based on the strong Growth and Cashflow potential Blue Wealth Property 2014 l 6

7 CITY OVERVIEW - MELBOURNE INTRODUCTION Australia s second largest city and the capital of the state of Victoria, Melbourne is a leading financial centre in Australia as well as the Asia-Pacific region. It is one of only two Australian cities, the other being Sydney, to feature on the Global Financial Centres Index of top rated centres of finance. It has been ranked the world s most liveable city since 2011 (and has been in the top three since 2002), according to the Economist Intelligence Unit. If current trends prevail, Melbourne is projected to overtake Sydney as Australia s largest capital city by Melbourne is an international cultural, sports and entertainment centre. The Southbank precinct is home to the Arts Centre, the Melbourne Theatre Company, Malthouse Theatre, Recital Centre and the National Gallery of Victoria. Federation Square, home to major cultural attractions, world-class events, tourism experiences and an array of restaurants, bars and specialty stores, has become the city s meeting place and cultural hub. In 2008, Melbourne became the second city after Edinburgh to be declared a UNESCO (United Nations Educational, Scientific and Cultural Organisation) City of Literature. The cities in that network promote the local creativity scene and foster UNESCO s goal of cultural diversity. The city hosts major local and international sporting events, including the Australian Tennis Open, the Boxing Day test at the MCG, the Melbourne Cup, the Australian Formula One Grand Prix and the AFL Final Series. POPULATION AND DEMOGRAPHICS As of June 2013 Greater Melbourne had a population of 4.35 million, living in 1,660,305 dwellings with an average household size of The rate of growth in Melbourne was larger than in any other capital city, with numbers swelling by 95,500, or 2.2 per cent, on the previous year. In the year to June 2013, Victoria added the largest number of people 106,800 followed by New South Wales (103,200) and Queensland (88,600). Greater Melbourne accounted for 76 per cent of Victoria s population, with regional Victoria experiencing a slight 0.8 per cent increase and some areas, including the north-west of the state, declining. Melbourne has been growing faster than Sydney over the past decade, according to the Australian Bureau of Statistics (ABS), and is set to become Australia s most populous city in 2051, with 8 million people. To accommodate this growth, the city will require approximately 1.6 million additional dwellings than that currently available. Greater Melbourne is projected to account for more than 80 per cent of the state s growth in the years to Population growth cannot be analysed in isolation. Equally important is an analysis of how the makeup of the population is changing and how it is likely to change in the future. Much government policy is based on the evolution of a population s age structure, gender or living arrangements. The way we live provides policy makers with the information they need to plan for future demands for housing, land and infrastructure. An increasingly dominant proportion of Greater Melbourne households are occupied by one person (as of the 2011 census, 23.3 per cent) or occupied by couples without children (25.3 per cent). Between 2006 and 2011, households with either of these compositions witnessed a proportional increase in size at the expense of households made up of couples with children. From a practical perspective, this means that 48.6 per cent of Greater Melbourne households require only one bedroom. Australian Bureau of Statistics projections indicate that the proportion of lone person households will increase to 28 per cent by 2031, eventually making this component the second most common household structure in Greater Melbourne. In addition, couples without children households are projected to increase to 27 per cent. The trend toward smaller households of one or two people is driven by the ageing population, which contributes to an increased proportion of one and two person households, as well as the growing tendency for women to delay bearing children, instead focusing on career advancement. This is evidenced by the 18,000 person increase in young couples (15-44 years) without children between 2006 and ECONOMICS AND EMPLOYMENT Greater Melbourne contributes the second largest proportion of share to Gross Domestic Product (GDP) (after Sydney) to Australia. With output in excess of $260 billion ( ), the region contributes 17.3 per cent of total Australian output and accounts for over 78 per cent of the $330 billion Victorian Gross State Product (GSP). The most significant change to the Melbourne economic landscape in terms of magnitude of contribution to GSP has Blue Wealth Property 2014 l 7

8 CITY OVERVIEW - MELBOURNE been the shift from an inwardly focused manufacturing economy to a globally focused, knowledge-based service economy. This evolution has allowed for a more diversified base of employmentgenerating industries, which has strengthened the resilience of the city s labour market to external shocks and structural adjustment pressures. The figure below depicts the change in Greater Melbourne GDP contribution by industry between June 1992 and June Melbourne is home to the headquarters of many of Australia s largest corporations, including five top ten firms in terms of revenue and four of the largest six in the country based on market capitalisation (ANZ, BHP, NAB and Telstra). The city is also home to Australia s largest and busiest seaport, which handles more than $75 billion in trade every year (more than Adelaide, Brisbane and Fremantle ports combined, and around 50 per cent more than Sydney), and 39 per cent of the nation s container trade. INFRASTRUCTURE AND INVESTMENT The Victorian government has recognised infrastructure as the key to maintaining Melbourne s status as the world s most liveable city, now and in years to come. As a result, the Plan Melbourne vision was conceived. Plan Melbourne is a policy adopted by the government that was designed to guide Melbourne s housing, commercial and industrial development through to It seeks to integrate long-term land use, infrastructure and transport planning to meet the population, housing and employment needs of the future. Over this period, Melbourne slowly closed the gap on Sydney in terms of the income generated as the main hub for Professional and Financial Services in Australia. A decade ago the value of these two industries was $50 billion higher in Sydney than it was in Melbourne. In the gap was $25 billion. The growth in the Professional and the Financial Services industries can be attributed to investments made by the state government over the past two decades. Development of Southbank and Docklands provided the central business district with Greenfield developments (Greenfield land is undeveloped land in a city or rural area either used for agriculture, landscape design, or left to evolve naturally) to accommodate significant levels of new employment, while road projects, such as the Western Ring Road, CityLink and EastLink, helped to improve connectivity across the city. In 2011, 1,927,927 people living in Greater Melbourne were employed, of which 66 per cent worked full time and 34 per cent part time. If recent trends continue, over 1.7 million new jobs will be created in Melbourne by 2051, with a large share based in the central city and adjacent inner suburbs. Melbourne s evolution toward a professional and financial services centric economy resulted in there being more professionals in Greater Melbourne in 2011 than in any other occupation. At the same time, 13 per cent of the population earned an income of $1,500 or more per week in 2011, compared to 11.6 per cent of Victorian census respondents. Plan Melbourne is an integrated land use and transport plan that will recognise the evolution of an Integrated Economic Triangle to be delivered by The Integrated Economic Triangle will connect the Hastings Dandenong corridor with the Hume corridor to the north and the Wyndham Geelong corridor to the south-west. It includes: An expanded central city East West Link and the North East Link Melbourne Rail Link (including the Airport Rail Link) CityLink-Tullamarine widening Outer Metropolitan Ring Road (which will connect Geelong and Avalon with the Hume Freight Corridor). This dedicated approach to infrastructure is the result of intelligent and efficient planning policies that will cater for Melbourne s sustained population and economic growth. The construction and implementation of these projects will in turn lead to more employment and population growth. Some major Melbourne projects include those listed below. Approved Melbourne Rail Link The $10 billion Melbourne Rail Link project is a planned rail project forecast to increase the capacity of Melbourne s rail network by 30 per cent. The project will deliver a rail link to Blue Wealth Property 2014 l 8

9 CITY OVERVIEW - MELBOURNE Melbourne Airport. It will also enable the delivery of 30 additional peak hour services across the network, moving 35,000 extra passengers. Early works are planned to commence in The project will deliver: Tunnels from Southern Cross Station to South Yarra as part of a new Frankston to Lilydale/Belgrave line New underground stations at Fishermans Bend (Montague) and Domain New underground platforms at Southern Cross and South Yarra stations The Melbourne Airport Rail Link, connecting Melbourne Airport to Southern Cross Station and the Cranbourne-Pakenham corridor A package of tram and bus improvements to the Parkville precinct. CityLink-Tullamarine Widening Upgrading CityLink from the West Gate Freeway to north of English Street on the Tullamarine Freeway will increase the road s capacity by up to 30 per cent during peak periods. The $850 million project will add extra lanes in each direction between the Bolte Bridge and the Tullamarine Freeway just north of English Street, Essendon Fields as well as extra lanes on the Bolte Bridge and a section of the West Gate Freeway (eastbound) between Bolte Bridge and Power Street. The upgrade will save road users up to 16 minutes per trip between Melbourne Airport and the West Gate Freeway during peak periods. Construction of the extra traffic lanes will commence in early 2015 and is expected to take approximately two years. The upgrade will be integrated with the East West Link. Fishermans Bend Urban Renewal Area In July 2012, the Minister for Planning announced the largest urban renewal area in Australia, located approximately one kilometre south-west of Melbourne s Central Business District (CBD), sitting within the City of Melbourne and City of Port Phillip s boundaries. The 250 hectare Fishermans Bend Urban Renewal Area has been declared a site of state significance and rezoned as part of an expanded capital city zone. This rezoning expands the capital city zone by more than 50 per cent and is expected to accommodate around 40,000 jobs and 80,000 residents. On Monday 16 September 2013 the Victorian government released the Fishermans Bend Urban Renewal Area Draft Vision and Interim Design Guidelines for community consultation. E-Gate Redevelopment Major Projects Victoria is undertaking feasibility and development delivery work of the 20 hectare E-Gate site. Located in West Melbourne, just 2 kilometres from the CBD, E-Gate will help support Melbourne s projected growth by providing housing for up to 10,000 residents and 50,000 square metres of commercial and associated retail space. The potential inclusion of public facilities such as sports fields, a library and possibly a school will help to attract families, as well as the young and the old, to create a vibrant mixed community. Current Projects East West Link The East West Link is an 18 kilometre cross-city road connection extending across Melbourne from the Eastern Freeway to the Western Ring Road. With an estimated value of $18 billion, the East West Link will be among the largest infrastructure projects ever undertaken in Melbourne. This project is expected to start late 2014, with completion by The first stage of the East West Link project is the eastern section, a 6 kilometre link from the Eastern Freeway in Clifton Hill to CityLink in Parkville. The new road will reduce the need for east-west traffic to use congested residential streets in the inner north and inner west. Regional Rail link The $4.8 billion Regional Rail Link project (90 kilometres of new track) is a vital piece of infrastructure for the booming western suburbs and regional Victoria, and for passengers across Melbourne s rail network. Dedicated regional tracks will be built from West Werribee Junction to Deer Park, then along the existing rail corridor from Sunshine to Southern Cross Station. When complete, passengers on the Geelong, Bendigo and Ballarat lines will have a streamlined journey through the metropolitan system. Regional Rail Link will create capacity for an extra 23 metropolitan and 10 regional services during each morning and evening peak period. This means capacity for an additional 54,000 passenger trips each day. Construction started in 2009 and is expected to be completed by 2016, with an estimated investment of $4 billion. Port Melbourne Capacity Expansion A $1.6 billion project will expand Melbourne s port capacity through the redevelopment of the operational areas of the port Blue Wealth Property 2014 l 9

10 CITY OVERVIEW - MELBOURNE and establishment of a new container terminal and a world class automotive terminal at Webb Dock. The project will create 1,100 new direct jobs and 1,900 indirect jobs in the export, import and freight sectors. Completion is anticipated by late Melbourne Park Redevelopment The two-stage development with an expected cost of $750 million will completely overhaul Melbourne Park, transforming it into a world-class sporting venue. The redevelopment will contain more open space, increased seating capacity, better connections to public transport and the city, and easier movement into and within Melbourne and Olympic Parks. Stage one is expected to be completed by January 2015, with second stage works commencing in early SUPPLY AND DEMAND The Melbourne property market can be best described as segmented, with discontinuity on a suburb by suburb basis. The result is significant variation in property market gauges (supply, vacancy rates, time on market, yields and the like) when a granular (suburb by suburb) approach of analysis is taken. The size of Melbourne apartments have been shrinking, making them unsuitable for most local buyers. According to recent reports in the Australian Financial Review, the average size of a one bedroom apartment in 2009 was 60 square metres, whereas today it is between 42 and 45 square metres and falling. In addition, research by Oliver Hume shows that among fifty-eight apartment buildings being marketed across the City of Melbourne, one bedroom apartments are starting at 44 square metres (in floor space), dropping from 52 square metres in This represents a decrease of 11.5 per cent. One of the drivers of the declining apartment size is the magnitude of the student population in the area. It is estimated that the international student population of the Parkville campus of Melbourne University alone will reach 20,000 by From an investor s perspective, the declining size of the typical Melbourne apartment presents two problems if purchasing on the lower echelons of size. First, an investor s exit strategy is limited by holding an asset that appeals to a single component of the market (other investors). Second, the majority of new supply conforms to the current expectations of sizing, meaning that there will likely be a scarcity component, and subsequent demand-side pressure for new larger stock. In terms of rental supply, the Greater Melbourne Market remains balanced. Vacancy rates in the city as of June 2014 were 2.5 per cent, indicating an undersupply of rental stock. With projected population increases exceeding those of the other capital cities, Melbourne is challenged with the task of ensuring that long-term strategies are applied that will allow supply to match demand sustainably. This will include a range of urban consolidation projects within the inner city, as evidenced by those planned for Fishermans Bend and the E-Gate development. Blue Wealth Property 2014 l 10

11 LOCATION OVERVIEW - FOOTSCRAY INTRODUCTION Footscray is an inner west suburb of Melbourne within the Maribyrnong city council and located 5 kilometres from the central business district. Affordability has attracted a young professional demographic to Footscray, subsequently resulting in an evolution away from its industrial, low socioeconomic roots, while affordable credit has attracted significant private and public infrastructure in the suburb. Footscray is rich with arts and culture and creative industries; emphasis is being placed on development that supports and strengthens the arts in Footscray and promotes a community arts scene that encompasses different cultures. Footscray s designation as a Central Activities Area (CAA) acknowledges the many benefits and opportunities of the centre. Footscray Station located in the heart of the centre is a major transit hub and is one of the busiest stations in Melbourne, it services both metropolitan and regional passengers and also freight transport. The Regional Rail Link project will increase the capacity of the station, giving regional trains their own dedicated tracks along with significant upgrading and increased development potential of the station. Footscray is well positioned to take advantage of the positive sentiment in the Melbourne property market, while simultaneously leveraging off a burgeoning infrastructure program centred on major public transport additions and upgrades. Footscray s position at opportunity on the property clock enables investors to capitalise on the suburb s exponential growth POPULATION AND DEMOGRAPHICS The population of Footscray in 2011 was 13,203, living in 6,079 dwellings with an average household size of 2.3. Gentrification has been a major population driver in the suburb, with year on year growth of more than 2.5 per cent between 2006 and Over the period, the influx of young professionals has had the most profound impact on the demographic face of the suburb. By 2031, the population of Footscray is projected to double, which means that an additional 6,500 dwellings will be required by then. Analysis of trends in household composition and structure provides policy makers with the information they need to plan for future demands for housing, land and infrastructure. It also provides investors with information on the future demands for housing types, which in turn provides the best opportunities for growth as well as maximising exit opportunities. The residential rental market will benefit from the rise of the Gen Y demographic which places a significant importance on locations that provide high amenity and connectivity to employment and entertainment destinations. The median age of Footscray residents is relatively young at 32 years, with 48 per cent of its residents aged between years, compared to 30.4 per cent for Greater Melbourne. A number of drivers that make the suburb attractive to a young population. First, the suburb is home to Victoria University, six kilometres from the University of Melbourne, with over 45,000 students and nearly 2,500 staff. Second, the suburb s gentrification has increased its appeal to young professionals and managers, a demographic that now dominates the suburb s profile. Proximity to the CBD as well as high levels of mortgage affordability are other key drivers (92.8 per cent of Fitzroy North households have mortgage repayments that are less than 30 per cent of household income). An increasingly dominant proportion of Footscray households are lone person occupied (as of the 2011 census, 32.2 per cent) or occupied by couples without children (23.9 per cent). Between 2006 and 2011, households with either of these compositions witnessed a proportional increase in size at the expense of households made up of couples with children. From a practical perspective, this means that 56.1 per cent of Footscray households require only one bedroom. For an investor, planning for a suburb s future demands provides the best opportunity for growth as well as maximising exit opportunities. ECONOMICS AND EMPLOYMENT Projections indicate that over 1.7 million new jobs will be created in Melbourne by 2051, with a majority of these based in the centre of the city and adjacent inner suburbs. Reflecting the positive sentiment in the suburb, in September 2014 Grocon completed a commercial office development at One McNab Avenue, Footscray in partnership with the Victorian government, which forms part of a broader revitalisation initiative for the suburb. One McNab Avenue provides the new headquarters for City West Water and State Trustees, as well as housing the Victorian Department of Education and Early Childhood Development. In 2011, 5,744 people living in Footscray were employed, of which 64 per cent worked full time and 36 per cent part time. Professionals and managers make up 36.2 per cent of the workforce in Footscray, reflecting the diverse employability of its residents. This non industry specific profile is less susceptible to structural economic shifts, which have a greater bearing on the manufacturing and industrial sectors. This proportion has trended upward since the 2006 census, indicating the growing appeal of the gentrification of the suburb, proximity to the CBD and the increasingly favourable lifestyle amenity. Footscray is proximate to Victoria University, University of Melbourne and RMIT University which have a combined workforce in excess of 9,000. These institutions have contributed to making tertiary education a major employment industry for Fitzroy North (4 per cent of working age census respondents identifies themselves as being employed in tertiary education, Blue Wealth Property 2014 l 11

12 LOCATION OVERVIEW - FOOTSCRAY compared to a Greater Melbourne figure of 2.3 per cent). Cafes, Restaurants and Takeaway Food Services, Hospitals and School Education round out the top four most significant employers in the suburb. An analysis of income changes between the 2006 and 2011 censuses shows an upward shift in the suburb s household wealth relative to the state figure (income growth rate in Footscray over the five years to August 2011 was 38 per cent, compared to a Melbourne rate of 23 per cent over the same period). This shift has occurred for two key reasons: the first is of course the increase in incomes spurred by inflationary pressure. The second, more important, driver is the increase in appeal of the suburb to the young professional demographic that continues to dominate it. Growth in property values is predicated on growth in income levels. Income growth provides the mechanism whereby residents can, essentially, bid up property values. The combination of strong income growth, significant local employers and proximity to the CBD drives the Footscray economic landscape, providing the factors required for sustained growth in the property market. INFRASTRUCTURE INVESTMENT The Victorian government has recognised infrastructure as the key to maintaining Melbourne s status as the world s most liveable city, now and in years to come. Footscray was identified as a Principal Activity Centre/Transit City in 2002, and later as one of six Central Activities Areas (CAAs) in Footscray s potential to become the western arm of the Melbourne CBD, extending both the employment and residential capacity of the city s heart, is based on its key strategic location. Footscray CAA s close proximity to Melbourne s main economic and transport assets is a key benefit for the centre. It is the only suburban CAA on the western edge of Melbourne, and is the best served of the seven CAAs by rail, tram and road links. An objective of Footscray s designation as a CAA is to increase its share of professional, CBD-type jobs. A key part of achieving this will be attracting new office and commercial development to the centre. Under council s planning policies, Footscray CAA is identified as a preferred office location. Footscray is a major public transport hub for Melbourne s west, integrating 14 bus routes, 1 tram, 3 metropolitan and 3 regional train lines. The Victorian Department of Transport, Planning and Local Infrastructure has plans to increase capacity of the Melbourne rail network by 30 per cent. These plans involve creating a connection between Southern Cross and South Yarra stations with new stops at Fishermans Bend and Domain. As part of the Melbourne Rail Link, a new line will run through Footscray station, providing access to the airport for Footscray residents. Construction of these lines and network upgrades is set to occur from 2017 to Significant infrastructure projects in the area include: Footscray Station Precinct: SJB Urban Design prepared the framework for the Department of Planning and Community Development to guide redevelopment in and around Footscray s transport hub. The framework provides guidance for integrating infrastructure, development and public space. The proposal provides for highdensity development across several buildings at a range of scales, incorporating residential, commercial, retail, restaurant and community uses as well as car parking and service areas. SUPPLY AND DEMAND Building approvals in Footscray saw resurgence in the 2012/13 financial year, driven primarily by a burgeoning public and private investment program. With projections indicating the local population will double by 2031, an additional 6,000 dwellings are required. As can be seen in the figure below, approximately 500 dwellings are approved for construction per annum. The realisation however, is in most cases lower given that some projects are abandoned before construction so that the long term balance between supply and demand, Footscray is well placed. Vacancy rates Vacancy rates have a tendency to surge in the early and latter stages of the year. This phenomenon is more pronounced in Footscray than other inner city suburbs. Peaks however, are short lived, highlighting the demand responsiveness of the Footscray rental market. New apartment premium New apartments in Footscray achieve a premium over older apartments. On average, a new 1 bedroom apartment achieves a rental premium of $70 per week and a 2 bedroom apartment achieves a premium of $40 per week. Established houses in Footscray tend not to achieve rents as high as those for new houses. New houses with 2 bedrooms achieve a premium of around $55 per week over older stock. New houses with 3 bedrooms tend to achieve a premium of around $150 per week. Rental growth In the past decade, rents for 1 bedroom apartments in Footscray have increased at a rate of 6.7 per cent per annum, while 2 bedroom apartments have grown by 8 per cent p.a. Rental growth in Footscray has outpaced that in Melbourne by 1.2 per cent and 2.2 per cent respectively for one and two bedroom apartments. This is a result of the gentrification of the suburb as well as the increasing student population. Blue Wealth Property 2014 l 12

13 DEVELOPER PROFILE CEDAR WOODS Ø Established in 1987 Ø Publicly listed company for 20 years with firm financial backing and reporting requirements. Ø Presence in Victoria and Western Australia predominantly. Ø Strong experience in residential property development as well as commercial and industrial. Ø Recipients of multiple national development awards in development, design and environmental preservation. Ø Projects include: Ø Aria Apartments - 32 apartments located in Rockingham, beachfront precint. Ø The Fairways - 25 townhouses constructed on the boundaries of Mandurah Country Club. Ø Realm - unique development of premium residences in Camberwell. Blue Wealth Property l 13

14 PROJECT DETAILS Botanica is located in Footscray, 5 kilometres from the Central Business District. Affordability has attracted a young professional demographic to Footscray, subsequently resulting in an evolution away from its industrial, low socioeconomic roots, while cheap credit has attracted significant private and public infrastructure in the suburb. Footscray is rich with arts and culture and creative industries. Emphasis is being placed on development that supports and strengthens the arts in Footscray and promotes a community arts scene that encompasses different cultures. Footscray s designation as a Central Activities Area (CAA) acknowledges the many benefits and opportunities of the centre. Footscray Station in the heart of the centre is a major transit hub. One of the busiest stations in Melbourne, it services both metropolitan and regional passengers and also freight transport. The Regional Rail Link project will increase the capacity of the station, giving regional trains their own dedicated tracks along with significant upgrading and increased development potential of the station. Botanica features well designed apartments many of which have park or city skyline views. Footscray is well positioned to take advantage of the positive sentiment in the Melbourne property market, while simultaneously leveraging off a burgeoning infrastructure program centred on major public transport additions and upgrades. Footscray s position at opportunity on the property clock enables investors to capitalise on the suburbs exponential growth; driven by significant public and private infrastructure investment and relative affordability. Price Range 1 bedroom apt. From $315,000 2 bedroom apt From $418,000 Size range 1 bedroom apt sqm (internal) 2 bedroom apt 64-75sqm Parking & Storage All apartments have one car space Rental Estimate 1 bedroom apt. 4.5 per cent Gross Annual Yield 2 bedroom apt. 4.5 per cent Gross Annual Yield Estimated Outgoings Conditions of purchase Council & Water rates $2,000 p.a. approx. Indicative Strata Levies $1,400- $2,100 p.a. approx. Holding Deposit $1,000 Deposit on Echange 10 per cent on exchange of contracts Deposit Type Bank Guarantee, Cash (balance on completion) Depreciation Schedule Indicative schedules available Blue Wealth Property l 14

15 FINANCIAL ANALYSIS The following Property Investment Analysis was undertaken by Blue Wealth Property and is provided as an estimate of the return and investment performance that can be expected given the following assumptions: Ø 10 per cent deposit + costs (Stamp duty, legals & loan costs including LMI calculated at 2.5% of loan amount) Ø 5 per cent interest only loan (conservative current fixed rate) Ø 4.5 per cent rent yield Ø 3.7 per cent annual vacancy rate Ø 5% capital growth rate DEPRECIATION Depreciation is a powerful tool that can make a significant difference to an investors cash flow. When you invest in a property, each year there are certain items which will undergo wear and tear. For example the carpet in a brand new apartment may initially be worth $5,000, but the following year, due to wear and tear it may only be worth $4,500. This is a very simplistic way of explaining the concept of depreciation. In Australia we have a taxation system that allows investors to claim depreciation as a tax loss which has a significant impact on an investors cash flow. All types of income producing properties have substantial depreciation benefits available to be claimed as a tax credit. To explain depreciation in simple terms, consider a new apartment. Initially, the carpet in this apartment is worth $5,000 but the following year it is worth only $4,500, and so on. The reduction in this value is regarded as an investment expense and is therefore currently able to be offset against the investors taxable income. This will have a significant effect on the Australian investor s cash flow. The depreciation benefit to every investor will vary. Blue Wealth Property recommends that clients use professional Quantity Surveyors to produce a depreciation schedule. They will produce a report which outlines the depreciation that can be claimed each year. The following are indicative depreciation schedules that have been provided by BMT for this project. Blue Wealth Property l 15

16 FINANCIAL ANALYSIS Property Investment Cash Flow Analysis - One bedroom apartment - Purchase $338,000 - First Year Investment Cost Purchase Price $338,000 Purchase Costs $6,000 Loan Costs $8,205 Total Investment Cost (A) $352,205 Who Pays What? Income: $50,000 p.a. 1% 27% Loan Details Initial Cash Invested (B) $48,005 Initial Loan Amount (A) - (B) $304,200 Loan Type (Int. Only) 5.19% Interest Payments $15,788 72% Total Loan Payments $15,788 Closing Loan Balance $304,200 21% Income: $75,000 p.a. Property Income and Expenditure Rental Income (C) $21,375 Rental Expenses (D) $6,183 Net Rental Income (C) - (D) $15,192 79% Pre-Tax Cashflow Loan Interest (E) $15,788 Pre-Tax Cashflow (C) - (D) - (E) ($5,781) Tax Deductions Cash Deductions Loan Interest (F) $15,788 Rental Expenses (G) $5,203 Non-Cash Deductions Depreciation - Building ($169,000 at 2.5%) (H) $4,225 Depreciation - Furniture, Fixtures & Fittings (I) $1,641 Loan Cost write-off ($8,205 over 5 yrs) (J) $32,461 Income: $100,000 p.a. 31% 69% You Taxman Tenant Total Credit Calculation Present Taxable Income (K) $50,000 $75,000 $100,000 Rental Income (C) $15,210 $15,210 $15,210 Total Income (C) + (K) $65,210 $90,210 $115,210 Rental Deductions (F) + (G) + (H) + (I) + (J) $32,461 $32,461 $32,461 New Taxable Income $32,749 $57,749 $82,749 Present Tax $8,547 $17,422 $26,947 New Tax $2,974 $11,337 $20,219 Tax Credit Or Rebate (L) $5,573 $6,085 $6,728 Annual After-Tax (Investment) or Surplus (C) - (D) - (E) + (L) $208 $304 $947 Weekly After-Tax (Investment) or Surplus $4 $6 $18 Blue Wealth Property l 16

17 FINANCIAL ANALYSIS Tax Depreciation Schedule Typical 1 Bed, Banbury Village Footscray, VIC Prepared for: Napier & Blakeley Pty Ltd ACN: Level Collins Street Melbourne VIC 3000 T F Cedar Woods Properties Ltd We list our estimate of the minimum and maximum depreciation allowances claimable, assuming a DIMINISHING VALUE METHOD of depreciation purchase price of $320,000 which includes a land value assessment of $29,000. M I N I M U M Division 40 Division 43 Annual Year Allowances Deductions Totals $ $ $ 1 - (365 days only) 3,900 3,800 7, ,400 3,800 7, ,700 3,800 6, ,200 3,800 6, ,800 3,800 5, ,500 3,800 5, ,200 3,800 5, ,000 3,800 4, ,800 4, ,800 4, , , ,700 TOTALS 26, , ,100 M A X I M U M Division 40 Division 43 Annual Year Allowances Deductions Totals $ $ $ 1 - (365 days only) 4,500 3,800 8, ,000 3,800 7, ,100 3,800 6, ,500 3,800 6, ,100 3,800 5, ,700 3,800 5, ,400 3,800 5, ,200 3,800 5, ,100 3,800 4, ,800 4, , , ,500 TOTALS 30, , ,000 These figures are of a general nature and should not be applied or acted upon unless supported by our specific advise. They must not be used for taxation purposes in this form. Division 43 Allowances are calculated on the PRIME COST METHOD. A claim will be dependant on the purchaser's tax position SPECIFIC ADVICE IS AVAILABLE BY TELEPHONING JOHN MATHEW on August 2014 JM Sydney Melbourne Brisbane Adelaide Perth Singapore NOT ACCEPTABLE FOR TAX RETURNS Blue Wealth Property l 17

18 FINANCIAL ANALYSIS Tax Depreciation Schedule Typical 2 Bed 1 Bath, Banbury Village Footscray, VIC Prepared for: Napier & Blakeley Pty Ltd ACN: Level Collins Street Melbourne VIC 3000 T F Cedar Woods Properties Ltd We list our estimate of the minimum and maximum depreciation allowances claimable, assuming a DIMINISHING VALUE METHOD of depreciation purchase price of $420,000 which includes a land value assessment of $40,000. M I N I M U M Division 40 Division 43 Annual Year Allowances Deductions Totals $ $ $ 1 - (365 days only) 5,000 4,900 9, ,500 4,900 9, ,500 4,900 8, ,800 4,900 7, ,300 4,900 7, ,900 4,900 6, ,600 4,900 6, ,400 4,900 6, ,200 4,900 6, ,000 4,900 5, , , ,900 TOTALS 34, , ,100 M A X I M U M Division 40 Division 43 Annual Year Allowances Deductions Totals $ $ $ 1 - (365 days only) 5,900 4,900 10, ,200 4,900 10, ,100 4,900 9, ,300 4,900 8, ,700 4,900 7, ,200 4,900 7, ,900 4,900 6, ,600 4,900 6, ,400 4,900 6, ,200 4,900 6, , , ,100 TOTALS 39, , ,600 These figures are of a general nature and should not be applied or acted upon unless supported by our specific advise. They must not be used for taxation purposes in this form. Division 43 Allowances are calculated on the PRIME COST METHOD. A claim will be dependant on the purchaser's tax position SPECIFIC ADVICE IS AVAILABLE BY TELEPHONING JOHN MATHEW on August 2014 JM Sydney Melbourne Brisbane Adelaide Perth Singapore NOT ACCEPTABLE FOR TAX RETURNS Blue Wealth Property l 18

19 RISKS All investments involve risk. While drivers of growth and other attributes that have a positive effect on an investment have been analysed in depth, it is equally important to be aware of and understand the risks that could have an adverse impact on the investment s performance. Following are some of the risks that investors should consider prior to investing in property: 1. Market Value Risk This risk relates to the risk of the investment failing to achieve the expected growth. Much of the information we have used in our analysis is predictive and the rate of return may be affected by known and unknown risks and uncertainties. This in turn could result in the re-sale value of the investment not achieving what is expected if the vendor chooses to sell during or following depressed market activity. 2. Construction Risk This is applied to properties purchased off the plan. Throughout such projects the developer may arrange finance facilities related to the land acquisition, development and construction of the project. This may result in issues arising in the delivery of the product on time and as specified on the contracted terms. Delays in the delivery period would result in opportunity costs as investors funds may not be able to be redirected to alternative investments. 3. Rental Yields Rental yields fluctuate and are affected by other market factors. They may go up or down depending on factors such as supply, demand, employment, investment in the area and the state of the overall residential market. 4. General Risk In addition to the risk factors specific to investment in property development projects, there are more general risks that can affect the value of an investment in the development, including: Ø The state of Australia s and the world economies Ø Movements in inflation and employment Ø Changes in socio-economic factors Ø Natural or man-made disasters. 5. Personal Risk Investment strategies will often depend on the income of the investor. Should there be a reduction or loss in the flow of income from the investor it may present a risk in the future ability to hold the investment. These risks may be managed through the appropriate use of income protection insurance, life insurance and trauma insurance. 6. Interest Rate Risk Movements in interest rates can have a number of effects on an individual property investment. Specifically, an increase in interest rates may have an immediate effect on the costs of holding an investment property. Additionally, sustained interest rate rises may have a lagging effect in the form of reduced sales activity and property growth. 7. Policy Risk Changes in government policy may affect both holding costs and the expected growth performance of specific property investments. This may result in additional expenditure in order to finance your portfolio and the expected returns. 8. Oversupply An oversupply in property will have effects on both achievable rents and growth performance. Due to the length of time typically required to construct medium and high density developments, the short term supply curve is inelastic. This means that property supply has an inherent inability to adjust quickly enough to meet demand. A sudden reduction in demand or an unexpected increase in supply may result in oversupply. Typically this risk is most acute towards the end of the property cycle. We do not foresee any short term risk of oversupply in the current market. 9. Settlement Risk Settlement risks may prevent the purchaser s ability to settle on the property. Typically, these are related to difficulties in obtaining finance either through valuation shortfalls at the time of settlement or changes in the purchaser s personal circumstances that result in the refusal of the purchaser s credit application. This may result in the loss of the deposit or any monies owed to the developer. This risk may be managed by obtaining pre-approval of finance (for completed property) prior to exchange of contracts. Blue Wealth Property 2014 l 19

20 RENTAL APPRAISAL Rental Appraisal Banbury Village Rental Information The Botanica Apartments, Banbury Village Average Rents and Yields The Attraction of Footscray Over the past 5-7 years, the Inner West has grown in popularity with Property Investors and tenants alike. The three main reasons for the increasing popularity & continued stability of the investment property market are: Inner East Inner North Average Rents Location Footscray s close proximity to the CBD makes it a convenient & attractive area for professionals. Footscray residents can commute to the City in only 5 or 6 train stops, or a 20 minute ride along the Docklands bike path. Village Lifestyle People are drawn to the Village lifestyle on offer throughout Footscray, Banbury Village & surrounding suburbs. The sense of community is underpinned by the ever evolving shopping strips, coffee shops, restaurants, retail shopping, vibrant festivals and a wide range of multicultural aspects. Affordability Footscray is a highly affordable and attractive area in which to invest, especially when compared to other suburbs within 4-10 km of the CBD. The average rent for a two bedroom property in Footscray is $350 per week, with newer modern apartments returning higher rents of $380 - $420 per week. The Botanica Apartments Rental Returns Jas Stephens offers the following rental guidance for current returns on The Botanica Apartments: 1 Bedroom Apartments $290 - $310 per week 2 Bedroom, 1 Bathroom Apartments $380 - $400 per week 2 Bedroom 2 Bathroom Apartments $400 - $420 per week (Based on comparisons with recent rental transactions) Footscray Average rents provided by 1form online Pty Ltd, using Inner North suburbs (Kensington, Carlton, North Melbourne) & Inner East suburbs (Abbotsford, Richmond, South Yarra) Inner East Inner North Footscray Rental yields based on average sale prices supplied by the REIV for using Inner North suburbs (Kensington, Carlton, North Melbourne) & Inner East suburbs (Abbotsford, Richmond, South Yarra) Vacancy Rates $300 $350 $400 $450 $500 Rental Yields 0.00% 2.00% 4.00% 6.00% The vacancy rate for Jas Stephens investment properties is currently between 1% to 2%. This rate compares very favourably with the REIV July-August 2014 vacancy rate of 2.9% to 3.0% for (4km-10km from Melbourne CBD). Disclaimer: This appraisal has been prepared solely for the information of prospective Jas Stephens purchasers at Banbury Village and not for any third party. Although every care has been taken in arriving at the figures, we stress that it is an opinion only and should not be taken as a Sworn Valuation. The data presented is accurate at the date produced however rents and yields may increase or decrease depending on many factors. Prospective purchasers must undertake their own investigations and consult with expert advisors prior to making entering into any contracts. Jas Stephens shall not be responsible should the appraisal or any part thereof be incorrect or incomplete in any way. Blue Wealth Property l 20

21 VISUALS Blue Wealth Property 2014 l 21

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23 VISUALS Blue Wealth Property 2014 l 23