Property Investment Report

Transcription

1 Property Investment Report PIR City Central Estate, Jade St, Emerald QLD 4720 Report I of II Positive Real Estate Pty Ltd Suite 3, Level 2, 11 Albany St St Leonards NSW 2065 P: F

2 Table of Contents Table of Contents... 2 Disclaimer... 4 City Central Estate, Emerald QLD... 5 Investment Brief... 5 Statistics... 5 Liquidity Meter... 6 Property Overview... 7 Yield Compression... 8 Why Invest in the Central Highlands Region?... 8 Why invest in Emerald?... 9 Local Major Infrastructure Projects Local Amenity & Economic Drivers Existing Local Economic Drivers Key Investment Indicators Comparable Projects History of Negotiation/Acquisition Contract Terms How to Finance the Deal Price List Property Expectations Socio economic Assessment Flood Risk Zoning Risk and Assessment Vacancy Risk Valuation Shortfall Risk Valuation Attempts to Purchase Highest & Best Rental Returns Highest & Best Renovation Highest & Best Use of Land First 6 Months Purchase Expectations Strata Synopsis Tenancy Details & Rental Appraisal Media Property Photos Location and Surroundings Location Map Google Earth Map

3 Google Street View Property Financial Details Year forecast (100% Equity) Financial summary (100% Equity) Year forecast (10% Cash Deposit) Financial summary (10% Cash Deposit) Appendix II Site Plans Appendix IV Comparable Sales Builder Profile Appendix V Capital Growth Rates Appendix VI Demographic Details Appendix VII Risks Appendix VIII Glossary of Terms Appendix IX FAQ s Short term bonds Long Term Bonds

4 Disclaimer Positive Real Estate Pty Ltd does not provide advice on investments. All interested parties must rely on their own research before making any investment decision and should seek advice from a qualified Financial Planner or similar professional. The information contained within this document has been compiled from various sources to assist you in conducting your due-diligence. Please ensure you validate all information contained within this document. All sources for information contained within this Property Summary will be disclosed at your request. Positive Real Estate Pty Ltd will not accept responsibility for inaccurate information provided from external sources or third parties. As part of your due-diligence, it is the Purchaser s responsibility to seek a legal opinion of the contract and any additional terms or clauses. You must adhere to the terms, conditions and subject clauses contained within the contract of sale. We note that Positive Real Estate Pty Ltd has made a number of assumptions when preparing this analysis these assumptions have a material impact on the financials and therefore should be assessed carefully by investors. 4

5 City Central Estate, Emerald QLD Property Strategy Property Type Price per sqm 2 - Positively Geared from Year 1 - Positive Cashflow in Year 3 (10% Cash deposit) - Capital Growth - Yield compression shows potential value of $582,000 House & Land $ $2886 approx Investment Brief Demographics Larger than average family unit that prefers detached housing. Region has 11 pillars of economic support incl. Mining, professional services, retail, construction, agriculture etc. One in six people (17%) work in the mines, for each direct mining role another three jobs are created from the flow on economic effects. Market Timing: House Size sqm Infrastructure $16 Billion of New projects planned for Alpha, the hub of which will be Emerald. 10,680 proposed new jobs for the operation workforce of the above projects. $6 Billion of corporate capital investment into mining ventures around the emerald township creating 3100 direct new jobs. $85 Million investment for community infrastructure. $46 Million in retail developments. Property Age Lending Category Brand New 90% Full Doc (self insured lenders) Total Approx $61,670 (based on purchase of Purchasing $470,000) Costs Deposit Cash Types Av. Growth 10 years 13.4% Average rental Growth p.a. (Last 9 years) 17.6% Vacancy Rate 0.6% Supply And Demand Only 88 new housing approvals in 2012, with estimated new demand to be 300 houses p.a. for the next 5 years increasing to 350 p.a. by 2016 Peak of last cycle 2005 Population Emerald approx 20,000 Projected to grow by 55% to 31,000 by 2031 Statistics Note: Completed on 100% finance. For more financial information see property financial details. Buyers please be aware that all information has been collected by third parties and buyers need to conduct their own further due diligence on all aspects suggested within this report. Land Price From $188,500 House Price From $269,000 Package Price From $458,900 Market Rent $650 per week Gross Yield 7.1% Net Yield 5.2% Yr 1 Pre-tax Cashflow (10% Equity Deposit) -$4,749 Yr 1 Aft-tax Cashflow (10% Equity Deposit) +$1,833 Yr 1 Pre-tax Cashflow (10% Cash Deposit) -$1,049 Yr 1 Aft-tax Cashflow +$4,164 (10% Cash Deposit) 5

6 Liquidity Meter 6

7 Property Overview Positive Real Estate has brokered a fantastic opportunity in the booming town of Emerald in Central Queensland. On offer are 10 x 4 bedroom houses each with 2 bathrooms and double garages. Priced from $458,900 with estimated rental returns of $650pw, this is a must have investment property. Each house will have high quality finishes including Caesar stone benchtops, European stainless steel appliances, front and rear landscaping, 2 x split system air conditioners etc. Located in the City Central Estate, PRE has secured an exclusive allotment of only 10 blocks, while there are only 55 in the whole estate. City Central Estate is bringing an exciting new housing community to Emerald. Home owners and tenants of the City Central Estate in Emerald will have access to an array of convenient community amenities, whilst additionally benefitting from the many lifestyle opportunities the booming Central Highlands region has to offer. City Central is located in the heart of Emerald less than 2km from Emerald CBD. City Central residents benefit from a lifestyle location with proximity to an array of shopping, employment and education amenity including: 1.3km to Emerald Secondary School 1.3km to Emerald Primary School 1.6km to Centro Village Shopping Centre 1.6km to Emerald Hospital 1.9km to Centro Market Shopping Centre 1.9km to Emerald CBD 2.7km to Central HIghlands Marketplace Emerald itself is undergoing massive growth in terms of jobs, population, housing demand and capital investment. Last year alone, 5,600 new jobs were created across central Queensland. A further 13,780 new jobs are anticipated across the Central Highlands region in coming years. A significant proportion of these new workers are expected to reside in Emerald. New housing demand is expected to exceed 350 p.a. by 2016 through to 2031, while new housing approvals fell to 88 in This has created and significant imbalance in Demand Vs Supply, with the market simply unable to keep up with demand. Note: The Houses are classified as 3 bed + Study but only to satisfy NRAS requirements. The Study can easily be used as a 4 th bedroom as it is a closed room with a door. This classification was made simply to obtain NRAS approval for the subdivision. 7

8 Yield Compression The average rental yield over the last 10 years in Emerald has been 5.8%. Based on the current appraisal of $650pw and a purchase price of $470,000, the yield on this property would equate to 7.2%. However on a yield compression basis, if the yield was to revert back to the long term median of 5.8% through capital growth, and assuming the rental return stayed constant at $650pw with no rental growth taken into account, the resulting value of the property would be approximately $582,000! This is the theory behind rents driving prices, which leads to property value eventually catching up to the rental growth. Why Invest in the Central Highlands Region? 8

9 Why invest in Emerald? Source: ABS, OESR, Economic Associates 9

10 Local Major Infrastructure Projects - $85 million investment for community infrastructure - $46 million in retail developments - $6 billion of corporate capital investment into mining ventures around the Emerald township - 3,100 direct new jobs in the above projects; - $16 billion of new projects planned for Alpha, a township located 150km west of Emerald, including the recently announced $6.9 billion Alpha coal mine and rail project. Emerald is planned as the hub for these new projects - 10,680 proposed new jobs for the operation workforce of the above projects in Alpha where, according to the EIS, 15% of the direct workforce will reside in Emerald. This figure is expected to grow if more new housing becomes available - Coal is currently ranked as Australia s second largest commodity export with a value in excess of $43 Billion for which Emerald has direct proximity to both Galilee & Bowen Basin boasting 13 existing & 16 proposed coal mines in the Emerald Local Government Area these mines include: Kestrel Coal Underground Expansion - $2 Billion Curragh Open Cut Expansion - $286 Million Ensham Central B&P Underground - $166 Million Yarrabee Open Cut - $150 Million Teresa Underground - $750 Million Taroborah Open Cut & Underground - $400 Million - $5 Million in spending on Emerald Water Infrastructure upgrades - $28 Million in spending on the upgrade to the Blackwater to Emerald electrical line rebuild Local Amenity & Economic Drivers - $10 Million upgrade & development of the Emerald Aquatic Centre - $10 Million Emerald Airport Expansion - $5 Million Emerald Homemakers Retail Centre - $3.7 Million Emerald Morton & Rundle Park Facilities - Recently completed multi million dollar Central Highlands Marketplace including Woolworths, Big W & 26 specialty retailers 10

11 Existing Local Economic Drivers - Production capacity of coal in Emerald Local Government Area has been forecast to increase from 63 million tonnes per annum in , reaching 144 million tonnes per annum in As the largest urban locality in the Central Highlands region, Emerald services the surrounding communities by providing an array of accessible community amenity & infrastructure Source: Central Highlands Regional Council, Central Highlands Development Corporation, OESR, ABS, Deloitte Access Economics. Key Investment Indicators - 10x4 bed house and land packages - Price from only $458,900 - Appraised rents of $650pw or yield of 7.1% - Positively geared by $4,164 p.a. (based on 10% cash deposit) - Large land blocks of approx 600sqm - Boutique estate of only 55 lots - Population projected to grow by 55% by $22 Billion worth of new mining projects planned for the area - 13,780 new jobs created in the area as a result of these mining projects - 13 existing and 16 proposed coal mines in the Emerald LGA - Region has a diverse economy with 11 pillars of economic support - Average rental growth over the last 9 years of 17.9% p.a. - Extremely low vacancy rate of 0.6% 11

12 Comparable Projects 12

13 History of Negotiation/Acquisition Positive Real Estate and Elders Project Marketing have been negotiating with the land developer over the last 3 months to secure these 10 blocks exclusively in the City Central Estate. Eventually we were able to arrive at an excellent price for our clients both on the land and build to put one of the best value packages together. Contract Terms Land and Build contracts. There is a 21 day finance clause in the land contract All blocks are unregistered and are due for registration in February Settlement for all blocks will be 21 days from registration of titles. Deposits: $2,000 holding deposit (non -refundable once unconditional on land contract) The initial $2000 holding deposit is the only deposit required for the land component until settlement. Upon signing the build contract a 5% deposit of build price is due which would be between $13,450 - $14,820 The Build Contract will also include a liquidated damages clause. This states that if building is not complete within 26 weeks, not including rain delays, then the builder is obligated to pay you $50 per day, or $350 per week until building is complete. How to Finance the Deal You are buying a property under a house and land arrangement. This is known as a construction loan. In order to finance the property, you enter a two part contract. The process is as follows: 1. EOI submitted with $2000 holding deposit for (this deposit comes off the land contract price and becomes non-refundable once the land contract is unconditional). 3. Land Contract issued within 72 hours 4. Build contract sent to you within 72 hours 5. You can now order a valuation for mortgage purposes and endeavour to obtain finance approval for BOTH Land and Construction loans within 21 days. (this approval is subject to registration of titles) 6. Ascertain formal finance approval, return full build contract with 5% deposit cheque to builder and unconditionally exchange on land contract on your initial $2000 deposit. 7. Go unconditional on land & build contract within 21 days of exchanging in order to secure your lot. 8. Settle on the land 21 days from registration of titles 13

14 Version 1 Off the plan Land & Construction One loan is obtained for both land and construction valid for 6 month. Once the land title is registered, the land portion of the loan is drawn down to settle the land. The remainder of the loan, which is for the construction, won t be released by the bank until council approved plans are available. Since the loan has been accepted for the whole loan amount and the loan is partially drawn down at land settlement, the funds for the construction don t expire. The bank will require the land contract, build contract and plans showing all internal measurements to approve the full amount The bank will release the construction portion of the loan as progress payments at each construction stage, once plans are approved by council If the land isn t registered and settled within 6 months you may need to extend the loan approval, or reapply Version 2 Land loan and Construction Loan 2 loans are obtained, one for the land and one for the construction, each valid for 6 months. A build contract will be needed If the land isn t registered and settled within 6 months you may need to extend the both the land and the construction loan approval, or reapply If the construction doesn t start within 6 months you may need to extend the construction loan approval, or reapply Most of the banks now approve 6 months loan time frames Extra option: If the construction isn t going to start within 6 months, no point in applying for construction loan- just land portion, and no building contract will be required Note: $2,000 holding deposit becomes non-refundable once the land contract is unconditional. Land settlement will be 21 days from registration of titles. As registration is expected in February 2013 this provides some indication that exchanging with a formal approval that lasts for 180 days will be sufficient. Please note the type of loan you require for the Building Contract is a "construction loan". It is very important from the time of attaining conditional approval and the finalisation of finance that your situation does not change i.e. you have the same job/income and you don t take on any additional debt elsewhere i.e. credit cards or personal loans or more property. 14

15 Price List Lot Beds Bath Car House Size Land Size Land Price Build Price Package Price Study $189,500 $284,400 $473, Study $189,500 $280,400 $469, Study $189,900 $279,000 $468, Study $189,900 $283,000 $472, Study $189,900 $280,000 $469, Study $189,900 $269,000 $458, Study $191,500 $278,400 $469, Study $192,000 $292,900 $484, Study $189,900 $289,000 $478, Study $188,500 $296,400 $484,900 15

16 Property Expectations Socio-economic Assessment The town is dominated by blue collar working families, with larger than normal family units needing detached housing. The local economy is diverse, with the largest employers coming from the mining, professional services, retail, construction and agriculture industries. Flood Risk The homes will be built to the Minimum Habitable Finished Floor Level as per below: 16

17 Zoning Risk and Assessment The land is zoned residential Vacancy Risk The town has a very low vacancy rate at present, being just 0.6%. Historically however this has been known to fluctuate considerably. For the near future, forecasts indicate the vacancy rate will remain low due to increasing demand and low supply. Valuation Shortfall Risk - There have been occurrences of low valuations in Emerald - This is due to the fact that it s a bull market and the valuers cannot keep up to speed with current market values. As the prices of new land releases are tiered per stage, the valuations are only as up to date as when the blocks were originally sold when they were unregistered which could be up to 6 months prior to their settlement. - The comparable sales are not current to market value. - As such there may be up to 5% shortfall from purchase price Valuation Attempts to Purchase You could expect to have 1 low valuation; this can be disputed with the correct sales evidence given to the valuers. Should this not prove to be successful a second valuation may be required. Highest & Best Rental Returns The best rental returns would be achieved on an unfurnished permanent letting basis. Should the market cater for it, furnished rentals may attract a higher rental return but with this style of letting comes higher risk. Highest & Best Renovation N/A Highest & Best Use of Land A 4 bedroom house is considered the be the highest and best use of these blocks of land 17

18 First 6 Months Purchase Expectations The land is expected to register in February 2013, as such settlement would be 21 days from this date. From there council approval will be sought for the build, shortly after which construction will begin. The maximum build timeframe is 26 weeks, with liquidated damages coming into affect should the build take longer than this, excluding any rain delays. Close to completion you should engage a local property manager in order to secure a tenant as quickly as possible. Strata Synopsis N/A 18

19 Tenancy Details & Rental Appraisal 19

20 Media October 2012 Australian property Investor Magazine s Fast Growth 70, November

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27 Property Photos Site works are currently underway 27

28 Typical House adjoining City Central Sample Facades (for the exact façade of each lot contact your PCM) 28

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31 Location and Surroundings A Wonderful Place To Live... Located approximately 270km west of Rockhampton and 900km north-west of Brisbane, Emerald is uniquely positioned as not only the administrative centre of the Central Highlands but most importantly the gateway to the booming Bowen & Galilee Basins While offering a variety of lifestyle choices & tourism experiences, including the Fairbairn Dam, Lake Maraboon and the Carnarvon Gorge, Emerald s local industry additionally benefits from direct proximity to the booming coal mining regions of the Bowen Basin and Galilee Basin including the Curragh Open Cut & Yarrabee Open Cut Coal Mines. Accordingly, the Emerald community benefits from an array of community amenity including several educational institutions and schools such as the Central Queensland TAF E, in addition to a numbering of retailing hubs including the Centro Village and Market Shopping Centres and the recently completed Central Highlands Marketplace Shopping Strong fundamentals for future growth... Compared to other major regional centres like Rockhampton, Gladstone and Mackay; Emerald is the most under-supplied major regional centre in Queensland. With only three land estates currently under construction (including City Central Estate) and only a further two pending release, the overwhelmingly strong supply and demand fundamentals of Emerald will continue to support capital growth in real estate. Lake Maraboon is located only 18km south of the city and is the second largest lake in Queensland, offering residents a range of fishing and water sports activities. With a village feel, established city centre and range of shopping and amenity; the City of Emerald is well placed for future growth. Source: Central Highlands Regional Council 31

32 Location Map 32

33 Google Earth Map 33

34 Google Street View Facing south down Opal street. City Central Estate on the left hand side. Facing East Down Loch Street. City Central Estate on the left hand side. 34

35 Property Financial Details 10 Year forecast (100% Equity) 35

36 Financial summary (100% Equity) 36

37 10 Year forecast (10% Cash Deposit) 37

38 Financial summary (10% Cash Deposit) 38

39 Appendix II Site Plans 39

40 Appendix IV Comparable Sales 40

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44 Builder Profile 44

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48 Appendix V Capital Growth Rates 48

49 Appendix VI Demographic Details 49

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51 Appendix VII 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 the investment in the development, including: The state of Australia s and the world economies Movements in inflation and employment Changes in socio-economic factors 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. 51

52 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 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. 52

53 Appendix VIII Glossary of Terms Common terms used by property Investors and Financial Institutions. Application Fee Bridging Finance Body Corporate Capital Growth Comparison Rate Deposit Guarantee Equity Gross Infrastructure Interest in Advance Interest Only Loan Price $/m2 Real Return Rental Guarantee Valuation Yield A fee paid by the borrower to the lending institution for obtaining finance. A short term loan/facility that is often used when buying a new dwelling previous to settling an existing dwelling. The term Body Corporate refers to a home owners association charged with the administration of one or more housing units. Owners of the individual dwellings pay a fee to provide for maintenance of common areas and provide cover for repairs that may arise in the future. The change in value of an investment. This is calculated by subtracting the purchase price from the current value of the investment and is usually expressed as a percentage. If the price of the capital asset has declined instead, this is called a capital loss. A rate used to compare the borrowing costs from competing lenders. The basis of comparison includes the interest rate and the majority of fees and charges payable during the life of the loan. The figure is expressed in percentage terms. It should be noted that some costs including redraw fees or early repayment fees, and cost savings such as fee waivers, are not included. A substitute for a cash deposit used to purchase a property. At the time of settlement, the buyer is required to pay the full purchase price. The net value of the asset. This is calculated as the value of the property less any outstanding loans secured by the property. The complete amount before deductions for taxation, inflation, or any other various fees that may be incurred. The term gross return refers to the amount of capital growth and yield before taxation, body corporate, fees, inflation and other expenses are taken into account. Basic facilities required for a community or society to function as an economy, including transportation, communication, provision of water and power and the public institutions needed for security, welfare, health and education. When interest is charged at the beginning of a period of time. For example, charging the first years interest in the first month of a loan. It is generally only available on fixed rate loans for investment purposes. A loan facility commonly used for investment loans where the borrower only pays the interest component of the loan for a specific period of time. A measure for determining the relative value of a given property based on the internal size. This is calculated by dividing the purchase price by the internal area (measured in m2) and expressed as dollars per m2. The return on investment, less the reduction in its value as a result of inflation. Real rates are important as they tell you what the actual increase in value is, and how much of a return was less the effect of inflation. A guarantee by developers to pay an agreed level of rent should a shortfall achievable in the market arise. This is usually based on a percentage of the purchase price. The estimated worth of a project based on comparable sales with projects of a similar type. This is conducted by a registered valuer. An annualised rate of return for a given investment. This is calculated as the annual achievable rent expressed as a percentage of the purchase price (or current market value) of paid investment. 53

54 Appendix IX FAQ s Short term bonds To apply, clients need to complete an application form (available from their broker), together with: A loan approval A copy of the Contract for property sold that will assist in the purchase of the new property Evidence of funds accessible prior to the completion date, such as savings, a fixed term deposit, or share certificates Evidence of other funds that will assist in the purchase such as the First Home Owners Grant. Long Term Bonds To apply, clients will need to complete an application form (available from their broker) and provide evidence that they are an existing property owner: Rate notice/s for residential property owned Mortgage statements 54