9.

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ISSUE 02
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Mining town investment pros and cons
When and where to buy US property
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 contents
issue 2

COVER STORY
10 drawing on
resources
With a good strategy and a little homework,
property investment in energy resource areas
doesn’t have to be high risk.

foundations
Property
40 Top 7 investment strategies.
42 The best investment can be undone
quickly if you don’t understand the
paperwork.
44 It is possible to gain in weakening
currency markets.
46 Australia has the potential of talking itself
into a recession, but it needn’t be this way.
48 The A-Z of investor mistakes.
50 There is no such thing as ‘too much
information’ when you are talking about
due diligence.
52 A checklist is imperative when
considering a SMSF property investment.

features
18 When mining
towns go boom
The demand for natural resources is still
high. By looking for an area with diversified
interests, you are increasing your chances of a

10
successful investment.

26 US Property
outlook - growth
Indicators are pointing to growth in the
US property market, opening up excellent
opportunities for investors.

House
28 Top three hot
06 Editor’s Desk spots in property
08 The Property Beat Despite the doom and gloom, there are
16 Q&A always areas of growth in any property
74 Book it In market. In this special feature, the star
players in metropolitan, regional and mining
76 Property Showcase

68
towns are examined.
82 The Last Word

4
54 64
34 Income from us 58 When opportunity lifestyle
property rentals meets preparation 68 something for
When considering an investment property Property investment has windows of great
in the United States, it is important to know opportunity, but in order to capitalise on it
everyone
how tax rules apply to foreign owners. you need to be prepared. Combining history with modern living and
close proximity to the CBD, it’s easy to see
why St Kilda offers a lifestyle for anyone.
54 US Government 64 The road to Rio
property outlook The potential in foreign property investments
70 the temple of boom
extends well beyond the traditional US and
The US Government’s housing recovery It may be famous for its iconic race but there is
European markets.
strategy indicates some massive losses are a lot more to Indianapolis than just fast cars.
slowly being regained.

76
70
5
e d ito r ’s d es k

Property
proactive
It’s time to be Inc.

EditorIAL

Editors | J2Media:
Jonathan Green & Jonathan Jackson

Sub-editor | Dimi Kyriakou

ART & PRODUCTION

If we are to believe many people in the industry, the Australian property OPERATIONS & Design Manager
Emily Mathams
market is shot. Or it’s about to burst. At the very least it’s in grave trouble.
You can fiddle with the words as much as you like, but reality appears to Designer
Steph Crevatin
be a long way from what the doomsayers have been preaching for some
time. SALES & MARKETING
Has the market flattened out? Yes – but it will pick up again; it always sales & marketing manager
does. And there is also no question that it has been incredibly resilient in Anamika Chowdhury
the most testing of times. Advertising executive
So perhaps we should stop looking for reasons to be negative and start David Tanaskovic

focusing on the positives – and if you are looking at property from an Accounts Manager
Sukyung Kang
investment point of view, there are many positives out there.
At a local level, the resources sector still offers many excellent investment Advertising enquiries
opportunities and, as you will read in this issue, they don’t necessarily have T: 1800 683 034
to be ‘high risk’ areas. Investing in regions with diversified resource interests W: PropertyIncMag.com

– such as Gladstone in Queensland or the Hunter Region in NSW – still offer subscriptions enquiries
high returns, yet with the stability of multiple industries. T: 1800 683 034
There are, of course, global opportunities. The US is showing signs of W: PropertyIncMag.com

recovery, yet house prices are still very low – it’s a perfect scenario for those
Contributors:
who wish to invest in a property, rent it out and then look to sell in the not- Robert Projeski, Konrad Bobilak,
too-distant future. Joel Dobson, Kartik Gupta, Simon Macharia,
Anthony Alabakov, Dale Osborn,
You could also expand your horizons and consider a foreign investment
Mike Morrison, James Freudigmann.
in a growth nation, such as Brazil. Economic growth and wealth creation
Written Correspondence to:
has created a housing boom, yet prices – for the moment – remain very
Level 9, 222 Kings Way,
affordable in the emerging nation. If you then consider that the forthcoming South Melbourne, VIC, 3205
FIFA World Cup and Summer Olympic Games are bringing much needed E: editor@21stca.com.au

improvements to infrastructure – there is a lot to like when looking at Rio.

If you prefer to look for property in metropolitan or regional areas, there
are still many solid investments to be found. As always, due diligence and a 21st Century Media Holdings Ltd
solid strategy will put you in the best position – and there is excellent advice ABN 26 140 795 777
T: 1800 683 034 F: 03 8456 5973
to be found in these pages on this topic. W: 21stcenturymedia.com.au
Property may also be the answer to your retirement concerns. By CEO of 21st Century Group | Jamie McIntyre

managing your own superannuation – and carefully directing those funds COPYRIGHT: All material appearing Property Inc. magazine is copyright.

into property – you can secure your future with a high return investment. Reproduction in whole or in part is not permissable without the written
permission of the publisher.

The examples go on and on, but the basis is exactly the same. Property IMPORTANT NOTICE: Property Inc. magazine is distributed by Network

has stood up very well through tough economic times, so if the doomsayers Services. Property Inc. magazine publishes articles and information about
people who have successfully devised and applied strategies that have

will not change their tune, perhaps it is best to just ignore them and spend proven successful for them. All information contained in Property Inc.
magazine is intended to inform and illustrate and should not be taken as
your time growing your property knowledge. financial, real estate, legal or accounting advice. We do not endorse the views,
statements, claims, strategies or ideas put forward by contributors to the
Be proactive, ask questions, get the right advice, read wise words like magazine. We are merely relaying information. Any strategy in business or
investment should only be applied after taking into consideration your
those offered in this magazine – and property is sure to be a very strong own financial situation and objectives. Investing and business can be risky
and you should seek independent professional advice before making any
player in your investment portfolio. pi decisions. We are not liable for losses you may incur directly or indirectly
as a result of reading Property Inc. magazine.Property Inc. magazine does
not endorse any of the advertisers or their products that appear in this
magazine, nor do we support any representations or claims they may
make. Readers are encouraged to do their own appropriate due diligence

Jonathan Green when making a purchasing decision as a result of reading this magazine.
Several individuals associated with advertisers in this edition of Property
Editor Inc. magazine have also contributed articles. These articles have been
published because they fit the theme of our magazine. These articles are
not advertorials. Publication of these articles is not in any way dependent
on their respective authors or organisations taking up advertising space
If you have any feedback or story ideas, I’d like to hear from you. in this magazine. Where an article or feature has been included in this
magazine in return for fee, it is identified as an “Advertisement” or
Send all correspondence to editor@21stca.com.au. “Advertorial.”

6
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 beat
Disney’s land
The famous Carolwood Estate

property is on the market for $90 million.

Those familiar with the estate

will know that this is the
property Walt Disney and wife
Lillian purchased to build their
fairytale home in 1949.

Y the ’burbs
Featured on the property
Generation Y is the next influencer of the property market. It is estimated
is a one-eighth-scale steam
that by 2020, the Baby Boomers will be usurped.
railroad with a half-mile track
and subterranean tunnel.
According to property consultant Urbis and its director of economics and It is known as the Carolwood
market research Jon Rivera, those currently aged 18-32 would make up half Pacific Railroad and, according
of Brisbane’s population by 2020 and would put the most demand on the to Forbes, was part of
housing market. the inspiration to create
Disneyland.
“In less than seven years, one of Australia’s largest population groups will be
moving out of the family home and into independent living as 60% of the Current owner Gabriel Brener’s
Generation Y demographic will be aged between 25 and 36 years of age,’’ listing is 10 times more than
he said. he bought it for in 1998.
Brener is chief executive of
“Housing demand from this group may be one of Brisbane’s biggest ever.” private investment firm Brener
International Group and co-
Generation Y is apparently interested in affordability, lifestyle and owner of the Houston Dynamo
accessibility, which meant many bought units. As such, Rivera says that soccer team. He purchased
lifestyle is the key factor. the property a year after
Lillian Disney’s death for $8.45
“Generation Y is the most mobile and globally connected generation million.
that property has ever seen and will be seeking dwellings and products
of their time.” The property now includes
a 35,000 square foot, eight-
It is estimated that the boomers will downsize and buy in mixed-aged bedroom, 17-bath mansion.
environments with shops, restaurants and entertainment, or move to coastal The three-level mansion
lifestyle locations. features a wine cellar, pool
house, tennis court, putting
green, custom movie theatre,
three bars and two safe rooms.

On the vine The 90-foot underground

Rupert Murdoch recently tweeted of his great real estate purchase. The 13- tunnel remains with “1950”
acre Moraga Vineyards in Bel Air, California, listed for $29.5 million. etched on the entrance stone
archway, commemorating
The property was sold to the News Corp boss by retired Northrop the year the train started
chief executive Thomas Jones who “converted six acres of his 16-acre operating.
property into the only commercial vineyard in Los Angeles”, according
to the New Yorker.

The property features a 7,500 square foot main house, a wine

inventory stored in a wine cave, a two-bedroom guest house and a
4,400 square foot office building, according to the listing. Number crunch 1
-14.2%: In original terms the
The property was once owned by Gone With the Wind and number of first home buyer
The Wizard of Oz director Victor Fleming. commitments as a percentage
of total owner occupied
housing finance commitments
fell to 14.2% in March 2013.

8
Number crunch
1.6%: Percentage of Property? You bet!
commitments for the purchase With the rise of the celebrity bookie, it wasn’t long before they started
of established dwellings in taking bets on anything and everything. The latest trend in betting is the
March 2013. property market.

Sportsbet is leading the field, having opened up markets on auction

clearance rates. Profiting from the great Australian dream is now a reality for
Tom Waterhouse and other betting agencies.
Winter tales
Gen Y may be taking over Sportsbet recently placed Sydney at $1.75 as the odds-on favourite to have
Brisbane, but in Sydney it’s the highest auction clearance rate.
a free for all. It seems everyone
wants to live in the Harbour City. Punters were also encouraged to bet on whether Sydney and Melbourne
would report an auction clearance of more or less than 65%.
Winter sales in Sydney were top
shelf and expected to continue. This is the first foray into property gambling since Centrebet began taking
wagers on changes to the official cash rate in 2008.
In fact, strong buyer activity
has characterised the housing
market in 2013.

In June there was an

exceptional clearance rate of Doing your block
76.9%, 20 percentage points
It was feared that disastrous DIY home renovations could flood the
higher than last year’s rate over
Australian property market when the 2013 series of The Block resumed.
the same period.
Propell National Valuers CEO Bart Mead said there has been an increasing
Listings have increased from trend in Aussies carrying out both do-it-yourself jobs and major renovations
458 properties going under after being inspired by the successes of those on reality renovation shows -
the hammer to last year’s 402. but he warns that reality TV doesn’t always reflect reality.

“Carrying out DIY jobs and home renovations can be a fantastic way to add
Eleven Sydney properties sold
value with minimal outlay,” Mead said.
for over $2 million in June.
Melbourne’s auction market is “Jobs under $10,000 are quite popular and if done correctly, can add
also strengthening. significant value to a property and increase the selling price.

During the second week “It’s great that these shows are inspiring home owners to look at ways to
of June, there was a solid improve their property’s value, however viewers should be aware of the
auction clearance rate of 68%, various factors that need to be considered – local area legislations, by-laws,
more than 10 percentage planning required, contractor requirements and so much more that goes
points higher than the 55.6% into successfully renovating a property.”
recorded over the same
A report issued last year from the Housing Industry Association (HIA)
weekend last year.
forecasted total Australian renovations activity to reach a level of $30.41
billion in 2013-2014.
There were 777 properties
scheduled to go under the Mead said home owners need to consider the advantages and pitfalls of DIY
hammer, well ahead of the 579 before donning the overalls and safety mask to ensure the money spent isn’t
listed for the same weekend going to be more than the value added.
last year.
“Every home owner’s dream is to increase the value of their home before
selling, and some might be tempted to cut corners to save money in the
Cyclical factors such as
short-term. This can lead to financial disaster in the long-term,” Mead said.
improved affordability, low
interest rates and rising “Not only can renovations add zero value and put the owner in deficit by the
confidence are overriding amount spent on the outlay, but done poorly, they can also detract value
the normally subdued market from the property, creating an even more devastating financial blow.”
activity during winter.

9
[ Cover Story ]

10
 Drawing on
the resources
Property expert Robert Projeski examines the considerations when investing
in the appealing but sometimes high-risk property market in mining areas.

T
he words ‘mining’ or ‘resources’ on the demand for housing brought built accommodation, and are willing
have strong appeal for property about by the resources boom. Liquidity is to take the risk, this could pay off
investors who are researching now present and interest rates are at the substantially. These conditions present
potential locations to make an investment lowest level in years, and may fall even a huge opportunity for investors who
property purchase. The potential rewards further. have a broad property portfolio, and
are certainly there to be had for investors It is vitally important to do your are insulated against sudden changes
who choose to invest in property where research, and do it properly. The in market circumstances such as a mine
there is a mining presence. compositions of mining towns are closure. The downside to this investment
The first question anyone should ask is varied; for instance, there are large well- is that your asset can depreciate in value
whether or not this is the right investment established regions with more than one rapidly should the mine close. Investors
for them. The answer is very subjective; source of income, or smaller isolated in these circumstances can often find
however, in order to really be able to communities where the mine may be the themselves sitting on a property for
maximise your returns from a property lifeblood of the town. considerable time, with zero rental return,
investment in some of the higher risk All investments have an element of until such time they can sell the property.
investment scenarios, you would want risk. Let’s have a look at different types of If you think you’ll lose too much sleep
to already have a substantial property mining areas and their level of risk; from worrying about the longevity of the area
investment portfolio. this information you can categorise the you are considering investing in, you may
These types of investments are nice to area suited to your risk profile. be more suited to larger regions that
have because of the cash flow; however The higher risk options are the towns often have multiple companies that are
in some instances, which we will explore where the economy relies solely on extracting a range of resources. You may
later, they are not necessarily the best mining projects. There will often be be interested in towns where companies
investment choice for long-term capital only one → mining company in the are mining coal, iron ore, natural gas and,
growth. area. Investors in these areas are seeing the buzzword at the moment, coal seam
The seasoned property investor can extremely good returns with high rents gas. These areas offer investors a more
make a handsome return on investment and good occupancy from either on-site stable investment environment, although
with some mining towns offering great personnel, or fly-in fly-out workers. If the short-term returns may not be as high
opportunities for investors to piggyback you can source a property or purpose- as other opportunities. Your investment

11
[ Cover Story ]

...While mining is certainly the driving force,

it is not the sole economic driver of the area...

Mining city Mount Isa, Queensland.

12
property is less likely to be affected by lounge and kitchen areas treated like a In focus:
mine closures and short-term downturns communal space. Approaches such this
in commodity prices. These areas have are becoming a very effective way to The Hunter
often grown over time and have a stable
outlook for the future.
attract additional rental yield.
Other investors are buying larger
Region, New
Finally, there are areas that offer a low- lots with existing premises, and then South Wales
risk investment. These areas don’t have a building multiple townhouses or villas.
sole dependency on the mining industry; They render the house to spruce it up,
although there is still a strong mining and then build additional villas on the When people think of the Hunter
presence in the region. They have built remainder of the lot. If the land suits this region in New South Wales they
for the long-term and have strong local approach, this can also be an extremely generally think of large rustic horse
economies. There are some great areas successful investment strategy. Because studs, boutique eateries, or an earthy
which fit this bill. of the demand for housing, councils in Shiraz. However, this area is also a
Gather all the information you can find these mining areas are fast tracking the mining superpower.
and investigate the lifespan of the mines approvals on new developments. The telltale signs are not only the
in the areas you are looking to invest. Are abundance of power stations, coal
these mines set to produce commodities Risk assessment mines, and aluminum smelters, but
for the foreseeable future, or has most of The questions to ask before investing in the new housing estates. New housing
the value already been extracted? You mining regions include: estates are a good sign of prosperity
really need to understand what is in front • How many mines or companies are in the area, and are also a sign of
of you before making a decision to invest investing in the area? strong demand for property.
in any of these areas. Will the return from Just a short drive from the north
your property investment be in the short- • What stage of development is the of Sydney, suburbs such as Braxton
mine?
term, or is it more likely your return will and Maitland are really shooting
occur over the mid to long-term? • What is the mine’s expected lifespan? ahead because of mining-centric
Remember, past performance is not investment. Billions of dollars will be
• What is the location’s current, and
necessarily an indicator of future growth invested in the area over the next few
expected population?
and ensure that you understand the data decades and the demand for property
being used is not skewed as a result of • Is there likely to be more growth? will increase as this happens.
distortions in that market. It is also a good • Are there more jobs being created? This is a relatively low risk area
idea to calculate some ‘what if’ scenarios when talking about mining areas.
on the local economy. While mining is certainly the driving
Another part of your research is Robert Projeski is the founder and managing force, it is not the sole economic
determining what type of property is director of Australian Mortgage Options, driver of the area. The other benefit is
suited to the area. Smart money will be Australia’s leading independent mortgage that there is more than one company
constructing buildings to suit the local management firm, winner of over 12 industry operating in the area, on many
tenant profile. Investors are building awards including the lowest rate home loan and different resource projects.
large houses with rooms that act as flexible investment loans.
self-contained apartments, which are www.amo.com.au
then being leased individually with the

...You really need to

understand what is in front
of you before making a
decision to invest in any of
Useless Loop township, of Western Australia. these areas...

13
WHAT IS YOUR
21 CENTURY
ST

INVESTMENT PROPERTY

STRATEGY?
Alex Perry Residential Doolandella Zen Gardens Mackay Somerset Park

From From From

$350,520 1-2 1-2 $349,000 3 2.5 $392,750 3

There are many different strategies for property investment. 21st Century Property believes anybody in
Australia can and should become financially comfortable and live the life they want through Cash Flow
Positive Property Investments. Many Australians have already warmed to the concept of residential property
investing forming a significant part of their immediate financial future and retirement plan.

DON’T HAVE AN INVESTMENT STRATEGY?

Let our team at 21st Century Property show you how simple, yet effective property investing can be.

4 Secure a loan Approval. We will help determine your 4 One month prior to the completion instruct a property
borrowing capacity for the right price range of property manager to secure a tenant ready to move in.
and secure a loan pre-approval. The loan should have an
interest only term, usually for up to 5 years. This will enable 4 Make sure you have all the necessary insurances including
you to make the most of your tax benefits during the first landlord insurance.
few expensive years of the loan.
4 Arrange for a depreciation schedule from a quantity
4 Source new house and land packages in high growth, high surveyor to achieve the maximum depreciation benefits
rental yield areas,usually in new estates. Investing in these from a new property.
areas will be more affordable and provide exceptional,
consistent capital growth whilst not being a weekly cash 4 Prepare a PAYG tax variation lodgement so you can claim
flow burden. It is true you can achieve higher capital tax benefits on each pay period and help fund your weekly
growth in inner cities but it needs to be weighed against the cash expenses.
increased initial capital outlay and weekly cash expenses.
Often you can afford to purchase more properties in new 4 When practical, repeat this process until you have the
growing suburbs. By purchasing land you save thousands desired amount of property to help fund your retirement.
of dollars in stamp duty etc. Positive Cash Flow Properties can maintain your
investments for around the 10 years that you will achieve
4 Purchase land direct from the developer of the project. This good capital growth.
saves thousands of dollars of stamp duty as you only pay
stamp duty on the value of the land and cuts out any of your 4 You can sell some investments at retirement to pay out the
profit going to the middle man. By the time the land is ready mortgages on the remaining properties. You can then live
to build on, and after the building has been completed, the off the rental income from these properties.
value of the land generally increases. It is the land that
appreciates.
BOOK
A FREE
ASSESSMENT
TODAY!
We have an exciting new investment opportunity that
we couldn’t wait to share with you. It’s one which is
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or call 1800 999 270

call 1800 999 270

www.21stCenturyAustraliaProperty.com
[ Trust or company ]

What is the difference between a trust

and a company in respect to buying property?
When looking at investing in property, there are potential advantages to purchase through a
trust or company. Understanding the difference is the first step.

WHAT IS A TRUST? We recommend several WHEN SHOULD I SET UP itself and not personally by
A trust is a business structure types of trusts, a Discretionary A COMPANY? the directors or shareholders.
that requires a trustee, a trust trust, a Unit trust and the There are many benefits The profits of a limited liability
and beneficiaries. The trustee Hybrid trust. associated with establishing company are assessed at
holds property and earns and While the characteristics a Pty Ltd company. Because a flat rate, which under the
distributes income on behalf of each trust are similar, their a company is a separate New Tax System is 30%. This
of the beneficiaries. applications as part of your legal entity from the owners, is substantially less than the
A trust is a cornerstone to wealth creation program are company shareholders can current highest marginal tax
tax minimisation. The trustee different. benefit from income splitting, rate of 46.5%, as per the
(usually a Pty Ltd company) profits can be retained in the personal income tax scale.
owns the property and SHOULD I SET UP A Pty Ltd company and be taxed Directors of course pay
distributes income to the SEPARATE TRUST at the 30% corporate rate. income tax on any personal
beneficiaries of the trust, who STRUCTURE FOR EACH Excellent asset protection income tax and on profits
are usually family members. PROPERTY? is available if the Pty Ltd derived from the company. pi
In this way a person who Opinions vary regarding this. company shares are owned by
would otherwise earn a large It’s up to the individual. It’s a discretionary trust. Disclaimer: This information is
provided to give you a general
taxable income can split wise however, not to put too knowledge of the subject and to
his or her income between many properties into one trust, SHOULD I SET UP MY allow you to have information to
beneficiaries who have low and it’s quite common for COMPANY BEFORE discuss with your attorney, CPA,
or tax adviser. We are not CPA, tax
marginal tax rates. Income is sophisticated investors to set TRADING OR BUYING attorney, or Enrolled Agent, and we
earned by the trust company. up a separate trust structure PROPERTY? do not give tax or legal advice.
The trustee is empowered to to have only one or two Yes. Once you start trading or Phone 1800 999 770 or visit
www.21stcenturypropertydirect.
distribute the trust income properties per trust to increase buying property, transactions
com.au
to the beneficiaries and in the level of asset protection in become harder to change. In
what proportions he or she case one trust is breached and most instances this will require
chooses. In the case of a its quarantined from all other a change in the legal owner
family trust the trustee could properties and assets. of the asset. While there are
for example distribute income rules about changing the legal
to the children of the family, WHAT IS A COMPANY? owner, this action can occur;
thereby reducing the taxable A company is a separate however it may be expensive
income of the parents. legal entity from the owners. and risky.
A trust in its simple form It can sue and be sued in its
has a settlor, a trustee and own name separate from the WHAT ARE OTHER
beneficiaries. The settlor person who owns it. It has ADVANTAGES OF
sets up the trust. The trustee limited liability for its debts. TRADING THROUGH A
manages the trust property A company can either be a PTY LTD COMPANY?
(investments, assets, etc) public company or a private A limited liability company
and pays out any net company (Pty Ltd). is liable only for assessment
income for the benefit of the A company is run by of taxation on its own profits
beneficiaries. directors. A company is owned and any taxation assessed
by shareholders. is payable by the company

16
 [ Unearthing a gem ]

Aside from renovating the kitchen

and bathroom, what can I do
to add value to my home?
When done properly, renovations can add great value to a home –
and there are many reasons to look outside the traditional options,
writes Robert Projeski.

Granny flats are becoming recent changes to legislation added a granny flat in addition
more and more popular in that make the granny flat a to the house was able to
Australian backyards with more viable investment. Home achieve a consolidated income
clever investors tapping into owners and investors can of $900 per week.
an income stream which, in the now lease their granny flats The standalone house was
right circumstances, can offer to a non-dependent. Prior to only able to achieve $500
financial freedom. these changes it was only a per week and with the cost
When planning a renovation dependent relative that could to construct this secondary
to add value, most Australians occupy this space. dwelling at approximately
will invest in a nice big deck, The regulations of granny $100,000, an income of $400
balconies or a swimming flats vary from state to state per week for the granny
pool. Home owners and and council to council, but the flat represents a return on
investors often overlook general regulations dictate investment of over 20%.
the humble granny flat as that there can only be one flat The granny flat not only
a means of gaining a real per house on the property poses great benefits as far as
...The often return in the backyard of their and the living space of the flat rental yield. The value of this
overlooked granny primary residence or in their cannot exceed 60m² in NSW, asset would have increased
flat can be a very investment property. Victoria and WA and 70m² in due to the yield on the
The often overlooked Queensland. combined property. Now
lucrative option... granny flat can be a very There are regulations that’s unearthing a gem in
lucrative option for both rental regarding the height of the your backyard whichever way
yield and overall property flat and distance from the you look at it.
value for those who own an flat to the boundaries of the A what-if scenario should
existing property with the property; however these differ always be completed when
necessary lot size of 450m². so much between councils considering any investment.
Laws have changed in that you should look into Speak to the experts to see
NSW making it easier to gain your local council guidelines what rules and regulations
approval to build a granny flat. before making any decisions. apply, as well as your local
Granny flats come under the Queensland also has property manager regarding
NSW Government Affordable regulations for requiring water demand for this type of
Housing scheme, meaning tanks and only having a certain investment. pi
many existing regulations that percentage of the property
often act as a disincentive covered by permanent roofing. Robert Projeski is the founder and
managing director of Australian
to build do not apply. Now As an example, there are Mortgage Options, Australia’s
minimum rules and planning many Sydney suburbs where leading independent mortgage
laws are applicable for granny the granny flat strategy is really management firm, winner of over 12
industry awards including the
flats up to 60m². starting to take off.
lowest rate home loan and flexible
There have also been some A property which recently investment loans. www.amo.com.au

17
[ Feature ]

When mining towns

go boom
By researching areas with diversified interests, the risk of investing in mining town property can be
reduced considerably, writes Konrad Bobilak.

A
ustralia is currently experiencing China’s and other emerging economies’ Here are some staggering growth
a dual-speed economy. With the unprecedented economic growth and projections for China.
fallout of the Global Financial urban re-development.
• China’s urban population is expected
Crisis (GFC) and the European Debt
to swell by up to 400 million by 2025
Crisis, property markets around the
as workers and their families migrate
major capital cities remain subdued. This CHINA - THE WORLD’S from the rural towns to cities.
has been further impacted by negative FASTEST GROWING
overall consumer sentiment, resulting in ECONOMY • By 2025 there will be 221 Chinese
many would-be investors shying away cities that have at least one million
from entering into the property market. China is currently the world’s fastest- people living in them (the whole of
However, these investors (and the general growing major economy, with growth rates Europe has only 35 cities with over
public at large) do not realise there are a averaging 10% over the past 30 years. The one million people).
magnitude of opportunities that exist in latest figures show that China’s economy is • Up to five million buildings are
some of the nation’s key mining centres set to grow by a staggering 150% between expected to be constructed by 2025.
and towns, which are riding on the backs 2011 and 2025. China’s economic growth
• Up to 50,000 skyscrapers will be
of the biggest growth economies, led by policies have created a scenario where
erected - the equivalent of building
China. These prospective investors fail to over 225 million people in China will be
two Chicago’s every year.
realise the duality of Australia’s property relocating to urbanised city centres over
market; quite simply, that while the cities the next 15 years, and over 400 million will • As many as 97 new airports are
may be subdued, the mining towns are do so over the next 25 years. to be built.
booming beyond comprehension.

Independent research studies are Real GDP, China and the U.S., 1980-2030
building a strong case that Australia Billions of US$ (PPP at 2005 prices)
is literally on the brink of one of the
45,000
biggest property booms of all time, one
40,000
that could last years and even decades.
35,000
But what is unique about the studies
30,000
and their implications is that this time
25,000
the booms will occur not in the major
20,000
capital cities, as was the case in 2002 to
15,000
2004, but rather scattered throughout
U.S China
mining towns around Australia that are 10,000
2015 $14,648 $13,929
2016 $15,051 $15,201
strategically positioned and equipped 5,000

to take advantage of the soaring prices

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028
of commodities, such as Liquefied
Natural Gas (LNG), coking and thermal China Real GDP (PPP US$ at 2005 prices) U.S. Real GDP (PPP US$ at 2005 prices)

coal, iron ore – all of which are fuelling Source: Economist Intelligence Unit; calculated from GDP at constant market prices, rebased to 2005 constant prices and translated into US$ using the LCU:$ PPP
exchange rate in 2005

18
• There will be one million kilometres of in 2011. Former Queensland Premier Other major industries are well supported
new road laid - that’s enough to travel Anna Bligh stated in December 2011 that by world-class infrastructure which opens
around the Earth 25 times! Gladstone’s population was forecast to the Gladstone region to the world,
• A staggering 28,000 kilometres of climb from 63,000 to 112,000 by 2031. including:
metro rail will be constructed.
• Port of Gladstone – Queensland’s
Since the 1960s the Gladstone region
largest multi-commodity port.
It’s almost impossible for the average has been recognised as an industrial hub,
person to comprehend what is required to due to an excellent harbor, availability • NRG Power Station – Queensland’s
relocate 400 million people from regional of services, transport systems and raw largest power station.
areas to cities, or to build 50,000 materials. It is also Queensland’s oldest • Gladstone Area Water Board and
skyscrapers, or to build 97 major airports, and largest industrial centre and boasts Sunwater.
but the implications of all this are colossal the world’s third largest alumina refinery
to Australia and have resulted in an and the world’s fifth largest coal port – • CS Energy.
ever-increasing demand for raw not to mention Australia’s fourth largest
commodities and Liquefied Natural Gas power station, and fourth largest port.
(LNG). Consequently, this has resulted in Gladstone also houses Australia’s largest
...Gladstone is currently
over $500 billion invested in mining alumina smelter and cement plant. going through a rapid phase of
projects throughout Australia, and over economic growth...
$105 billion in one small coastal town of Major industries within the Gladstone
Queensland called Gladstone. region include: Gladstone is currently going through a
rapid phase of economic growth. There
Mining Boom • Queensland Alumina Refinery –
is $30 billion worth of engineering
one of the world’s largest aluminium
Source: Bureau of Resources and Energy Economics
construction underway, with the resultant
140 refineries.
120
construction-related workforce expected
According to the latest Bureau
of Resources and Energy 100 • Boyne Smelter Limited – Australia’s to peak in 2014, with a further $69.7 billion
Economics, $260bn of projects
are either committed or already 80 largest aluminium smelter. worth of investment planned for the area.
under construction and a further 60
$243bn are under construction.
40
• Rio Tinto Alcan Yarwun Refinery.
20
• Cement Australia – largest GLADSTONE RECORD
80 manufacturer and distributor of
HIGH POPULATION
85 90 95 00 05 10
Basic metal products Mining
cement.
GROWTH
• Orica – one of the largest producers
of sodium cyanide in Australia and the Gladstone’s population is predicted to
GLADSTONE MARKET third largest in the world. increase between 10,000 and 25,000 in
OVERVIEW • Queensland Energy Resources Limited the next five years.
(QERL) – Stuart Oil Shale Project
Gladstone is located approximately formally owned by Southern Pacific The wide range depends on the scale
550km north of Brisbane, and 1,100km Petroleum. of future industrial development, and
south of Cairns. The region had a takes into account that with each project
• Major LNG developments.
combined population of just over 63,000 there are both construction workers and
operational workers that relocate to the
Total Project Commital: March/April $96,798,660,000 area; construction workers tend to leave
once a major project is completed, while
Projects Completed, operational workers stay permanently,
$1,243,700,000
relocating their entire family to the area.
4 Figures not provided

CAIRNS Projects Under Data released by the Gladstone Local

Constrution,
Council in 2011 indicated that by 2016
$69,737,300,000
MACKAY 7 Figures not provided the expected population of Gladstone
ROCKHAMPTON
Regional Council will be between 70,959
Projects Committed,
YARRABEE COAL $4,979,660,000 and 77,629 persons (as per tables over
BOWEN BASIN GLADSTONE 8 Figures not provided page). By 2031 this is expected to change
COAL FIELDS to between 93,565 and 123,420 persons
Projects Under Study,
BRISBANE $20,838,000,000 (low and high series).
12 Figures not provided

19
[ Feature ]

Population Projections GLADSTONE’S

Projected Population Average Annual change UNDERSUPPLIED
(medium series)
HOUSING MARKET
Low series Medium series High series Number Per cent
2011 62,587 62,982 63,510 1,808 3.1 Gladstone has been one of the few areas
2016 70,959 74,459 77,629 2,295 3.4 in Australia over the last decade that has
2026 85,455 98,174 106,738 2,504 2.8 shown consistent capital growth despite
2031 93,565 111,690 123,420 2,703 2.6 the GFC and the emergence of the
European Debt Crisis, with some years
hitting 24% capital growth such as in 2007
Population growth for the Local under two weeks to rent with an average and 2008, on detached houses.
Government (LGA) of Gladstone is of five or more applicants applying per
currently 3.2% which makes Gladstone listing. So while there are hundreds and Since 2005, the underlying demand for
the ninth fastest growing LGA in thousands of workers flying in, there is new dwellings was for around 800 per
Queensland and one of the fastest in the nowhere to put them. There were only 47 annum, but was being met by only 600
country. This strong growth represents detached houses vacant in January 2013 new dwellings, which were supplied by the
around 2,000 new residents each year to in Gladstone Central Qld 4680, and only existing building industry in Gladstone.
the current population of 63,000. The 227 detached houses in the Gladstone Given the expected increase in population
area is characterised by highly skilled, greater region, with any new stock on the growth based around Gladstone’s surging
high income earning young family market being snapped up as soon as they economy, there is currently a need to
households (77.5%) with a large majority listed. The vacancy rates in Gladstone build about 900 to 1,100 new dwellings
(70.1%) owner-occupied. Gladstone’s are well below the 1% level, with most each year in the area, gradually increasing
median household annual income property managers having very few rental to over 2,300 dwellings per year based
exceeds $96,000, which is 50% higher properties available on their books. on current future population growth
than the Australian average and 33% projections by 2025.
higher than the average annual earnings Gross rental returns remain very
in Brisbane. favourable for investors with independent In recent years, new housing starts have
advice suggesting that rental yields increased, ceasing some supply concerns,
Population of 8% to as high as 15% per annum but the lift from just 300 starts in 2010,
can be achieved in Gladstone for new, to 611 starts in 2011 and 1,150 starts
120,000
four-bedroom, detached houses, in in 2012 is essentially playing ‘catch-up’
110,000
new master-planned communities and with the current market demand. There
100,000
90,000
new estates. But rental yields do vary are currently about 5,000 new dwellings
80,000 depending on a number of key factors approved in the Gladstone region,
70,000 such as the location of the property, the which is well below what it should be.
60,000 size of the land block, the size of the It is estimated that a total of 8,100 new
50,000 bedrooms, living areas and property dwellings will be required in Gladstone
40,000 specifications. by 2018 in order to cater for its swelling
population. The current building industry
01
02
03
04
05
06
07
08
09
11
16
21
26
31
20
20
20
20
20
20
20
20
20
20
20
20
20
20

Interviews with independent Gladstone and volume of new housing approvals are
High Series Forecast Medium Series Forecast property managers by 21st Century not capable of matching this volume.
Low Series Forecast Population Forecast
Property Direct show that mining
companies will not consider leasing This deficit of newly constructed dwellings
GLADSTONE older established properties built in the is great news for property investors,
PROPERTY MARKET - 60s to 80s due to occupational health
VACANCY RATES and safety precautions and the greater
Median House Price ($)
risk associated with older dwellings.
At present, accommodation is so tight Instead, they favour newly constructed
2010
2008

$400,000
2009
2007

that local employees are forced to occupy properties, especially four-bedroom

$350,000
older apartments or even construction houses on large 700m² plus blocks,
2006

$300,000
2005
2004

with air conditioning, in the best estates $250,000

camps, instead of their preferred
2003

$200,000
2002
2001

detached rental houses. The vacancy rate located in west Gladstone. These tend to $150,000
attract rental yields of $650 to $800 per $100,000
has lifted from 0.3% this time last year, but
$50,000
there is still a chronic shortage, with most week, and as high as $1,100 per week for $-

vacant properties in Gladstone taking fully furnished houses. Gladstone LGA Houses Linear (Gladstone LGA Houses)

20
providing that proper due diligence is The chart below depicts the median of the world’s industrialised nations began
conducted on the ground in order to house values from 2007 to 2012 for west to redesign and reconfigure their long-
identify the best types of properties and Gladstone. term energy plans, with many deciding to
locations for investing. Those who will move away from nuclear energy in favour
take their time to learn and understand Median Value Houses – West Gladstone of alternative ‘safer’ and ‘cleaner’ energies
the local property market, and invest in $’000 such as Liquefied Natural Gas (LNG).
440
properties that are targeted by mining 420
400
companies, are likely to experience both 380

high rental yields and capital growth over

360
340 ...Natural gas is a key
320
the medium and long-term. 300
280
source of energy for the world
260
economy...
GLADSTONE
Jun 07
Sep 07
Dec 07
Mar 08
Jun 08
Sep 08
Dec 08
Mar 09
Jun 09
Sep 09
Dec 09
Mar 10
Jun 10
Sep 10
Dec 10
Mar 11
Jun 11
Sep 11
Dec 11
Mar 12
Jun 12
Sep 12
PROPERTY MARKET - Source: Residex.com.au
World leading economies such as
CAPITAL GROWTH Germany took the extreme leadership
A very similar story played out in south position and on 30 May 2011, Germany
Most of Gladstone’s suburbs have Gladstone where house prices have been formally announced plans to abandon
experienced historic capital growth of experiencing double-digit growth for the nuclear energy completely within 11
12% to 15% per annum over the last 10 past decade. years. The plan included the immediate
years. The independent study entitled permanent closure of six nuclear power
‘Gladstone Population and Housing Study Median Value Houses – South Gladstone plants that had been temporarily shut
– Social Impact Study’ (CQU Gladstone $’000
down for testing in March 2011, and two
440
Report, 2012) by Professor John Rolfe, 420 more that had been offline for a few years
400
a professor of regional economics at 380 with technical problems. The remaining
360
the Central Queensland University, has 340 nine plants are to be shut down between
320
predicted that Gladstone will experience 300 now and 2022.
280
a rise in median house prices of between 260
Jun 07
Sep 07
Dec 07
Mar 08
Jun 08
Sep 08
Dec 08
Mar 09
Jun 09
Sep 09
Dec 09
Mar 10
Jun 10
Sep 10
Dec 10
Mar 11
Jun 11
Sep 11
Dec 11
Mar 12
Jun 12
Sep 12

$200,000 and $350,000 between 2012-18. Natural gas is a key source of energy for
Source: Residex.com.au
the world economy. An increasing share of
Gladstone’s key suburbs’ capital growth natural gas is traded in the form of LNG,
history can be seen in the table below. which due to its compact form, facilitates
LIQUEFIED NATURAL long-distance trade and brings gas from
The capital growth history of Gladstone GAS - A ‘SAFER’ AND remote reserves to market.
has been one of envy and admiration by ‘CLEANER’
property investors all around Australia, as ENERGY SOURCE The LNG market is not as globalised
the town has ‘bucked the trend’ for well as some other energy commodities,
over a decade with no signs of slowdown. Following the Thoku earthquake and with trade segmented between regions
The main growth driver is Gladstone’s tsunami in March 2011 which resulted in and subject to a variety of pricing
diversified mining industries such as iron the Fukushima Daiichi nuclear power plant arrangements. In response to the
ore, aluminium, cement, coking coal, LNG melting down and sending radioactive expected rapid growth of demand for
and coal. particles into Japan’s atmosphere, many LNG in the Asia-Pacific region, Australia
has emerged as a major centre for LNG
Suburb Median house price 1yr growth 10yr growth rate investment and is likely to become the
Boyne Island $450,000 6% 13% second largest supplier globally during
Clinton $415,000 8% 10% the decade. As a result, developments in
Gladstone South $370,000 9% 14% the LNG market have taken on increased
Glen Elden $450,000 5% 13% importance for the Australian economy.
Kin Kora $410,000 13% 12%
New Auckland $420,000 10% 13% The vast bulk of LNG trade is conducted
Sun Valley $380,000 10% 12% under long-term supply contracts.
Tannum Sands $465,000 -3% 12%
Long-term contracts provide buyers with
security of energy supply, and producers
Telina $445,000 3% 13%
with certainty when making large scale,
Toolooa $340,000 11% 16%
long-term investment decisions. Long-
West Gladstone $385,000 14% 14%
term contracts are particularly prevalent in
Source: Australian Property Monitors
the Asia-Pacific market, accounting for

21
[ Feature ]

more than 90% of the region’s exports in such as India, South Korea, Indonesia, GLADSTONE -
2010. Historically, security of supply was Malaysia and China, and their reliance on A UNIQUELY
particularly important for the traditional coal and LNG, Australia’s exports of LNG DIVERSIFIED
LNG importers in the Asia-Pacific region have soared – and will continue to – with MINING TOWN
– Japan, Korea and Taiwan – as these China predicted to grow by 150% by
economies are almost entirely reliant upon 2025, overtaking the number one global One of the most important factors to
LNG imports for their natural gas supply. economy the US. consider when investing in Australia’s
mining towns is the level of diversification
The world’s leading economies, it seems, As a result of this, it is only a matter of that exists in the town. The main
have turned their backs on nuclear energy time before Gladstone will overtake observation, based on historical
and hence the demand for oil, coal and Western Australia’s Burrup Peninsula turbulence of some mining towns in
LNG have all skyrocketed over the past as the nation’s major gas export hub; Australia, is that the more diversified they
decade, with studies showing that by particularly when you consider that Origin are, the more stable they are, and less
2025, LNG will represent over 25% of the Energy and US oil major ConocoPhillips likely to suffer large plummets in rental
global energy use. approved the US$14 billion first stage of yields or capital growth in the event that
their Australia-Pacific LNG project, the something adverse were to affect the
LNG provides an economic means to third giant coal-seam gas plant to get the town’s mining operation or market.
transport natural gas over long distances, go-ahead in 2012.
bringing production from remote gas This risk-reward scenario needs to be
reserves to the emerging economies Construction of the plant was ticked off considered by investors, who need to
markets such as India, Japan and China. after a 20-year, US$90 billion LNG sales be realistic about building in buffers in
The process of creating LNG involves deal with China’s Sinopec became their savings, or lines of credit. The most
taking natural gas and cooling it to unconditional in 2012. Sinopec will take a exposed mining towns are those with
approximately -162°C, thus becoming 15% stake in the project, leaving Origin populations with less than 10,000, mainly
liquefied, which takes up about 1/600th and Conoco with 42.5% each. The first reliant on one mine and in some cases
the volume of natural gas in the gaseous stage, which will build one LNG one main employer.
state. production train and infrastructure for a
second, will produce 4.5 million tonnes of This perceived high level of risk is also
In terms of LNG exports by destination, LNG a year from mid-2015. The US$6 shared by some banks, which hold the
Japan is still the number one importer of billion second train is targeting first view that some of these mining towns
Australia’s LNG, given its close proximity exports in early 2016. are displaying ‘unsustainable’ growth.
to Australia and having an established a Westpac, for example, has created a list
good long-term trade relationship over Australia’s LNG Exports of postcodes which have been imposed
many decades. This is closely followed by Mt $bn with lending restrictions, in terms of
70 35
China, which is likely to exceed the volume 60 30 Loan to Value Ratios (LVR) of 70% to 60%
50 25
of LNG imported by Japan over the next 40 20
LVR maximum borrowing capacity, and
few decades. 30 15 discounting the Rental Yields by up to
20 10
10 5
40% when calculating serviceability for
With the unprecedented growth 0 0 borrowing capacity of property investors
1996-97 2000-01 2004-05 2008-09 2012-13 2016-17
experienced by the emerging economies Source: BREE Volume (LHS) Value (RHS) and owner-occupied buyers.

Global Energy Use by Source 2011 Asia’s Appetite for LNG on the Rise Australia – LNG Exports by Destination

35.00% Natural gas consumption in non- OECD Asia, 2005-2030 BCM bcm
33.07%
30.34%
30.00% 30 25 25

25 20 20
25.00% 23.67%
Trimillion Cubic Feet

20 15 15
20.00%
15 10 10
15.00%
10 5 5

10.00% 0 0
10
6.45% 2000 2002 2004 2006 2008 2010
4.88%
5.00% 0
1.59% 2005 2010 2015 2020 2025 2030 Other Taiwan
0.00% India South Korea
Oil Coal NG Nuclear Hydro Renew Other India China China Japan
Source: BP Statistical review Source: www.agofinancial.com Sources: BP (2011): International Energy Agency

22
 In the pipeline enough, the previous property booms in
Project Owners Capex Production Gladstone resulted from three separate
Target
infrastructure projects ranging from $1
APLNG Origin Energy 42.5% $US14bn* 2015
Conoco Phillips 42.5% $US6bn**
billion to $2.3 billion.
Sinopec 15%
Queensland BG Group 93.75% $US15bn+ 2014 Gladstone property boom number four:
Curtis LBG CNOOC 5%
Tokyo Gas 1.25% 2011 to present (11% p.a. to 14% p.a.
Gladstone LNG Santone 30% $US16bn+ 2015
capital growth).
Petronas 27.5%
Total 27.5%
Kogas 15% While the first three property booms
Curtis Island LNG Shell 50% $US20bn+* 2017 in Gladstone were as a result of smaller
(targeting investment Petrochina 50% $1 billion to $2.5 billion infrastructure
decision in 2012)
developments, the current value
* Approved **Approval pending Source: Companies
of projects under construction is a
The postcodes that have been added the uniqueness of Gladstone is that it has staggering $69.73 billion, with a further
to the list of ‘Restricted Postcodes’ in several key commodity industries – four $20.83 billion of projects under study and
Queensland are: in the current standing – and is further $4.97 billion worth of projects already
expanding into two more. Consequently, committed.
• Blackwater, 4714.
the town is truly diversified with six unique
• Moranbah, 4744. drivers responsible for the town’s growth Further to this, while the previous
• Dysart, 4745. and expansion. property booms lasted two to four years,
• Middlemount and May Downs in the this time the boom could last a lot longer,
Isaac region, 4746. The main industry drivers of Gladstone are: from seven to 10 years given the length of
time that is required during the
1. Liquefied Natural Gas (current
And in Western Australia: construction phase of some of the current
projects in construction);
projects. Some of these are likely to take
• Roebourne (including Karratha, 2. Thermal coal (current projects in 5-10 years to complete and many will have
Baynton, Bulgarra and Pegs Creek), construction); additional stages built as the demand for
6714. 3. Coking coal (current projects in LNG intensifies.
• Port Hedland (including South construction);
Hedland), 6721. 4. Alumina (current projects in
• East Pilbara, 6753. construction);
5. Nickel (proposed future projects); and ...This time the boom could
Real Estate Institute of Queensland
6. Steel (proposed future projects). last a lot longer, from seven
(REIQ) chief executive Anton Kardash says
lending criteria for remote areas has been to 10 years given the length of
restricted for some time, given these areas GLADSTONE PROPERTY time that is required during the
are often reliant on single industries for PAST BOOMS - HISTORY construction phase of some of
employment. REPEATING ITSELF the current projects...
“Investors in these areas need to be aware Over the last 25 years Gladstone has
that lenders will require a larger deposit experienced three major property booms
dependent on the element of risk lenders and in 2011 Gladstone commenced its
attribute to buying property in a specific fourth property boom. Interestingly
region,” he said.

Interestingly, there are a lot of lenders Gladstone Council, Queensland

who do not have any ‘postcode’ lending 2,000 $500,000

restrictions, so it worth discussing this with $400,000
1,500
a qualified mortgage broker.
$300,000
1,000
Unlike the ‘one-commodity’ towns such as $200,000

Pilbara in Western Australia which relies 500

$100,000

on iron ore manufacturing or the Bowen 0 $0

Basin which relies solely on coking coal, Jun 97 Jun 99 Jun 01 Jun 03 Jun 05 Jun 07 Jun 09 Jun 11

23
[ Feature ]

GLADSTONE CIVIL Since the completion of the Kirkwood what the future is likely to hold for towns
INFRASTRUCTURE Road project, a number of private such as Gladstone, it is very important
PROJECTS developers have commenced the rollout that investors undertake extreme due
of various master-planned estates and diligence and research in mining towns to
Although major industrial facilities communities, all with varying amenities, make sure that they stack the probabilities
dominate Gladstone and Boyne Island, price points and unique attributes. in their favour of making a good return on
the region also features coastal towns their investment.
and rural farming areas. Major projects Here the top five master-planned
currently being undertaken by the Community Estates located in the Fundamental due diligence must not only
Gladstone Regional Council include the Kirkwood Road precinct: be conducted on the main drivers of the
Gladstone Airport Reconstruction Project, mining town, but the longevity of the
1. Brookview Estate.
the Agnes Water/Seventeen Seventy underpinning industry, future investment
Integrated Water Project (Desalination 2. Forrest Springs. in infrastructure by both the private sector
Plant) and the Seventeen Seventy 3. Little Creek. and government, population growth
Foreshore Redevelopment Project. 4. Emmadale Gardens. projections, and more.
5. Vantage Estate.
Kirkwood Road

Construction is complete on the $25.3 GLADSTONE ...It is very important that

million federally funded Kirkwood Road INVESTMENT investors undertake extreme
Stage 3 project, a new 2.3km road which OPPORTUNITY - due diligence and research in
will connect Gladstone-Benaraby Road SUMMARY mining towns to make sure that
with the Dawson Highway. This third and
final stage was finished in April 2012 and Investing in Australia’s mining towns
they stack the probabilities in
completes the strategic ring road around can be a very lucrative exercise for their favour of making a good
the city, providing access to several major property investors wanting to secure return on their investment...
industrial areas as well as linking Port long-term cash flow and, in many cases,
Curtis Way with the Bruce Highway. consistent capital growth. While it is easy In order to successfully maximise your
for an investor to be seduced by the property investment, in terms of obtaining
numbers, statistics and possibilities of the best possible rental yield and capital
growth on an investment property, an
investor must gain an appreciation of the
Est.
Project Details Competition Value Project Initiator
specific types of properties (in particular,
the number of bedrooms, bathrooms, land
Queensland Curtis LNG 540km pipeline network to deliver 2014 $15 billion BG Group
gas to Gladstone size, age of property, location, proximity to
GLNG LNG production facility to process 2015 $16 billion Santos, Petronas, CBD, amenities, etc), that is most sought
and export coal seam gas Total and Kogas
after by the targeted tenant.
Western Basin Capital and Maintenance dredging 2011 $1 billion Gladstone Ports
Dredging associated with deepening and Corporation
widening It is very important to appreciate that
Wiggins Island Coal New coal terminal to receive thermal TBA $4 billion WICET ‘construction’ workers and ‘operational’
Export and coking coals from Bowen Basin
and Surat Basin
workers in Gladstone have very different
Yarwun Alumia Stage 2 of Alumina Production Precint 2012 $2.1 billion Rio Tinto
needs and requirements when choosing
Refinery their ideal property to rent; the worst
Boyne Smelters Construction of a new baking furnace 2012 $685 million Rio Tinto mistake an investor can make when
and upgrade of Reduction Lines crane
runaway investing in mining towns like Gladstone is
Australian Pacific LNG LNG production facility to process 2015 $14 billion Origin and
to assume that one property fits everyone’s
coal seam gas Conoco Phillips needs. pi
Surat Basin Rail Dawson Valley Railway (DVR)- 2012 $1.2 billion Xstrata Coal, QR
proposed as a major new 210km and Anglo Coal
railway Konrad Bobilak has a diverse background, having
had extensive experience in managed funds, risk,
Australian Inland Rail Establish an inland railway to link TBA $3 billiion AIRE
Expressway Melbourne and Darwin via NSW insurance, property investing, commercial lending,
and Qld asset finance, as well as being a financier for one
of the four major banks. www.konradbobilak.com
Powerlink Queensland Infrastructure upgrades and new large TBA TBA Powerlink
network assets
Gladstone Pacific Nickel are processing plant- Will TBA $3.8 billion GPNL
Nickel require 530 operational employees

24
 Positive Cash Flow
From Day One.
Since it’s inception after the Reserve Bank Reforms in March
2009 ATM ownership continues to hit all the right keys.

Owning a fleet of ATMs, has become a well known Many clients have bought ATMs within their self managed
business opportunity since Own Your Own ATM super or pension funds.
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p.a. returns that an ATM business provides for the life of first day you purchase your machines.
the agreement.
Buy in cash or borrow with property equity and pay down
It is possible to use your ATM income to subsidise your non tax deductible debt on your home faster.
a large investment portfolio and not hit the
serviceability wall, allowing you to make further ATMs are brilliant for saving, as returns compound when
investments in the future. Unlike a term deposit, where you monthly payments are deposited into a savings account.
are liable for tax at the first dollar of interest earned, ATMs
being plant and equipment, can be depreciated to offset
transaction income earned. BUSINESS HOURS ATMs TRANSACTION FORMULA
0 -783 transactions $235 per month
These private ATMs are placed in a variety of
784 + calculated at $0.30 per transaction
convenient locations throughout Australia. You own
Site Name Serial Number Total Total Monthly
the Automated Teller Machines and experienced Transactions Amount Due

national ATM deployers place the machine in the site and Luna Park KIC090600143 2,002 $600.60

manage it. Sea Lake Foodworks KIC090600146 1,282 $384.00

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choice. Legal agreements state the deployer must cover all Tumbarumba Bowling Club KIC090200004 472 $235.00

costs for parts and maintenance, insurance and payment Wardell Liquor KIC091200001 556 $235.00

Northhampton Supermarket KIC090300074 813 $243.90

processing for the life of the agreement.
BP Childers KIC091200002 1,123 $336.90
Grand Old Crow Hotel KIC090200028 490 $235.00
ATM owners are paid a minimum 20% p.a* or $.30 per
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transaction, whichever is higher, paid monthly.

Total Amount Due $2,993.00

In times of market volatility, a portfolio of ATMs can
provide a steady income stream and potentially solve your This portfolio of 10 business hour ATMs cost $140,000 plus gst.
cash flow issues

* Example: a business hour machine costing $14,000 ex gst, the annual return is $2,800 or $235 per month. Returns continue for the life of the agreement.

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[ Feature ]

US PROP E RT Y
–
OOG
KRO W TH
OU T L ce companies, Joel Dobson still sees
lending from fin an
Despite restrictive e US property marke
t.
fo r grow th in th
many reasons

A
sk any reliable US source and When looking at the previous sales There is, in most circumstances,
most will tell you to expect a volumes across the US during the past a third party to each property
growth of at least 1% for the decade, 2009 was a period where the transaction, and that’s the financier.
remaining quarters of 2013. property sales volume was less than US banks still aren’t lending to its own
that seen in 2001 – worth an estimated citizens. This is despite the fact that in
Why 1%? US$60 billion. most cases the applications for new
mortgages have what is perceived as
Everyone knows that the downturn The general buyer profile for US a strong potential for credit or credit
has occurred and everyone knows property for 2012 saw that about score.
that recovery has begun, as reflected 35% were owner-occupiers, 31% was
across all sectors from residential to acquired by investment funds and The backers of the banks, or
commercial and industrial. However, only 9% was acquired by foreign, wholesale funders, want greater
what most don’t know yet is; how or by cross border transactions. assurance for their investment and, as
much will it continue to recover and Interestingly, cross border such, dictate stringent terms by which
how fast? transactions have seen a steady funds are able to be loaned out.
increase since the market downturn in
The US property economic growth 2007, and have no indicated signs of In 2006, refinancing was at less than
for 2012 was down from an historical slowing down. a third of all mortgage applications,
average of 3.25% p.a. to 2.2%. As while new loans were over 60% of
such, it is estimated by a majority The majority of property sectors new business for US banks. However,
of sources to be slightly less than have been enjoying strong and by 2012 re-financing was well over
2% for 2013. However, with all consistent growth for the last two 80% for much of the year which
other contributors to growth acting years, with correlations between the is clearly a swing by a majority of
retroactively, 2014 is targeted sales volumes and increases to rental mortgage holders to take advantage
currently at 3% or higher. yields. of the lower interest rates – rates
which aren’t expected to move far
One of the largest contributors So, if the market appears to be on until well into 2014.
to property prices is the underlying the growth cycle again, why aren’t
buyer demand in an area. The more the property prices increasing As lending eases and more buyers
the demand on a property type; accordingly? re-enter the market, and as already
the greater the justified asking price illustrated in specific areas such as
can be. Quite simply: funding! San Francisco, property prices are

26
 gradually following suit and, as such, figures indicating an increasing First time home buyers were still at
creating the levels of demand that confidence in the development of 30% of all purchases, while 22% of
justify those higher prices. new properties. If you couple this sales were by investors.
increasing confidence with the fact
Some of the key markets involved in that there has been very low build Many forecasters have
home construction and development numbers over the last few decades, underestimated the growth
have already staked their positions you can see a growing shortage of rates, preferring to remain on the
in the ground regarding the market properties and considerable growth conservative side; however they are
upturn. Mike Thaman, CEO of Owens ahead. also indicting a continuance to the
Corning, one of the largest insulation patterns of growth as previously seen
and roofing product manufacturers For the past 20 consecutive months, in the last 18 months. At the end of
in the US, believes there is reason for property sales volumes have been 2012, Americans had bought existing
positivity. increasing, and year on year are homes at the fastest pace seen in the
10.2% higher in volume of sales previous three years.
“We see very good news on the from February 2012, through to
existing home front. In fact, the February 2013. A strong rise in home In spite of the still restrictive lending
top 20 markets today are probably values has had a significant effect on from finance companies and low
inventory-constrained,” Mr Thaman recovery, accounting for $1.4 trillion interest rates, the pent-up demand,
said. “So if you go to markets like in the past 12 months, and is set to less available supply of homes for
Houston or Phoenix, realtors will tell top that in the following months of sale to a population that hasn’t
you that inventories in those markets 2013. Foreclosures and short sales eased in its crude birth rate as well
could be zero days to negative. This accounted for 25% of sales in the as its immigration rates, along with
means people hear of a house going month of February 2013, down from strong improvement indicators in
on the market and the house sells almost a third of all sales at the same almost all sectors of the economy
before it even hits the market.” time in 2012, at 32% in February of and employment figures, suggest
2012. that the drivers of the recovering
Going back to better times, it was not US economy are also tipped to
unusual to see housing starts of up allow a greater position of buyers
to two million a year, dropping down ...The majority of into the marketplace. This will bring
to less than 500,000 in early 2009. property sectors have considerable growth to the available
As of January 2013, the figure of new been enjoying strong and equity positions of US property. pi
homes was at 917,000 and growing.
consistent growth for the last
This trend is reflected across the Joel Dobson is a US property expert
country with similar per-capita growth two years... and former US property broker.

...US banks still aren’t lending

to its own citizens...

27
[ Feature ]

TOP THREE
HOT SPOTS FOR 2013
Despite the doom and gloom, the Australian property market continues to deliver.
Konrad Bobilak takes us through his three property hot spots for 2013.

B
efore I go into what I believe Wirsz) or worse – and yet it came and research based companies including, but
are the best investment went. This extreme Armageddon-like not limited to, Residex, RP Data, AMP, ANZ,
opportunities in 2013, allow Australian property outlook, portrayed by HIA, BIS Shrapnel, HSBC leading economist
me to take a moment to reflect on 2012 the likes of Harry Dent, Dr Steven Keen Paul Bloxham... the list goes on.
– an interesting year – during which we and Jordan Wirsz, were, over time, all
were told the world was supposed to proved wrong. To put those extreme predictions into
end several times, not to mention our context, a 60% decline in property
economy and property market crash. In fact, not much happened around the prices across Australia would translate
major capital cities. For example, the to Sydney’s house prices dropping from
Let’s wind the clock back to 2008 and graph from REIV on the following page $660,000 to $264,000, Melbourne’s
reflect a little on the Global Financial shows little movement in the Melbourne house prices dropping from $550,000
Crisis (GFC). All the media in Australia, as property market through that time. to $220,000, and Brisbane’s houses
well as academic ‘experts’ made extensive dropping from $580,000 to $232,000. It’s
predictions that Australia was heading Consequently, these extreme views were laughable, isn’t it?
towards a “property bloodbath” with a largely slammed by Australian property
decline in property prices of 60% (Jordan experts, leading economists, and property

28
It’s also worth considering that the located in the bottom of the property unemployment, and... you guessed it... a
proposed ‘market crash’ is supposed cycle, no crashes were in sight. property market crash!
to take place in an Australian economic
environment which includes low So once again the doomsayers retreated Bucking these negatives views is the
unemployment rates, historically low and waited for another opportunity, Organisation for Economic Cooperation
interest rates and a strong Australian patiently awaiting their chance to and Development (OECD) which stated in
dollar riding on the back of a resource prophesise the apocalypse once again, a January 2013 report that the economy
and commodities boom industry. Oh, and but this time for real! would bounce back to grow 8.5% this year
that doesn’t take into account a massive and 8.9% in 2014 as domestic demand
surge in incoming migration, most of Before long, they seized their next gathers pace and spending on housing
whom will settle in the major capital cities, opportunity through the reduced growth and infrastructure revives. That is more
with a back drop of a decline in housing in the Chinese economy. By the end of bullish than the International Monetary
construction and shortage of dwellings of 2012, the last quarterly Chinese economic Fund, which forecasts 2013 China growth
approximately 160,000 by 2021. figures showed that China’s growth, which of 8.2% and 8.5% in 2014. To add salt to
had been recording double digits for their wounds, iron ore prices jumped back
So once again, the doomsayers retreated years, slowed down to a decade-low 7.5% to US$157 a tonne, as China ran out of iron
back into the dark cubicles, libraries, due to weak export markets and Beijing’s stock pile. And, no property crash in sight.
or university research departments, efforts to curb surging prices (which
collecting new documents and data, have succeeded in reducing inflation and
preparing for a new opportunity to herald stabilising property prices). ...The Australian economy,
their next apocalyptic prophecies. it seems, is extremely stubborn
At the end of the day, it is completely in succumbing to the mystical
And they didn’t have to wait very long as unsustainable to have growth at double
‘property bubble’...
we were soon faced with the European digits for decades on end without inflation
Debt Crisis and so, once again, the going out of control. This slowdown in
bandwagon of academic experts came the economic growth of China coincided The point of all this?
around prophesying the demise of with a drop in iron ore prices to record
the Australian property market, high low levels (below US$87 a tonne in world The Australian economy, it seems, is
unemployment and years of misery. markets) in the months of August and extremely stubborn in succumbing to
It was apparently inevitable that the September 2012. the mystical ‘property bubble’. With
European Debt Crisis would spill over to mortgage arrears percentages being
the Australian economy and the Australian This was the opportunity that the negligible, household debt stabilising,
property market would suffer. doomsayers were waiting for, making savings increasing and relatively low
a quick link between China’s economic unemployment numbers, it suggests the
It didn’t, and despite the Australian slowdown and the slump in iron ore housing market represents a modest
property market being relatively flat in prices signifying the end of the mining threat to the economy.
2012, due to most capital cities being boom in Australia, followed by high
The head of the country’s central bank
5yr Metro Melbourne Media Price Trends certainly wonders what all the fuss is about.
625000 625000
600000 600000 “It has to be said that the housing
575000 575000 market bubble, if that’s what it is, seems
$535,000
550000 550000 to be taking quite a long time to pop –
525000 525000
if that’s what it is going to do,” observed
500000 500000
Reserve Bank of Australia (RBA) governor
475000 475000
450000
$445,000
450000
Glenn Stevens.
425000 425000
400000 400000 Interestingly enough, a recent interview
375000 375000 by AFR editor-in-chief Michael
350000 350000
Stutchbury and economics editor Alan
325000 325000
Mitchell revealed that Mr Stevens does
300000 300000
275000 275000
not think Australian house prices are
unreasonably high and does not believe
Mar 07

Jun 07

Sep 07

Dec 07

Mar 08

Jun 08

Sep 08

Dec 08

Mar 09

Jun 09

Sep 09

Dec 09

Mar 10

Jun 10

Sep 10

Dec 10

Mar 11

Jun 11

Sep 11

De c 11

Mar 12

they will drop. Nor does he agree that

Source: REV Houses Unit/Apartment we have a price bubble.

29
[ Feature ]

I tend to agree with him. Bendigo has long been one of Victoria’s advantage of capital growth rates of 11%
key regional centres, with solid growth over the last 10 years, vacancy rates of
thanks to its steady local economy, 0.2-0.4%, and 5-6% rental yields.
...For every successful
proximity to Melbourne and good
property investor , there transport links to the capital. Bendigo Did I mention that the median price is
are literally hundreds and is 130km north-west of Melbourne. It $285,000? Not to mention a population
thousands that fail... is accessible from Melbourne via the growth of up to 4.5% per year in areas
Calder Freeway and the Bendigo railway such as Huntley? All in all, it’s an area
line, both of which have been recently that has a diversified industry balanced
INVESTMENT upgraded. Bendigo is an 80 minute between manufacturing, health care
OPPORTUNITIES AND commute to Melbourne’s CBD via the and a number of white collar industries,
HIGH GROWTH AREAS V-Line Regional Fast Train, following a rail and is growing organically – well above
FOR 2013 upgrade completed in 2006. Melbourne and other regional areas
around Australia.
According to ABS studies, around one Bendigo has shown steady long-term price
million houses in Australia are owned by growth but remains affordable. Its You can see the capital growth history
private landlords, but how many of these economic prospects have improved of the Bendigo area in the table on the
can be classified as ‘real’ property investors? recently with State Government plans to following page.
spend $630 million on a redevelopment of
The latest ABS figures show that Bendigo’s hospital and private sector Furthermore, regional areas have
approximately: plans to develop the city’s first master- outperformed capital cities in the year
planned residential community. to March, according to the ANZ, with
• 75% of investors own one property.
Bendigo coming in as the fastest regional
• 15% of investors own two properties. growth area in Victoria.

• 8% of investors own three properties.

Given the low entry point, or a median price
• 2% of investors own four properties Mildura point of $285,000, Bendigo gets my number
or more. one recommendation for 2013.

Personally, I classify a ‘true property Echuca

Major Capital Cities
BENDIGO
investor’ as someone who has four HEATHCOTE
properties or more; even more so those Ballarat St Kilda - Victoria
Melbourne
who have five-plus as this would need Geelong If Melbourne is the world’s most liveable
to involve a considerable amount of city, then St Kilda is without doubt a
knowledge and time investment. premiere investment ‘hot spot’ on a
Bendigo has been experiencing what global scale.
Here is my question to you... where do seems to be an ever-growing population
you sit in this ranking? problem, which has created a perfect St Kilda has constantly been included
storm for savvy investors who are taking in various property publications
And more importantly, where do you
want to be located on this ranking in
Location No. of sales House median 1yr growth Growth rate Median yield
the next five years?
Bendigo 170 $285,000 22% 11% 5.2%

My final question to you is, what specific California Gully 65 $210,000 3% 10% 5.3%
action steps are you going to take and Eaglehawk 80 $220,000 7% 10% 5.4%
implement in 2013 in order to make Eagle Bendigo 40 $255,000 11% 11% 4.8%
this happen? Golden Square 170 $250,000 14% 10% 5.1%
Ironbark 35 $240,000 9% 10% 5.4%
HERE ARE MY TOP 3 Kangaroo Flat 180 $245,000 6% 8% 5.2%
INVESTMENT PROPERTY Kennington 105 $285,000 10% 10% 4.7%
LOCATIONS FOR 2013 Long Gully 55 $205,000 13% 11% 6.2%
North Bendigo 85 $220,000 5% 10% 5.7%
Regional Areas Strathdale 85 $315,000 5% 7% 4.6%

Bendigo - Victoria Source: Australian Property Monitors

“No. of sales” is house sales in the past 12 months. “Growth rate” is the average annual growth in the median house price over the past 10 years.

30
over the past five years as the top residents are a multicultural snapshot of Of all the world’s emerging economies,
hot spot for property investors. It is the wider Australian population. China is currently the world’s fastest-
one of Melbourne’s most in-demand growing major economy, with growth
suburbs, with a large Gen Y population With a blue chip and highly sought after rates averaging 10% over the past 30
(predominantly in the 25 to 34 year age inner-city location, the suburb sits within years. The latest figures show that China’s
group), leading to a huge demand for 6km of the CBD and contains many of economy is set to grow by a staggering
rental property – most particularly brand Melbourne’s most iconic cosmopolitan 150% between 2011 and 2025, and is
new one and two bedroom apartments, attractions, surrounded by parks and set to overtake the US economy in 2016.
close to shopping, transport and key gardens, cafés, restaurants and an endless This unprecedented growth has resulted
lifestyle hubs in the suburb. array of retail destinations, including in an ever increasing demand for raw
designer Chapel Street, eclectic Greville commodities and Liquefied Natural Gas
The size of St Kilda is approximately Street and trendy Acland Street. (LNG), which in turn has resulted in over
3km². It has 14 parks covering nearly $500 billion being invested in mining
17% of the total area. The population of According to REIV, there has been a 53.9% projects throughout Australia, and over
St Kilda in 2006 was 15,790 people. By capital growth for apartments in St Kilda $105 billion in one small coastal town of
2011 the population was 17,794 showing over the last five years and a staggering Queensland called Gladstone (for a more
a population growth of 12% in the area 15.9% capital growth for apartments in St in-depth analysis of this mining town, turn
during that time. Kilda over the last 12 months. to our feature article on page 18).

The unique centralised location of St Mining Towns China’s continued unprecedented growth will
Kilda has also been a key attraction for create a strong demand for our commodities
the affluent young professionals who tend Gladstone – QLD for decades. Have a look at these staggering
to favour terrace homes, semi-detached During times when the main property growth projections for China:
Victorians, or modern townhouses. markets in Australia’s major capital cities
• China’s urban population is expected
Furthermore, there is a small percentage are subdued, an increasing number
to swell by up to 400 million by 2025
of millionaires who favour detached of property investors are looking to
as workers and their families migrate
historic mansions that are scattered Australian mining towns, many of which
from the rural towns to cities.
throughout the suburb. This unique are experiencing substantial housing
diversity of demographics in St Kilda shortages and escalating rental yields. • By 2025 there will be 221 Chinese
makes it one of the most colourful and Featured in 2012’s ‘Smart Investor’ cities that have at least one million
iconic suburbs of Melbourne. magazine’s top 60 suburbs for 2012, 10 people living in them (the whole of
of the 12 best performing suburbs in Europe has only 35 cities with over
Based just outside of Melbourne’s CBD, Australia were located in Queensland, one million people).
St Kilda has fantastic bus, train and tram all thriving on the back of our nation’s • Five million buildings are expected to
links into the city and neighbouring commodities boom. be constructed by 2025.
suburbs, and its almost 18,000 permanent
• Up to 50,000 skyscrapers will be
erected - the equivalent of building
Victoria regional house price growth two Chicago’s every year.
Bendigo • As many as 97 new airports are
Latrobe Valley to be built.
Warrnambool
• One million kilometres of new road
South Wimmera
will be laid. That’s enough to travel
Mildura
Ballarat
around the Earth 25 times!
East Gippsland • 28,000 kilometres of metro rail will
Geelong be constructed.
West Ovens-Murray
East Mallee
That’s extraordinary growth.
Wodonga

North Goulburn This has resulted in over $500 billion

Regional Victoria invested in mining projects throughout
Shepparton Australia.
Melbourne

-6 -4 -2 0 2 4 6 8 Gladstone is located approximately

Source: RP Data, Rismark, ANZ Capital growth (% year to Mar 2012) 550km north of Brisbane, and 1,100km

31
[ Feature ]

south of Cairns. The region had a Gladstone Market due diligence, and many lack understanding
combined population of just over 63,000 Overview of the fundamental growth factors that are
in 2011. Former Queensland Premier drivers for capital growth and cash flow.
Anna Bligh stated in December 2011 that Underpinning these projects are tens
Gladstone’s population was forecast to of thousands of workers who descend An informed investor, on the other hand,
climb from 63,000 to 112,000 by 2031. upon Gladstone during the construction would know that while the three areas
phases of the various industrial projects, listed above differ vastly (St Kilda being a
Since the 1960’s the Gladstone region has and thousands of operational workers blue chip suburb 6km from Melbourne’s
been recognised as an industrial hub, due to who have permanently moved to the CBD, Bendigo being a regional area 130km
an excellent harbor, availability of services, area, relocating their families to new from Melbourne and Gladstone being a
transport systems and raw materials. estates being built in Gladstone. This mining town 550km from Brisbane), they
has created a population surge from all have the correct driving fundamentals
Major industries within the Gladstone 42,000 in 2002, to 63,000 in 2013, and for high capital growth in the medium and
region include: forecasted population of 123,000 by 2031. short-term. Being able to recognise the
It is estimated that a total of 8,100 new fundamentals is key.
• Queensland Alumina Refinery –
dwellings will be required in Gladstone
one of the world’s largest aluminium
by 2018 in order to cater for its swelling Here is a very short list of some of the key
refineries.
population. The current building industry criteria that should be considered when
• Boyne Smelter Limited – and volume of new housing approvals are investing in the above three shortlisted
Australia’s largest aluminium smelter. not capable of matching this volume. Hot Spots for 2013:
• Rio Tinto Alcan Yarwun Refinery.
Investing in Australia’s mining towns can 1. The suburb has had capital growth of at
• Cement Australia – largest
manufacturer and distributor of cement. be a very lucrative exercise for property least 10% over the last 10 years (RP Data).
investors wanting to secure long-term cash
• Orica – one of the largest producers
flow and in many cases consistent capital 2. The suburb has experienced low vacancy
of sodium cyanide in Australia and the
growth. While it is easy for an investor to rates of 2.5% or less (REIV, REIQ).
third largest in the world.
be seduced by the numbers, statistics and
• Queensland Energy Resources Limited possibilities of what the future is likely to 3. The property is located close to the
(QERL) – Stuart Oil Shale Project formally hold for mining towns like Gladstone, it is CBD, infrastructure, transport, shops,
owned by Southern Pacific Petroleum. very important that investors undertake and schools of the area (i.e. St Kilda to
• Major LNG Developments. extreme due diligence and research in Melbourne CBD, Bendigo to Bendigo
mining towns to make sure that they stack CBD and Gladstone to Gladstone CBD).
Other major industries are well supported the probabilities in their favour and make a
by world-class infrastructure which opens good return on their investment. 4. The suburb has had a positive
the Gladstone region to the world. These population growth of at least 1% plus
include: Fundamental due diligence must not only per year (ABS).
be conducted on the main drivers of the
• Port of Gladstone – Queensland’s
mining town, but the longevity of the 5. The suburb has a rental yield of at
largest multi-commodity port.
underpinning industry, future investment least 4% per year (REIV, REIQ).
• NRG Power Station – Queensland’s in infrastructure by both the private sector
largest power station. and government, population growth Also, the property should match the
• Gladstone Area Water Board and projections, and more. needs and requirements of the dominant
Sunwater. demographic of the area.
• CS Energy.
FINAL THOUGHTS In the above three examples, the type of
Gladstone is currently going through a properties and demographics are vastly
rapid phase of economic growth. There For every successful property investor who contrasted between the three mentioned
is $30 billion worth of engineering achieves financial independence, there suburbs.
construction underway, with the resultant are literally hundreds and thousands that
construction-related workforce expected fail and give up along the way. There are I hope that identifying the above three
to peak in 2014, with a further $69.7 billion many reasons why only a few make it; apart Hot Spots will give you some direction
worth of investment planned for the area. from failing to cultivate the right ‘investor in your investing endeavours for 2013.
psychology’, many are not financially literate pi
enough or prepared to conduct unbiased

32
Got finance that lets you sleep like a baby?

0410 467 515

Credit Representative Number 409187 is authorised under Australian Credit Licence Number 389328
ABN 29946879550 www.yvettewain.com.au AUSTRALIA WIDE
[ Feature ]

Income from US
property rentals
When considering an investment property in the United States, it is important
to know how tax rules apply to foreign owners, writes Kartik Gupta.

U
S real estate professionals and rental agents/ the US has an income treaty with the foreign investor’s
property managers are encountering an home country.
increasing number of situations that involve
foreign people acquiring US real estate as The method by which rental income will be taxed
a part-time residence for investment or, depends on whether or not the foreign person who owns
in some cases, to conduct a US business. The US tax the property is considered “engaged in a US trade or
rules that apply to ownership and dispositions of US business”.
real estate by foreigners are different from the rules that
apply to US citizens in some important respects. Ownership of real property is not considered a US trade
or business if it consists of merely passive activity such
US real estate professionals must know how to properly as a net lease in which the lessee pays rent, as well as all
deal with foreign investors in US real estate in order to be taxes, operating expenses, repairs and interest in principal
compliant with the federal tax laws affecting real estate on existing mortgages and insurance in connection with
transactions. They must be familiar with the rules that the property. Such passive rental income is subject to a
determine whether an individual or entity is to be treated flat 30% withholding tax (unless reduced by an applicable
as a US person or a foreign person. income tax treaty) applied to the gross income rather than
the “net rent” received.
In addition, they must also be familiar with the
fundamentals of US federal income taxation of foreign Thus, the real estate taxes, operating expenses, ground
investors with US rental income. rent, repairs, interest and principal on any existing
mortgages, and insurance premiums paid by the lessee
Under US tax law, a taxpayer can depreciate the property. on behalf of the foreign owner-lessor, must be included
There are different depreciation rates for residential in gross income subject to the 30% withholding tax. The
and commercial properties. This annual depreciation is gross income and withheld taxes must be reported on
deducted from income as an expense on an income tax Form 1042-S, Foreign Persons US Source Income Subject
return. However, it may be recaptured if the property is to Withholding to the IRS and the payee by March 15 of
sold. the following calendar year. The payor must also submit
Form 1042, Annual Withholding Tax Return for US Source
Foreign property owner’s tax Income of Foreign Persons, by March 15.
return responsibility
Before agreeing to manage US real property for a foreign If, on the other hand, the foreign investor is engaged in a
taxpayer, a real estate professional or rental agent should US trade or business such as the developing, managing
discuss with the foreign client whether the rental income and operating a major shopping centre, the rental income
will be taxed as investment income through withholding, will not be subject to withholding and will be taxed at
or on a net income basis as “effectively connected with a ordinary progressive rates. Expenses such as mortgage
US trade or business”, without withholding (although the interest, real property taxes, maintenance, repairs and
owner may have to file estimated tax returns). depreciation (accelerated cost recovery) may then be
deducted in determining net taxable income.
Rental income from real property located in the US and
the gain from its sale will always be US source income The non-resident must make estimated tax payments for
subject to tax in the US, regardless of the foreign the tax due on the net rental income, if any. The only way
investor’s personal tax status and regardless of whether these expenses can be deducted, however, is if an income

34
tax return Form 1040NR for non-resident alien individuals A real property manager who collects rent on behalf of a
and Form 1120-F for foreign corporations is timely filed by foreign owner of real property is considered a withholding
the foreign investor. agent and is personally and primarily liable for any tax
that must be withheld. The liability of the withholding
Foreign individuals and foreign corporations may elect agent includes amounts that should have been paid
to have their passive rental income taxed as if it were plus interest, penalties and, where applicable, criminal
effectively connected with the US trade or business. Once sanctions. Property managers who do not comply
such an election is made by attaching a declaration to a with these rules will be held liable (either individually
timely filed income tax return, there is no obligation to or through their company) for 30% of gross rents, plus
withhold even in a net-lease situation. penalties and interest.

Once made, the election may not be revoked without Also, property managers need to report annual rents
the consent of the IRS. Unless the foreign investor collected on behalf of foreign landlords on Forms 1042,
has properly informed the property manager that the Annual Withholding Tax Return for US Source Income of
rental income is to be treated as “effectively connected Foreign Persons, and 1042-S Foreign Person’s US Source
income” by submitting to the property manager with a Income Subject to Withholding. These are the equivalent
fully completed Internal Revenue Service Forms W-8ECI, of Forms 1096 and 1099-MISC but are for foreign owners.
Certificate of Foreign Person’s Claim for Exemption From
Withholding on Income Effectively Connected With the To enforce the system of withholding, the Internal
Conduct of a Trade or Business in the United States (PDF), Revenue Code defines a “withholding agent” to be
the property manager should withhold 30% of the gross any person in whatever capacity (including lessees and
rental receipts so as to avoid personal liability. managers of US real property) having the control, receipt,
custody, disposal or payment of income that is subject to
A fully completed Form W-8ECI must include a valid US withholding.
tax identification number for the foreign landlord (in other
words, the rental agent must withhold and remit the 30% Thus, a real property manager who collects rent on behalf
tax to the IRS until this requirement is satisfied). of a foreign owner of real property is clearly considered
a withholding agent. A withholding agent is personally

35
[ Feature ]

and primarily liable for any tax that must be withheld. The • However, if your only US source income is wages in an
liability of the withholding agent includes amounts that amount less than the personal exemption amount, you
should have been paid plus interest, penalties and, where are not required to file.
applicable, criminal sanctions. The statute of limitations • A non-resident alien individual not engaged in a
does not start until a withholding return is filed by the trade or business in the United States with US income
withholding agent. Once the return has been filed, the on which the tax liability was not satisfied by the
statute of limitations begins to run at the later of two withholding of tax at the source.
dates: the date of actual filing of the correct return or • A representative or agent responsible for filing the
April 15 of the calendar year in which the return should return of an individual.
have been filed. • A fiduciary for a non-resident alien estate or trust.
• A resident or domestic fiduciary, or other person,
The withholding agent will remain liable if he actually charged with the care of the person or property of
knows that the foreign owner’s statements are false. a non-resident individual may be required to file an
The withholding agent’s duty of inquiry seems to be a income tax return for that individual and pay the tax.
“reasonably prudent test”, measured by all facts and
circumstances.
Claiming a refund or benefit
A non-resident who fails to submit a timely filed income You must also file an income tax return if you want to:
tax return loses the ability to claim deductions against the • Claim a refund of overwithheld or overpaid tax; or
rental income, causing the gross rents to be subject to the
• Claim the benefit of any deductions or credits. For
30% tax. example, if you have no US business activities but
have income from real property that you choose to
Generally, the non-resident will need to retroactively file treat as effectively connected income, you must timely
at least six years of delinquent income tax returns, or all file a true and accurate return to take any allowable
prior year tax returns, if they have held the rental property deductions against that income.
for less than six years. However, the ability to elect to treat
the rental income as effectively connected with a US trade
or business will be lost after 16 months from the original Which income to report
due date of the return, and the remaining back years A non-resident alien’s income that is subject to US income
may be subject to tax under the gross income method. tax must generally be divided into two categories:
Rental income from real property located in the United • Income that is Effectively Connected with a trade or
States and the gain from its sale will always be US source business in the US.
income subject to tax in the United States regardless of • US source income that is Fixed, Determinable,
the foreign investor’s status and regardless of whether Annual or Periodical (FDAP).
the United States has an income treaty with the foreign
investor’s home country. Effectively Connected Income, after allowable deductions,
is taxed at graduated rates. These are the same rates that
apply to US citizens and residents. FDAP income generally
Taxation of non-resident aliens consists of passive investment income; however, in theory,
An alien is any individual who is not a US citizen or it could consist of almost any sort of income. FDAP
US national. A non-resident alien is an alien who has not income is taxed at a flat 30% (or lower treaty rate) and no
passed the green card test or the substantial presence test. deductions are allowed against such income.

Who must file Effectively Connected Income should be reported on

If you are any of the following, you must file a return: page one of Form 1040NR. FDAP income should be
• A non-resident alien individual engaged or considered reported on page four of Form 1040NR.
to be engaged in a trade or business in the US during
the year. You must file even if: Which form to file
– Your income did not come from a trade or business Non-resident aliens who are required to file an income tax
conducted in the United States; return must use:

– You have no income from US sources; • Form 1040NR (PDF); or

or • Form 1040NR-EZ (PDF) if qualified. Refer to the
– Your income is exempt from Instructions for Form 1040NR-EZ to determine if you
income tax. qualify.

36
When and where to file If you make the choice, you can claim deductions
If you are an employee or self-employed person and you attributable to the real property income and only your net
receive wages or non-employee compensation subject to income from real property is taxed.
US income tax withholding, or you have an office or place
of business in the United States, you must generally file by This choice does not treat a non-resident alien, who is not
the 15th day of the 4th month after your tax year ends. For a otherwise engaged in a US trade or business, as being
person filing using a calendar year this is generally April 15. engaged in a trade or business in the United States during
the year.
If you are not an employee or self-employed person who
receives wages or non-employee compensation subject to Making the choice
US income tax withholding, or if you do not have an office Make the initial choice by attaching a statement to your
or place of business in the United States, you must file by return, or amended return, for the year of choice. Include
the 15th day of the 6th month after your tax year ends. For a the following in your statement:
person filing using a calendar year this is generally June 15. 1. That you are making the choice.
2. Whether the choice is under Internal Revenue Code
File Form 1040NR-EZ and Form 1040NR at the address section 871 or a tax treaty.
shown in the instructions for Form 1040NR-EZ and
3. A complete list of all your real property, or any interest
1040NR.
in real property, located in the US. Give the legal
identification of US timber, coal, or iron ore in which you
Extension of time to file have an interest.
If you cannot file your return by the due date, you should
4. The extent of your ownership in the property.
file Form 4868 to request an automatic extension of time
to file (until 15th October). You must file Form 4868 by the 5. The location of the property.
regular due date of the return. 6. A description of any major improvements to the
property.
You could lose your deductions and credits 7. The dates you owned the property.
To get the benefit of any allowable deductions or credits, 8. Your income from the property.
you must timely file a true and accurate income tax return.
9. Details of any previous choices and revocations of the
For this purpose, a return is timely if it is filed within
real property income choice.
16 months of the due date just discussed. The Internal
Revenue Service has the right to deny deductions and This choice stays in effect for all later tax years unless you
credits on tax returns filed more than 16 months after the revoke it.
due dates of the returns.
Revoking the choice
You can revoke the choice without IRS approval by filing
Real property located in the US Form 1040X, Amended US Individual Income Tax Return,
If you have income from real property located in the for the year you made the choice and for later tax years.
US that you own or have an interest in and hold for the
production of income, you can choose under Internal You must file Form 1040X within three years from the date
Revenue Code section 871 to treat all income from that your return was filed or two years from the time the tax
property as income effectively connected with a trade or was paid, whichever is later. If this time period has expired
business in the United States. for the year of choice, you cannot revoke the choice for
that year.
The choice applies to all income from real property
located in the US and held for the production of income However, you may revoke the choice for later tax years only
and to all income from any interest in such property. if you have IRS approval.

This includes income from rents, royalties from mines, oil For information on how to get IRS approval, see Regulation
or gas wells, or other natural resources. It also includes section 1.871–10. pi
gains from the sale or exchange of real property and from
Kartik Gupta is a senior financial analyst at 21st Century Education.
the sale or exchange of timber, coal, or domestic iron ore
with a retained economic interest.

To download your free US real estate investment portfolio

You can make this choice only for real property income that
tracker please visit: http://propertyportfoliotracker.com/
is not otherwise connected with your US trade or business.

37
foundations HOW TO

Finding the right structure to invest in property can be difficult. In the following section we aim to break down
those structures by enlightening you on matters such as how to invest, how to best manage your asset, what sort
of action plan you need and how to best educate yourself. Of course, it is up to you to do your own due diligence,
particularly when buying overseas, but we hope this section guides you through some potential minefields to make
you a smarter investor for property.

Top 7

Investment
Strategies
Every year I reveal my preferred investment strategies which many 21st Century Members
eagerly await, writes Jamie McIntyre.

This strategy list is designed to help people check- I would say for a number of reasons:
off what strategies they are using and it is also a
good guideline to stay on track. 1. They are simply not aware of how to do it.

The reality is that with the right financial education, 2. They get talked out of it by well-meaning but
mentoring and support, even an average Australian less knowledgeable friends.
can generate $1 million plus in retirement funds “...Often
inside 10 years by buying only two quality 3. Fear stops them from starting – for instance,
properties over the next few years. fears such as ‘what if property never rises again…’
lower capital
– among other limiting beliefs. is required
If you learn how to buy property no money down, for investing
it will rapidly speed this plan up. 4. They go for short-term pleasure such as
spending their money now and not going through
in an internet
Those who are more aggressive and want to create a bit of short-term pain or sacrifice by saving for a business;
$10 million plus net worth over the next 10 years deposit or getting financially educated. however it
should consider our ‘buy 10 properties in 10 years’
strategy and end up with a $10 million plan. Remember, short-term pleasure often leads to
does require
long-term pain; whereas short-term pain can lead skill for the
Of course, such plans require action and to long-term pleasure. future of the
dedication; however they aren’t overly complex
business...”
once you get educated. Enjoy reading the 2013 top 7 investments and the
prosperity and abundance such a plan can bring.
In fact many 21st Century Members who have
followed my strategy can testify to this and prove Also the 21st Century team will make available free
that it is indeed achievable. webinars to go into detail on how to do each of
these strategies.
Why don’t more do it?

40
 This is the year for property – both in Australia and It has worked well in regional cities like Bendigo with
the US. a growth of up to 25% per annum in the last year.

Property should always be the cornerstone of 4. Buying positively geared

your investment strategies and if you only ever Australian property
did property and did it correctly, as taught at 21st
“...This year is Century, you can’t go wrong. With low interest rates this is even easier
perhaps the to achieve.
last chance Therefore, in order of priority here are my current
top 7 investment strategies for 2013. You will have to select the right regions and
to make 15- suburbs but it is nevertheless a very good
20% rental 1. Buying Australian property – “virtually no investment strategy.
yields on US money down”
5. Buying negatively geared property
property with It is the smartest and fastest way to buy property with a deposit
an additional and it enables an average person to get started
solid capital on our ‘buy 10 properties in 10 years and become This normal standard property strategy is tried and
worth over $10 million’ strategy. tested and with exceptionally low interest rates it is
growth as the
a great strategy.
markets are It’s a very popular strategy and I’ve asked my
recovering team to make available free specialised property 6. Internet business
strongly...” consultations and webinars to make this strategy
available for all 21st Century followers. Often lower capital is required for investing in an
internet business; however it does require skill for
If becoming worth $10 million in the next 10-15 the future of the business. The entrepreneur must
years seems too much money for you, ask them to ensure he/she is educated the right way.
show you the $1 million net worth plan achievable
in 10 years from buying just two properties over 7. Franchising
the next few years.
It is safer than traditional business and has a higher
Any average and committed Australian earning success rate.
even a basic wage can achieve this.
It does require capital but such a business will suit
2. US property some entrepreneurs. It is definitely worth checking
out but once again you should also be building
It has been my favourite for three years; however, a property portfolio.
unfortunately time is running out.
There you have it: the top 7 investment strategies
This year is perhaps the last chance to make 15- for 2013.
20% rental yields on US property with an additional
solid capital growth as the markets are recovering There have been quite a few changes from 2012
strongly. with property heavily dominating this year –
just as it should.
So if you are not adding US property to your
portfolio this year, then all I can ask is “Why not?” Jamie McIntyre is the CEO/founder of 21st Century
Especially, considering that for as little as $25,000 Education. www.jamiemcintyre.com
you can own a slice of America.

3. Land banking

It is a very solid long-term strategy that involves

tying up land that you don’t have to pay for, till
years later. As a result you make the capital growth
with no holding costs.

41
foundations TIPS AND TRICKS

What to look for in the

paperwork
You can’t become a home owner without signing a contract, writes Anthony Alabakov.

Signing a Contract of Sale to purchase a property buy a home with plans for a major renovation or
can be an intimidating experience, particularly if extension only to discover that they can’t be done
you are signing one for the first time. But there’s because there is a drainage easement running right
no need to panic. Remember, you can’t become a underneath your planned home cinema!
home owner without signing one first. Here are a
few simple things to keep in mind to keep you out Take a look at the outgoings for the property.
of trouble. Are there any Owner’s Corporation fees, and
if so are they exorbitant? You may also want to
The first step is to check the Section 32 Vendor’s ask for a copy of the most recent minutes of the
Statement. It must be signed and dated by the Corporation’s meetings to see if there are plans to
vendor before you do the same, otherwise the incur major expenses.
contract could be considered null and void.
It is also important that if any works have been
You should also check that the vendor’s name on done to the property over the previous seven
the title is the same person who has made out the years, that a permit was obtained if required.
statement and who is specified on the contract. Imagine receiving a knock on the door from a
member of council and being advised that your
wonderful new deck was actually built illegally and
“...If you have any doubts you are now up for the cost of demolishing it!
whatsoever, be sure to seek legal
advice before you sign...” These days Google Earth makes these things
pretty hard to keep secret.

While you are looking at the Vendor’s Statement, Last but not least, even though you may have
pay close attention to the details surrounding a ‘cooling off’ period, if you have any doubt
the title itself. whatsoever about any information or the wording
of the contract, be sure to seek legal advice before
Are there any caveats under the vendor’s name you sign.
that you need to be aware of? The last thing you
want is an ex-business partner or bitter ex-lover Hopefully these tips are enough to get you started.
holding up settlement and costing you time Now it’s up to you to start your portfolio.
and money.
Anthony Alabakov is the CEO of My Mortgage Freedom.
Also, be sure there are no easements on the title
or heritage overlays that may affect your future
plans for the property. You certainly don’t want to

42
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foundations CURRENCY GAINS

Gaining in

weakening
markets
The recent decline in the Australian dollar has already benefited and provided Forex gains
to those who bought US properties at the time the Australian dollar was above parity.

It has also given an 8-10% Forex benefit to those = 1.06 USD, you would have paid approximately
who invested in US properties a couple of months AU$47,500 to buy that property.
ago. It will put them in a great position from a
rental point of view as they make Forex gains on Now when 1 AUD = .96 USD you might be parting
rental income as well if converted back into the with AU$52,200 to buy the same property, which is
Australian dollar. a 10% differential.

As the US economy and its real estate market

show signs of recovery, it boosts the confidence “...Earning rentals in USD when the
of the Federal Reserve and they will be tempted AUD is down will accumulate your
to reduce the QE 3 measure, Buying of Mortgage
wealth in stronger currency giving
back Securities to the tune of $85 million per
month and they might also revise the program. you foreign exchange gains along
with rental income...”
Economists predict that the Reserve Bank in
Australia might further drop the interest rate to If the AUD drops down further to 1 AUD = .80USD,
boost the stagnant Australian real estate. Both you would be looking at paying AU$62,500 to get
“...Buying
these measures are going to create a dual impact: the same deal and that makes it a very expensive a property
• Strengthen the USD;
deal. You would be better off bringing money back when the
from the US rather than sending money to the US.
• Weaken the AUD, pushing the Australian
Australian
dollar even lower. US properties are a perfect tool to put you in that dollar is high
situation. Buying a property when the Australian gives you
This will possibly be a three to four month process dollar is high gives you leverage. Earning rentals in
and currency might fluctuate before it drops down USD when the AUD is down will accumulate your
leverage...”
to levels of 90 cents or lower. If that happens, wealth in stronger currency giving you foreign
it leaves a very narrow window of investing in exchange gains along with rental income.
the US as a decline in the Australian dollar reduces
the buying power for clients and it makes the The window of opportunity is narrowing and it has
imports expensive. been a very highly speculative Forex market over
the last couple of weeks. If you are really serious
For instance, if you bought a property in the US for about buying a slice of America, this might be the
US$50,000 in the month of January when 1 AUD time before it gets too expensive.

44
 IMPACT OF FOREX ON USD INVESTMENTS EXPLAINED
1.08 1.05 0.97 0.93 0.88 0.85 0.8 0.77
F(x) Gain F(x) Gain F(x) Gain F(x) Gain F(x) Gain F(x) Gain F(x) Gain F(x) Gain
Potential Potential Potential Potential Potential Potential Potential Potential

1.08 100% 0%
1.05 97.2% -3% 100.0% 0%
0.97 89.8% -10% 92.4% -8% 100.0% 0%
0.93 86.1% -14% 88.6% -11% 95.9% -4% 100% 0%
0.88 81.5% -19% 83.8% -16% 90.7% -9% 95% -5% 100% 0%
0.85 78.7% -21% 81.0% -19% 87.6% -12% 91% -9% 97% -3% 100.0% 0%
0.8 74.1% -26% 76.2% -24% 82.5% -18% 86% -14% 91% -9% 94.1% -6% 100.0% 0%
0.77 71.3% -29% 73.3% -27% 79.4% -21% 83% -17% 88% -13% 90.6% -9% 96.3% -4% 100.0% 0%

The table above explains the scenarios at the Forex exchange (Gains) made at different levels of entry point .
How to read the table:

1. Any client who entered when 1 AUD = 1.08 USD, 3. Any client who entered when 1 AUD = .97 USD,
would have made 14% in Forex Gains at today’s rate, would have made 4% in Forex Gains at today’s rate,
when 1 AUD = .93 USD. when 1 AUD = .93 USD.
If the AUD drops down to .85 USD, the same client If the AUD drops down to .85 USD, the same client
would have made 21% in Forex Gains. would have made 12% in Forex Gains.

2. Any client who entered when 1 AUD = 1.05 USD, 4. Any client who entered when 1 AUD = .93 USD,
would have made 11% in Forex Gains at today’s rate, would have made 0% in Forex Gains at today’s rate,
when 1 AUD = .93 USD. when 1 AUD = .93 USD.
If the AUD drops down to .80 USD, the same client If the AUD drops down to .80 USD, the same client
would have made 24% in Forex Gains. would have made -14% in Forex Gains.

Also, any rentals banked in USD, will get a Forex Gain (premium) by the drop in AUD.
Above numbers are for illustration only and they do not factor in any Forex (charges) paid at time of conversions .
It would be prudent to discount gains by 1-2% to access approximate benefits.

45
foundations confidence

A self-fulfilling

PROPHECY
Australia has the potential of talking itself into a recession, but it needn’t be this way.

Amid weakening confidence in all forms The continuing fall in Australia’s exchange future government to counteract this skew
of government bureaucracy and drivers rate also points to better fortune for the towards the big banks.
in the economy, the road to recession export market including manufacturers,
in Australia could be a self-fulfilling and despite current low business He also sees encouraging signs in the
prophecy. That is unless we can find an confidence Ken says that there are other superannuation industry, particularly in
inspirational catalyst to stop ourselves indicators of economic growth that should the maturing self-managed sector, which
‘talking’ our way into negative growth, be seen as encouraging. is being driven by improved financial
says national property, business tax literacy and the growing desire among
accounting and wealth advisory group “With the lowest interest rates in recent Australians who ultimately want to
Chan & Naylor. history and a share market correction generate an independent income for their
seeing a lot of shares more realistically retirement.
“Despite the recent mention of priced, investors now have greater
the dreaded ‘R’ word and higher choice on where to put their money. We However Ken says that multiple changes
unemployment caused by the inevitable are also seeing an improvement in the made to superannuation combined with
changes in certain market cycles, Australia housing market in most states, although the government’s policy to have external
remains a lucky country with plentiful caution should be used when considering bodies review these changes is denting
opportunities for business and private investment in former mining boom areas.” investor confidence.
investors alike,” says Ken Raiss, a director
at Chan & Naylor, who contends that the Ken also argues that the current “The sum of all this is that we are
country needs a fresh economic reality government’s monetary policy, which has suffocating under bureaucracy and
boost to drag Australians out of their allowed the major banks to not pass on uncertainty,” he continues.
current malaise. lower interest rates, has had a weakening
effect on the economy, Aside from cutting the red tape, Ken
“In the resources sector we are seeing the says key growth opportunities will only
completion of the construction phase, but “Taking into account the cyclical nature be realised if Australia becomes more
at end of construction comes production,” of key markets, this skew has created a opportunistic in capitalising on the same
he says. “Because this sector will now convergence of tighter finance with the momentum that is propelling a number of
necessarily employ less people it will lack suppression of house prices,” he says. our regional neighbours.
the same visibility as the past decade;
nonetheless it is a sector that has plenty “While we need a wealthy banking sector, “We are a lucky country,” Ken says. “As
more to give. the cost of this aggregation has resulted well as our raw materials, other industries
in limited new property development and such as high quality health and education,
“As a high skills/high wage economy, uncertainty in the eyes of investors. We tourism and advanced manufacturing can
Australia’s leaders must focus on improving have traded in a potentially stronger retail thrive and survive in this Asian century if
productivity to help support the high and manufacturing sector for an extremely we are shown how.”
standards of living that Australians are used profitable banking sector. Surely there is a
to. Inevitably this will require other industry middle ground.” The Chan & Naylor Group is the leading National,
sectors to bridge the gap as the resources Property, Business, Tax Accountants and trusted wealth
planners in Financial Planning and Finance Brokering.
sector recalibrates.” As the housing market shows signs of
improvement, Ken urges the current and

46
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foundations get educated

Investor mistakes

from A to Z
Over the years you have probably made a few mistakes in your real estate investing. Here
is an assembled list of the different mistakes in alphabetical order. Perhaps you can think of
a few more that you or someone you know has committed, writes Dale Osborn.

Allowing tenant problems to Failing to listen to property How not to do things.

spoil the positives of real estate managers. H
investing.
Failure to get a solid real estate Ignoring the cost of inflation
Allowing your real estate education before starting out. on your investments.
A business to run your life.
Focusing on negative Ignoring the value of your time.
Analysis paralysis: over-analysing experiences only! In guru speak
a property and missing great F = negative Nellies. Ignoring your cash flow.
opportunities.
Forgetting about asset Improperly judging risks
protection. affecting your investments:
Being friends with your tenants: I under-insuring your property
letting rent collections to get Forgetting the importance of and risks involved.
personal. ‘supply and demand’ in a free
B enterprise market. Inability to sell or rent a rehab
Buying investments on emotion, property.
not objectively.
Getting lousy financing. Investing in the wrong kind of
education: making investments
Choosing not to join a local real Getting over-extended based solely on widely known
C estate investor group. G with debt! information.

‘Gotta get my first deal’

Don’t know what you want to syndrome. Just investing for the short-term
accomplish with your real estate J and not seeing the big picture
D investing. of a buy and hold strategy.

Ducking due diligence.

Know-it-all attitude: feeling you
K do not need to learn anything

E Excessive greed. from others.

48
 Lack of cash reserves for the Only checking on a property
unexpected expenses you will when there is a problem.
incur on your retails or rentals.
Over-estimating rents.
L Lack of experience. O
Over-improving a property
Letting your personal circle to flip or rehab.
of friends/family influence
your decisions. Over-leverage.

Making investments during Panic buying or selling:

major life changes. turning away from a long-term
M investing strategy after you Thinking real estate is a ‘get rich
Missing out on special suffer some losses. quick’ plan.
loan programs.
Paying for work before it is Treating real estate as a passive
100% complete. investment.
No business plan. No clear T
short and long-term goals P Paying full price for late repairs Trying to go solo – get with
or investment objectives. or construction projects. an investment group.

No exit plan: buy and hold for Paying too much when you buy Trying to retail a rental.
cash flow or buy and sell/flip? the property.

No mentor: you can only go Punishing bad tenants without Underestimating repairs
so far by yourself – you need a rewarding good tenants. and holding costs.
mentor and a team to go further.
U Underestimating the time
Not calculating actual costs. Quitting your full-time job horizon you will need to draw
Q too soon. on your assets.
Not charging tenants for
damages.
N Renting to friends or relatives. V Valuing your properties too high.
Not doing due diligence or not
doing your own due diligence. Relying on bad appraisals.
R Waiting too long to start real
Not requiring written repair bids Running out of cash to do more W estate investing.
each and every time – breeds deals with.
disrespect.
Exit strategy must be planned
Not screening tenants Skipping your homework or lack X for when buying.
for eviction risks. S of research.

Not thinking of tenants as You do too much of the work –

potential buyers. Y learn to delegate tasks to others.

Not understanding local

market conditions. Zealousness may get you in too
Z deep without experience. pi
Not verifying info given.

Dale Osborn was a Washington-based property

investor and realtor.

49
foundations get facts

Often overlooked

due diligence
Due diligence is near and dear to my heart. In a nutshell, due diligence is 70% of an
agent’s/broker’s/investor’s job. Some are good, but most I run across are really bad at
performing due diligence for their clients. We as agents owe our clients the “F” word:
fiduciary duty to protect our client in a transaction, writes Mike Morrison.

At the heart of due diligence is asking for Here are some overlooked questions to add to
information to provide a clear picture of the your list, whether commercial or residential income
transaction. In my opinion, it’s not asking too much producing sale/purchase.
for information no matter who you represent.
If providing relevant information regarding the Is the property under third party management? If
transaction is a problem for either party (buyer/ so do you have a management contract in place?
seller) then it’s time to re-evaluate your position. Please provide a copy of the management contract.

As an aside, due diligence is more important for Why is this important to a buyer? I have seen
the buyer/seller who is not represented by an agent management contracts that survive a sale. I may
or advisor. not want to be compelled to use XYZ Management
Company. Key: this point may be a contingency
To my point, I am currently representing a seller of written into the purchase contract. No surprises
multiple income producing properties. Since there after closing.
are multiple buildings, the transaction becomes a “...In my
commercial one. Please note, this concept of due What type of lease document do you use when you opinion, it’s
diligence bleeds over into all realms of real estate lease a property?
transactions.
not asking
I want to inspect the document. You need to know too much for
what you are committed to after the purchase of the information
property. Any free rent? Any repair deductibles?
“...Due diligence is more no matter
Promised future repairs during the lease terms? I
important for the buyer/seller take this further and request an Estoppel Certificate who you
who is not represented by an from each tenant. Black’s Law Dictionary provides represent...”
agent or advisor...” a good description of an Estoppel Certificate. Key:
can affect cash flow.

I have three - that’s correct, three - pages of Do you have any tenants that are month-to-month?
document and information requests. This list fits If yes, why? Has their rent increased after the lease
buyer or seller, commercial sale or lease, residential expired? If no, why? How long have they been
sale or lease. Before I accept a listing, I request all tenants? Is it possible to get them to sign a new
the documents that are germane to the type of lease? Key: again can affect cash flow.
listing. This accomplishes two objectives: a clear
picture of the deal and speed of the deal flow. You must take a physical inventory of any fixtures,
equipment and furniture.

50
If you want a simple way to check the validity of A copy of the property insurance policy. For all you
income numbers request the last 12 month’s bank know, the property is under-insured. Your expenses
deposits. If the seller baulks, it’s a red flag. While on just rose. Key: cash flow.
the subject, I personally place no stock in proforma
numbers. Try and get a bank to lend you money To summarise, these are just a few of the important
on proforma numbers. They’ve been down that questions a buyer should have. I see them missed
road. Besides, we all have seen what the ‘real estate at every turn. Some of these questions are real deal
always appreciates’ got us. Proforma = throwing breakers. For a buyer you have every right to ask
darts at the wall. I want real numbers. I can figure for this information. Heck, you’re taking the risk.
the up or downside to the property. If you don’t If the seller baulks at any of these requests I walk
have them, I pass. away. There is never a good reason to withhold
information in a transaction. Hence, we have the
“...Sellers, think how much faster greater fool theory. There is always a fool who will
purchase blind or overpay for a property.
the transaction will go if you have
this information ready to go for a Sellers, think how much faster the transaction will go
solid buyer...” if you have this information ready to go for a solid
buyer. I want to see a deal, warts and all. Buying and
If the property has employees, request a payroll selling income property is all about cash flow.
register; employee name, position, pay rate,
benefits. Key: cash flow. Mike Morrison, CNE, Will & Will Real Estate, is based in the
Woodlands, Texas. He specialises in small multi-family property
sales and purchase and works with mainly investors. For comments
All service and advertising contracts. Rubbish, or questions: mmorrison@willandwill.com
HVAC, etc. Key: cash flow.

51
foundations know how

The SMSF property

checklist
Buying property inside a Self-Managed Superannuation Fund (SMSF) has become a hot
topic in the industry since legislation changed to allow individuals to purchase property
using borrowed funds, writes James Freudigmann, national manager, Propell National
Buyers Advocates.

There are a number of factors to consider when to pay down the debt rather than maintaining
buying inside a SMSF to ensure you are protecting the property. If a property requires a lot of
your retirement – after all, you are using the funds maintenance, then you will find it very difficult to
you are meant to live off when the salary stops contribute more funds to the superannuation fund
coming in. to pay down the debt.

One of the new advantages of buying property The cash flow of the property is also extremely
inside a SMSF is that of leverage. Let’s say important. You really want the rental income to “...One of
you have $200,000 inside your SMSF and you be greater than the cost of interest and ongoing the new
purchase a property borrowing 80% of the value maintenance costs of the property – that is, advantages
– you could purchase a property up to around slightly positively geared. Cash flow is also
$1 million. This is not necessarily recommended important inside a SMSF as there is a very low
of buying
however if the property doubles in value in tax rate; therefore negatively geared property property
10 years to $2 million then you have made a (which is generally purchased outside super to inside a SMSF
substantial profit by using the bank’s money. get a discount on the amount of tax you pay as
This principle of leverage is no different inside or an individual) provides very little benefit. This
is that of
outside super, but it does offer a way of growing would not be a very strategic move inside a leverage...”
your superannuation through the growth of SMSF. Generating cash flow will also help you to
the property without using all of your own cash pay down the loan against the property sooner
reserves. – enabling you to own the property outright and
have a rental income being paid into your SMSF
So, what sort of property should you look for in regularly for the life of the property. This strategy
a SMSF? If you are thinking about purchasing a will assist with funding your future retirement.
residential property, the three most important
features inside a SMSF are: A low risk property is possibly the most important
thing to consider when buying a property inside a
1. Low maintenance SMSF. It’s important to remember you are playing
with your retirement fund so while a high risk
2. Good cash flow investment strategy may work for some outside
of the superannuation environment, it’s not
3. Low risk recommended to take the same approach inside
your SMSF. Most people will use the majority of
The low maintenance factor is extremely the cash that is available in their SMSF for the
important because it means that the contributions acquisition of a property so it’s important to
you make to your superannuation can be used consider purchasing a property which is unlikely to

52
drop in value. In essence, mining towns, regional
centres and serviced apartments are properties
that should be avoided within a SMSF as they
present a higher risk than blue chip property
acquisition.

“...The rental demand so close to

the CBD is going to be strong which
will minimise the risk of vacancy...”
As buyers’ advocates, we are often asked about
the concept of purchasing a property within a
SMSF in a house and land estate or in an emerging
area. Our recommendation is to still look for a
high growth asset and look at ways to increase
the rental returns. An ideal investment for a SMSF
purchase would be a quality property close to
a CBD with a cash flow of 5-6% and minimal
maintenance. A property with these attributes is
going to increase in value as it is unique from its
neighbours, whereas a single level brick and tile
house that is identical to 3,000 others being built
in the area will not attract the same advantages.
The rental demand so close to the CBD is going to
be strong which will minimise the risk of vacancy.
Instead of spending money on maintenance and
repairs all the time, this money will go towards
paying down the loan so that you will own the
property outright sooner and have the rental
income building your superannuation balance for
retirement.

Purchasing a property within your SMSF can be a

great way to support your future retirement if you
take the appropriate steps. It’s not a decision to
take lightly – be sure to speak to a professional
with a national footprint who understands the
market, legislation and ways to maximise your
investment to ensure you can retire comfortably.

Propell National Buyers Advocates specialise in providing ethical

and professional property advice, property investment strategies
and buyers advocacy services Australia-wide.

Visit http://a.propell.com.au for more information.

53
[ Feature ]

...A lack of building demand has kept

hundreds of thousands of construction
workers idle...Everybody involved in the
home building business – folks who make
windows, folks who make carpets – they’ve
all been impacted...
– President Obama

54
 US Government
Property
Outlook
– 2013 –
Joel Dobson offers a market summary on
political and corporate effects with regard to the
US housing/mortgage market.

L
ooking at a multi-trillion dollar It was a positive outlook until he came to
housing market and attempting the housing bubble, which he claims is
to evaluate how to best assist the the single biggest drag on recovery from
people at the end of the spectrum (those recession.
hit hardest by unfair and illegal practices
as well as less scrupulous individuals), “A lack of building demand has kept
can become a bewildering task. That is, hundreds of thousands of construction
unless you can evaluate on a macro scale workers idle,” he said. “Everybody
and break down various segments of involved in the home building business –
responsibility and place them in the right folks who make windows, folks who make
order on the ladder to recovery. carpets – they’ve all been impacted.”

During a speech in Virginia early in 2012, Obama went on to outline his

President Barack Obama relayed his government’s housing recovery strategy,
views from his State of the Union address. including the actions taken by the
Obama discussed the blueprint of what attorney general’s office, as well as various
he wanted to amend in the US property subsidy programs to ease the burden on
economy: “American manufacturing, home owners who are still ‘underwater’
American energy, skills and education for on their mortgage versus property values.
American workers so that we can compete It is these owners who have stuck out the
with anybody around the world in this 21st turbulent tide of repayments without the
century economy.” ability to refinance their mortgages.

55
[ Feature ]

Charting the Homeowners Bill of Rights the US Government and five major strictly overseen by private enterprise.
was another consideration of action. This banks to the tune of $25 billion was an Any regulation by government on the
Bill will ensure finance providers state indicator that such easing on mortgage mortgage industry would be on quality
clear terms for consumers to adhere to holders was possible – just not publicly of assurance. Programs for low-income
agreeable with policy makers. As the
before committing to a financial product. families would be within parameters of
Mae and Mac delegation back about
pre-set budgets and limit risk (where
two-thirds of US mortgages, and are
There are many steps that have been possible) to taxpayers as well as home
chartered by the US Congress, the
outlaid and placed, with many more owners. Finally, Government Sponsored
premise for the Obama Government
to follow, that will ensure that the US Enterprise of Freddie Mac and Fannie
is in most aspects a contradiction on
housing and financial services markets Mae are dissolved. Many analysts and
what would otherwise be a tax payer-
won’t face the same potential for risk and commentators agree with these directives,
funded bailout of the mortgage debt.
consequent meltdown. however they are cautious regarding the
This is a position upheld by republicans
opposed to most of Obama’s policy to underwrite any such strategy.
Steps to allay the risks submissions for a housing market
1. With millions of people owing more recovery. Family protection
on their mortgages than their homes The HUD (Department of Housing
are worth, many are still waiting for and Urban Development) budget for
the Obama Government to back the ...The wealthiest US 2013 has seen an increase this year of
comments he made at Dobson High
School in 2009. There was $75 billion
citizens have been enjoying the over $1.4 billion. The increases have
largely been implemented to protect
intended for the individuals that were lowest tax rates in nearly 50 vulnerable families, revitalise distressed
in uncontrollable circumstances. The years... neighbourhoods, and stimulate the
impact of this and other measures department to reduce ineffective
taken by the Obama Government have
programs and protocols, thereby reducing
been clearly documented. What is 4. US housing market growth will allow waste and timelines and allocating
not clear is the projection of stimulus the Obama Government to attain a the newly freed up resources to other
for the US market over the following greater standing on other monetary programs.
months of 2013 and into 2014. policy. The real hope here is to reduce
household debt, thereby assisting the There are numerous other supporting
2. New mortgage rules coming from
amount of disposable incomes for elements to the greater US economy
the Dodd-Frank Act are designed to
use in generating greater consumer
stabilise lending practices. This means that will have a ‘trickle’ effect to easing
spending in the US economy. This then
stringent procedures will enforce the burden on the multi-trillion dollar
has a follow-on effect in the controls of
harsh penalties on lenders that allow housing market. A long standing issue in
inflation as well as allowing positions
borrowers to attain funds they do the world, and specifically the US, is the
of savings to be utilised by banks for
not have the capacity to repay. This income tax structure. A common phrase
other positions of leverage.
is a basic system that will enforce the in the political and now mainstream field
greater control of outgoing funds. As is the Buffett Rule. This simple evaluation
such, there are restrictions placed on Standing alone indicated that Warren Buffett was paying
potentially toxic mortgages entering In March 2013, Peter J Wallison presented less on his income tax as an effective rate,
the market and having subsequent before the Senate committee on Banking, than his secretary was.
impacts.
Housing and Urban Affairs on his
3. Nine state attorneys general recently proposal for housing reform. Wallison was In fact, most middle income earners in the
petitioned the Obama Government instrumental in the Reagan administration US are paying a lot more per capita on their
to replace the current regulator of with regard to the deregulation of the salaries than their richer counterparts. The
housing finance: Freddie Mac and financial industry; the same proposals wealthiest US citizens have been enjoying
Fannie Mae. The group are citing that led to the removal of the protection the lowest tax rates in nearly 50 years. The
the lack of support that the acting mechanisms of the financial ‘Shield’ that proposed changes to the tax system would
director of the Federal Housing led to the mortgage-backed securities see that the wealthiest persons would have
Finance Agency (FHFA) has not been (MBS) issues. significant limitations to what they can
able to significantly assist home avoid in taxes via loopholes in tax rates.
owners. As such, the regulator needs Wallison discussed moving the housing The Bush administration was infamous for
to be replaced with a more assertive market to a function where it would looking after the top 1% of taxpayers and,
individual who can make greater operate much like every other US industry, as such, reflected the decade-long neglect
inroads to easing the pain that home without direct government financial that resulted in poor policy and improper
owners face. A settlement between support. It would thereby be more practices that assisted in leading the US

56
economy to one of the most dire financial
points it had endured since the Great
Depression.

US income taxes are spent in three main

areas: national defence (almost 25% of
every income tax dollar), health care
and job/family security which include
housing and food assistance programs.
Community and regional development
only equate to less than 0.5%. The
allocation of taxes for social security
and Medicare are comparable. These
distributions – when assessed as a whole
of the contribution from an income – are
again almost a third of the gross outlay
from a US citizen’s salary in an income
band of less than $100,000.

Some quick math on the apportionments

of supportive elements of levy placed
on the average US worker sees a swift
correlation between the allocations of
support they’re outlaying and the rates
of persons in need of assistance. What
is required is a greater view across each
state, and more broadly the federal
government, in allocating more from ...American manufacturing, American
the annual budget to reduce these energy, skills and education for American
expenditures and consequently support
workers so that we can compete with
the population in attaining a more secure
financial future for themselves and the anybody around the world in this 21st
economy as a whole. century economy...

More than US$7 trillion has been lost in – President Obama

home equity since the US housing bubble
peak in 2005. Significant inroads have
been made from multiple angles over
the last eight years to ease this vast gap,
however in realising that most of this
gap was a hyper-inflated, and therefore
unrealistic figure, a lot more needs to
occur in order to remove the burden from
one crippled and steadily recovering
industry, and spread the impact to
other sectors that will have greater
appreciations to assist the US economy as
a whole. pi
[ Feature ]

Defining success

When opportunity
meets preparation
Property investment has windows of great opportunity, but in order to capitalise on it
you need to be prepared, writes Konrad Bobilak.

I heard a great quote once that stated the level of awareness to capture the moment for his fortune. He tragically never realised
definition of success is when, ‘Opportunity and capitalise on the opportunity. his dream and eventually went broke and
meets preparation’. took his own life.
Acres of Diamonds tells the story of
Having said that, it is very rare to identify a farmer living in Africa who became Dr. Conwell travelled across the US
such situations where ‘all the ducks line obsessed with finding millions of lecturing on the moral of the story over
up’ and you have the required level of diamonds. Diamonds had already been 6,000 times to sold-out audiences.
awareness and financial capability to discovered in abundance on the African
capitalise on the situation. I believe continent, so he sold his farm and headed So where is all this going?
opportunities like this appear only once out to find his fortune. As the years
or twice in a lifetime. The irony of it is that slipped away, he wandered all over the Well, I believe that most Melburnians,
most people (and that includes property continent, searching for diamonds he as well as Victorians, are in a very similar
investors), fail to truly appreciate the never found. scenario to the farmer in Acres of
moment or magnitude of the situation, Diamonds. That is, we are all walking on
and let it slip by. Meanwhile, the new farm owner, while top of acres of diamonds, but most are
strolling through the farm grounds, picked completely oblivious to the fact. Except
During my formative years in property up an unusual-looking rock the size of instead of ‘diamonds’ I am referring
investing, I kept hearing from various a country chicken egg, and put it on his to ‘land’ and, more importantly, the
individuals the saying, ‘You have to be at mantle as a curiosity. A visitor viewed the unprecedented move by the government
the right time and place to become rich.’ rock and practically went into terminal to permanently restrict new land being
convulsions. He told the farmer that created beyond Melbourne’s current
Later in life, after reading the now the funny looking rock was the biggest urban boundary.
infamous book Acres of Diamonds, I diamond ever found in South Africa. The
found this to be only partly true. The book new owner said, “Heck, the whole farm This extraordinary move by the
was written by Russell Herman Conwell, is covered with them” and sure enough government will ultimately cap the
a lawyer who lived in America in the 19th it was. The farm later turned into the availability of land in Melbourne,
century. It occurred to him that most Kimberly Diamond Mine – the richest forcing prices to skyrocket to new
people find themselves at the right time diamond mine the world has ever known. heights, especially for land blocks with
and place a number of times in their life, The original farmer stood on ‘acres of redevelopment potential. As well, more
but in most instances lack the required diamonds’ and sold it to search the world pressure will be placed on regional areas

58
such as Bendigo (the most popular choice 1. Increasing population Specifically, the government has
of ‘tree-change’ in Victoria), in terms of growth via migration committed over $630 million towards
land prices and land availability. If we look at the basics, the number the redevelopment and expansion of
one driver of house prices is demand, the Bendigo Hospital precinct, as well
Here is an excerpt from a recent article especially if that demand is ever growing, as millions upgrading roads and railways
featured in the Herald Sun, on April 24 consistent and focused on specific areas making the commuting time from
2013: and suburbs. This is definitely the case Melbourne to Bendigo faster and more
with the record high level of migration that efficient. Bendigo, already Melbourne’s
City dwellers will face higher-density living is coming into the country on an ever- number one destination for ‘tree change’,
and regional towns will become bigger increasing basis, year after year. will see such significant investments
population centres under a plan to fix in infrastructure ultimately resulting in
Melbourne’s urban boundary. Based on estimates released by the more demand for housing in the region.
Treasury, Australia’s population will It will add more pressure to an already
In a major policy shift, the State explode to over 35 million by 2056; that’s undersupplied market, not to mention
Government wants to relieve Melbourne’s an increase of 14.5 million people, most a positive impact on medium and long-
growth pains by making Victoria a “state of whom will come from overseas. It’s term capital growth on the area which has
of cities rather than a city state”. important to note that most of these already been running at an average of
people will be living along the eastern 11% over the last decade.
Planning Minister Matthew Guy said coast of Australia, concentrated around
Melbourne had reached its geographical the major capital cities like Melbourne, 2. Australia faces a looming
limits and the days of expanding the urban Sydney, Brisbane and Perth. This point is housing shortage
growth boundary were over. further highlighted by the table below, One of the most significant and perhaps
depicting population increases in the challenging issues that will have to be
Mr Guy said the Government wasn’t specific cities around Australia. For addressed by the Australian Government
closing the door on Melbourne’s example, from the estimated influx of an in the next five to 10 years is how to solve
population growth. additional 3,355,957 people who will be the ever-increasing housing shortage
migrating to Victoria, 2,991,976 of them which by 2020, according to the Housing
“Melbourne will need to accommodate will be living in Melbourne. Industry Association (HIA), will stand at
greater density in defined areas; hence, approximately 160,000 in NSW, 112,000 in
our new residential growth zones,” he said. It is evident in government policies that WA and 105,000 in VIC.
there will be a substantial emphasis on
Mr Guy said resources would be poured infrastructure spending in ‘key’ regional As can be seen by the table below, the
into regional towns as Melbourne’s growth areas around Victoria, as well as clear shortage of new dwellings coming into
suburbs filled up in coming decades. drives by the government to encourage the market is dire across the board, with
new migrants and Australians to settle a prediction of over 500,000 dwelling
“Twenty years from now, if you want to live in regional areas rather than in the shortages across Australia by 2020.
in a house-and-land-style market, that’s Melbourne metro.
going to be outside Melbourne,” he said. While these shortages are staggering,
One example of this is the government’s there are two more aspects of this issue
move to spend over $1 billion on that need to be appreciated in order to
THE ‘PERFECT STORM’ infrastructure in the region of Bendigo. fully take in the gravity of this situation.
OF CONDITIONS
To add to this radical government Statewide projected population growth 2007 to 2056
announcement is what many describe 2007 2056 total avg annual
State
as a ‘perfect storm’ of economic, social population population growth growth
and financial conditions that will further nsw 6,816,087 10,158,043 3,341,956 0.8%
add pressure on what is an already price vic 5,126,540 8,482,497 3,355,957 1.0%
escalating market – being the Melbourne qld 4,090,908 8,653,819 4,562,911 1.5%
and Victorian property market. sa 1,567,888 2,195,768 627,880 0.7%
wa 2,059,381 4,252,618 2,193,237 1.5%
Here are my top nine reasons and their tas 489,951 571,015 81,064 0.3%
likely implications on short to medium-
nt 210,627 397,322 186,695 1.3%
term house price points and demand,
act 334,119 506,424 172,305 0.9%
causing exponential capital growth over
australia 20,695,501 35,217,506 14,522,005 1.1%
the next three to five years and beyond.
Source: RP Data, ABS.

59
[ Feature ]

The first is that the majority of new the 1980s Australia has experienced $500 billion being invested in mining
dwellings are being constructed on extensive periods of economic growth projects throughout Australia.
the fringes of the major capital cities in averaging 3.3% in real GDP growth rates.
Australia in new estates. This is mainly This shift has turned Australia into one of 4. A unique banking system
due to established suburbs having height the fastest growing advanced economies that is underwritten by the
and density restrictions, so large scale in the world. residential property market
developers are usually left with city fringe Our $4 trillion private residential housing
farm land that has been rezoned as the Australia is the 13th largest economy market is completely dominated by the
place to establish new housing estates. in the world according to nominal GDP four major banks in terms of mortgage
In Melbourne, there are over 105 new (current prices) and the 17th largest exposure, which only stands at about
housing estates located in all directions according to GDP (PPP). 30%. Putting aside unencumbered
on the outskirts of the city, and now with a houses and investment properties,
limited supply of land, this will translate to In 2010, Australia’s GDP (PPP) was owner-occupied properties in Australia
more pressure on house and land prices in US$882.344 billion – a 3.94% increase have mortgage levels where the average
established suburbs and inner city areas. from 2009. Australia’s nominal GDP loan to value ratio is located somewhere
(current prices, US dollars) growth during between 50-60%.
The second point to appreciate is that the same period was even more amazing –
Australia currently does not have a GDP (current prices, US dollars) grew from This is a very important point to appreciate
workforce that is capable of building US$994.25 billion in 2009 to US$1.219 for two reasons. One, properties would
500,000 new homes by 2020. This trillion, a 22.68% increase. need to devalue by 40-50% before
shortage of skilled labour, combined with there would be any effect on mortgage
the bureaucracy involved in creating new With ever-increasing ties with China, the sentiment and, even at that point in
land estates, will continue to underpin world’s strongest emerging economy, and time, the strength of the economy and
property prices across the nation for Australia being a significant import and emotional link to owner-occupied living
decades to come. export partner, our commodities sectors would see most people hesitant to sell
are likely to stabilise our economy and their homes. Furthermore, the mortgage
All these factors will continue to drive drive our housing prices up. debt is not evenly spread against all
up the raw cost of housing construction, dwellings across all suburbs. Taking
making established dwellings in China is currently the world’s fastest- Melbourne as an example, top suburbs like
Melbourne urban boundaries even more growing major economy, with growth Kew, Camberwell or Balwyn have 85% of
expensive, thus pushing up prices to rates averaging 10% over the past 30 all properties unencumbered – contrasted
record high levels. years. with new estates like Point Cook, Tarneit,
or Pakenham, shrouded in 95% debt. The
3. Australia has strong The latest figures show that China’s reality is that there are a lot of rich people
economic fundamentals in place economy is set to grow by a staggering in Melbourne, Sydney and Brisbane, sitting
The Australian Government’s constant 150% between 2011 and 2025, and is set in houses that are completely paid off, and
focus on trade and strengthening to overtake the US economy in 2016. completely unaffected by any property
economic ties with the emerging Asian price movements.
markets since the 1970s – shifting from This unprecedented growth has resulted
reliance on the western European in an ever-increasing demand for raw The other unique aspect making up the
markets – has certainly paid off. Since commodities, which has resulted in over Australian banking landscape is the very

low build rate medium build rate high build rate

Build rate Shortage by Shortage by Build rate Shortage by Shortage by Build rate Shortage by Shortage by
per annum 2016 2020 per annum 2016 2020 per annum 2016 2020
nsw 28,200 196,200 267,500 40,600 134,100 155,700 48,600 94,400 84,200
vic 26,900 114,900 189,900 36,400 67,300 104,200 45,300 22,600 23,800
qld 31,300 98,000 142,900 37,000 69,600 91,800 44,200 33,500 26,900
sa 6,700 30,800 49,000 9,400 17,200 24,600 11,500 6,800 5,700
wa 16,700 86,700 134,700 19,300 74,100 112,000 21,900 60,800 88,000
tas 1,700 2,400 3,500 2,300 -300 -1,300 3,500 -6,600 -12,700
nt 1,000 11,200 15,900 1,400 9,300 12,500 1,800 7,100 8,500
act 1,900 3,100 5,500 2,400 800 1,400 3,600 -5,400 -9,700
national 114,400 543,300 808,900 148,800 372,100 500,900 180,400 213,200 214,700
*Negative value denotes a surplus.

60
stringent lending policies and credit virtually every suburb in Australia came ‘mortgage stress’ levels than the ‘old
scoring systems that are widely used in into existence within the last 200 years money suburbs’, where more than 50% of
Australia, where the majority of loans and, more importantly, each suburb was houses are completely paid off.
written are full doc loans, insured by at one stage a ‘master planned’ estate
QBE or GE, resulting in an extremely that was sold to home buyers based on a Further to this, suburbs within the 10km
low mortgage default rate of 0.7% per stage released process. ring around the CBD have also been
year. This is an extremely low default under mounting shortage due to their
rate by international standards, and it’s a This means that each and every suburb at close proximity to major job hubs,
credit to our banking system, which has one stage or another had a similar price transport and lifestyle areas.
provided much needed stability in recent range and housing design guideline,
economic times. attracting a similar type of buyer based 7. The taxation system is biased
on demographic and income band. in favour of property investing
5. Strong social emphasis Needless to say, over time, some suburbs One aspect that has been a catalyst of
on house ownership have transformed. For example, many of a preference for property investing is
We have all heard at one time or another the traditional inner city suburbs which the numerous tax advantages that are
that the ‘Great Australian Dream’ is to own were originally made up of blue collar available to a property investor due to a
a four-bedroom house on large block. For workers, such as Melbourne’s Middle Park unique tax system. The tax deductions
many this is a now all but a dream; with or Port Melbourne, have now attracted that are available to individuals who
median prices in Australia’s major capital white collar workers due to their unique choose to invest in property under the
cities hovering around the $550,000 to proximity to the city, plus access to current legislation run literally into the
$600,000 mark. And with realistic figures infrastructure and the beach. However, hundreds. Perhaps the most notable of
of approximately $900,000 to buy a there are always exceptions to this rule; these is the ability to claim the interest
four-bedroom house in an established many of the original affluent suburbs have component of the loan as a tax deduction,
area, many first home buyers or migrants also remained affluent over the decades, not to mention a building deduction
struggle to buy into one of the most such as Melbourne’s Toorak, South Yarra, of 2.5% over 40 years, depreciation of
expensive markets in the world. Canterbury and Kew, all of which shared fixtures and fittings over five to 15 years
a common thread of having very large (depending on method of depreciation,
One of the contributing factors to the land blocks. The end result being that diminishing value or straight line) and a
resilience of our residential property Melbourne, Sydney and Brisbane all have multitude of other deductions relating
market is the extensive push by our distinctive and often fragmented property to up-keeping, insurance, property
government since the end of World War markets, virtually independent of each management costs and ongoing costs
II into home ownership. This has, in large, other, and have no real common links. associated with an investment property.
been reflected in the various financial In Melbourne for example, there is no All of these factors combined have the
incentives, such as the First Home Buyers correlation between Broadmeadows in potential to turn a negatively geared
Grant, offered by both the state and the western suburbs, where the median property (where the rental income from
federal governments. The other major price is $350,000 and Toorak, where the property does not cover the interest-
contributing factor is the constant drive the median price is $2.75 million. These only repayments) to a neutrally geared
and advertising by major land developers suburbs have virtually nothing in common, property, or even cash flow positive.
such as Delfin, Vic Urban, Australand and in terms of level of debt, income bands,
others, depicting families in new house job industries and more. Essentially, the implications of a taxation
and land estates. This relentless push for system that is completely biased in
home ownership has resulted in a deep Due to the unique and fairly recent favour of property investing means that
entrenchment in the Australian culture establishment of suburbs by international accountants, mortgage brokers and some
and rite of passage from one generation standards, within the main capital cities financial planners will continuously be
to the next. The point being made here around Australia, we have ended up with a recommending direct property investing
is that one cannot underestimate the situation where the rich are concentrated as a holistic solution to wealth creation.
potency of the belief systems and values in very specific areas or suburbs, as are
of a society that have been developed the middle class, and indeed the less 8. Social proof of property
and reinforced by family members and affluent. This has resulted in different investing as a safe, predictable
peers over decades. suburbs and areas being affected in way to make money
completely different ways depending According to an investment report by
6. Geographically isolated on what the economy or interest rates Russell Investments, despite the recent
premium suburbs and estates are doing. During times of high interest international stock market volatility, the
One of the most unique features of the rates, for example, the outer ring suburbs average house in Melbourne has returned
Australian housing landscape is that in Melbourne experience much higher an average of 49.8% over a five year

61
[ Feature ]

period until June 2011. This equates to an I don’t know about you, but most people over into ‘key’ regional areas, which are
average annual return of 9.98% per year, would be very happy with a 50% ROE. already experiencing some of the highest
which is a hefty contrast compared to the And this is one of the main reasons capital growth in Australia.
stock market, bonds, or commodities. that fund managers and stock brokers
What’s more astounding is that despite cannot hope to compete with the returns The truly amazing aspect of all this
all the doom and gloom predictions, and generated in the Australian residential is the timing and opportunity. Any
in light of major international economic property market when it comes to ROE. Australian sitting on a quarter acre block
turmoil, the Australian residential property in Melbourne will be looking back years
market has managed to return an average 9. Historically record low from now realising that they became
of 10.1% for the 10 year period until June interest rates millionaires because they had the
2011, and a staggering annual average of The Reserve Bank of Australia kept the foresight to buy and hold onto land in an
11.6% of a 25 year average until June 2011. cash rate on hold at 2.75% on the first area where there is no more land being
Tuesday of June 2013, but two more 0.25 produced. The ‘ducks have all clearly lined
A report by ANZ called ‘Australian percentage point cuts were expected up’ and the objective of any educated
Property Research Asset Returns: Past, before the current easing cycle was property investor is now to secure and
Present and Future’, showed that once finished. This will translate to ‘crazy hold onto as much land in Melbourne and
all the associated holding costs were cheap’ money, with three-year fixed rates Victoria as humanly possible. The ultimate
considered for the various assets included currently available from 4.99% and one- level of investing is to control that land
in the study, owner-occupied housing year fixed rates as low as 4.79% - this is with the smallest possible deposit and
was found to have generated an annual truly an unprecedented situation in the delay settlement as long as possible.
return of 12%; investment property 9.6%, mortgage environment.
stocks 8.9%, government bonds 4.8%, The ‘key’ ingredient, however, is taking
commercial property 4.2% and term The fact is that interest rates are at a action. When the next property cycle
deposits 3.7%. record low level in Australia and it’s just a hits, I believe the capital growth will
matter of time before the property market soar far beyond anyone’s expectations.
Digging further into the picture, especially takes off again. The last time interest rates There will be winners and there will
when you add leverage into the equation, were cut to ‘emergency levels’ during be those who, once again, missed out
this truly shows why Australian residential the Global Financial Crisis, the property and were left sitting on the sidelines
property has outperformed all other market went through incredibly fast watching the drama unfold. We are
asset classes over the long-term. When growth in many Australian cities (house now at the brink of that magic 12 to 18
property investors buy an investment prices in Victoria went up by as much as month ‘window of opportunity’ where
property, they borrow anywhere from 17% in 2009). those who have prepared financially
80-95% of the property total value. and psychologically to buy residential
Consider this simplified example as a Coupled with increasing pressure on property will reap amazing rewards in
basic yet powerful example depicting rental yields, this will translate to a unique the years to come. This is already evident
the difference between Return on Asset situation where units and houses located in the behaviour that I have personally
(ROA) versus Return On Equity (ROE). in the inner city, blue chip suburbs of witnessed, practiced by sophisticated
Victoria, and regional areas such as property investors and developers who
Let’s assume that an investor is buying Bendigo, will become cash flow neutral are going in hard and snapping up what
a $500,000 residential investment and cash flow positive. This makes the are still undervalued properties in key
property, which appreciates over the decision to invest in residential property areas. In 2012 I have personally secured
next 12 months by 10%. The property so much easier in the current unique six investment properties worth $3.25
would be worth $550,000 at the end environment. million, and six is the most that I have ever
of the 12 months, meaning that the purchased in one year.
Return on Asset (ROA) was 10% - simple
enough. But when you consider that the FINAL THOUGHTS But the choice ultimately lies with you.
investor only contributed $100,000 into We can only speculate the long-term Just as in Russell Herman Conwell’s
the property purchase, borrowing the cumulative effect of the above nine points book, Acres of Diamonds, we are
other $400,000, the calculation on Return on housing prices in Australia. The recent literally walking around on diamonds
On Equity (ROE) looks something like move by the government to restrict (land blocks), but very few of us have
this: you invested $100,000 into an asset new land being released into an already the required ability or awareness to see
(property) and over 12 months that asset heated market is likely to make more through the rough exterior through to
has gone up by $50,000 so your ROE is millionaires from everyday Australians than the sparkling gem. But for those
actually 50% per annum. any other industry or investment style. who see the opportunity, the
This price pressure will also be spilling future is brilliant. pi

62
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[ Feature ]

The road
to Rio
When thinking of overseas investment properties, it is easy to get stuck on US
and European regions. However, if you expand your mind to the emerging
markets, you might be surprised at the opportunities.

A
s Josh Kennedy nudged the ball At a localised level, the biggest cities are
past the Iraqi goalkeeper in early being cleaned up and improved access
June, the Socceroos officially to credit and a rapidly expanding middle
qualified for the World Cup and the class has enabled an increasing number of
thoughts of a nation shifted to Rio. people to buy their own home, putting an
upward pressure on prices.
Of course, for many people around the
world, Brazil has been front and centre This, in turn, makes the country very
for some time. It is an emerging nation appealing to international investors. It is
– one of the few to come out of the GFC relatively easy for foreigners to buy real
in better shape than it went in – and is estate in Brazil and overseas nationals can
poised to make a major statement on the buy Freehold without restriction – except
world scene. for very large farms and islands and
coastal land tracts.
It has been reported by many analysts
that Brazil’s residential markets are on the
rise. Recent oil discoveries have provided
...It has been reported
stability, while the FIFA World Cup, as by many analysts that Brazil’s
well as the forthcoming Summer Olympic residential markets are on
Games are providing an injection into the the rise...
nation’s infrastructure.
New analysis on Brazil’s property market
These developments in infrastructure by Savills World Research has shown some
should not be underestimated. With very interesting information – particularly for
improved roads, railways and ports, the foreign investors. It suggests that economic
country will increase its efficiency, making growth and wealth creation has resulted in a
it more attractive for business. It will help booming housing market in Brazil, but warns
the country take positive steps towards that overseas investors need to act fast as
modernisation, become more efficient Brazilians and other South Americans are
and, hopefully, lure increased foreign recognising value and buying up schemes
investment. before they get to market in Europe and
other global markets.

64
Copacabana beach, Rio.

65
[ Feature ]

Aerial View of Rio De Janeiro and Christ the Redeemer.

66
As such, it states that Brazil is “an investable “Despite this spectacular price growth,
proposition which has the capacity to add Brazilian residential property appears
value while not becoming as overheated good value when compared to the top
as other real estate markets in some fast tier of the world cities,” said Savills World
growing new world economies”. Research director Yolande Barnes.

The report says that Brazil has a relatively “This suggests sound fundamental
high level of owner occupation in its urban reasons for income investment in the
areas particularly in relation to developed, country’s lead cities, Rio and São Paulo.
old-world economies such as France, the The country’s relative accessibility to
UK, the US and Australia. Higher levels of foreign investment is expected to make
urban owner occupation are characteristic the country a target for international
of many of the new economies and tend investors beyond North America,”
to reflect less mature rental investment or she explained.
subsidised markets. Financial centre of Rio.
To help put this is in better context,
it is worthwhile comparing the market
...It is relatively easy to other emerging nations. A like-for-
for foreigners to buy real estate like comparison of the capital and rental
costs of residential real estate shows that
in Brazil... despite having nearly three times the
GDP per head of India, Brazil’s premiere
It points out that as the Brazilian market cities still have cheaper real estate than
develops and more international and Mumbai.
domestic investors are attracted to the
market, particularly in urban areas like Rio, The economy in Brazil is a similar size
it may be that rates of owner occupation to that of France and Britain, and far Sao Paulo.
will fall as rental alternatives become bigger than Australia, Hong Kong and
more numerous. Singapore, yet it doesn’t seem to have
been channelled into its real estate in
In actual fact, the rate of house price the same way.
growth in Rio has slowed in the last 18 “We expect to see substantial, yet lower
months, having peaked at an annual rate Annual yields are a useful sign of how than recent, capital growth and sound
of 45% in October 2011. According to overheated capital values are in relation income returns,” said Yolande.
the FIPE ZAP index, by April 2013 annual to underlying occupier demand and the
growth stood at 13% in Rio, the lowest report shows that in cities where large
rate since 2009, but still substantial by quantities of investment capital have
world standards and significantly higher been pressing on real estate markets, ...This makes the country
than Brazilian consumer price inflation. these yields are often very low by global
very appealing to international
standards. Not so in Brazil.
The report also says that affordable
investors...
housing is a new sector for Brazil, but offers Gross residential property yields for
significant investment opportunity, and the SEU in Rio and São Paulo are higher “Overseas investors will need to have
several private equity funds are already than in any other of the new world cites an eye on exchange rates and beware
operating in this sector of the market. in recently emerged economies and are the prospect of rising interest rates and/
on par with London, New York, Sydney, or inflation. However, they may well find
Although house price growth over the Tokyo and Paris. Brazil more rewarding than some of the
last five years has averaged 23% per other new world markets, especially
annum in Rio and 17% per annum in São São Paulo and Rio are two cites leading in Asia. Assuming they can get to the
Paulo, residential rental yields are on the way. Prices in São Paulo have risen by product before the locals do.”
par with many of the troubled old-world 127% since the beginning of 2008, and by
economies with house price to income 189% in Rio. Rental growth is up by 86% Tim Cahill, Sally Pearson, Anna Mears and
ratios much lower than many of the Asian in São Paulo and by 129% in Rio over the ... maybe you ... all on the road to Brazil. pi
tiger economies. same period.

67
OZ li fes t y le

Lifestyle
whichever way you look at it
Combining history with modern living and close proximity to the
CBD, it’s easy to see why St Kilda offers a lifestyle for anyone.

View of Melbourne city from St Kilda beach.

68
 lifestyle

A
ny Melburnian over the age
of 40 will remember when St Fitzroy Street
Kilda was a less than desirable Bordering one end of St Kilda’s
suburb. While there had been entertainment precinct is the famous
a long history of alternative and bohemian Fitzroy Street. Flanked by beautiful elm
lifestyle that endeared it to many people, trees and grand Victorian buildings,
St Kilda had simply become a place where it is an important element of the
you felt ‘unsafe’. entertainment precinct of St Kilda. The
Today, St Kilda is proof that location is midsection of the street has a number
everything. Located only 6km from the CBD of apartment buildings and old hotels
and sitting on its very own piece of the bay, including the George, the Saint and Prince
it’s no surprise that it is now one of the most of Wales which – when combined with a
desirable locations in Melbourne and the number of trendy bars – gives it a slightly
perfect opportunity for investment. In fact, more adult feel when the sun goes down.
over the last five years it has consistently
been ranked in the top five hot spots for
property investors across many different “...The key to St Kilda’s Luna Park, St Kilda.

titles. desirable lifestyle is that it

The key to St Kilda’s desirable lifestyle
has maintained its artistic
is that it has maintained its artistic and St Kilda Facts
bohemian history, but modernised it with and bohemian history...”
contemporary style. • St Kilda was named after
Classic townhouses and historic public There are several tram stops and at the schooner Lady of St
buildings have been blended with least two tram super-stops along its Kilda which moored at the
modern multi-unit developments and length, while the old St Kilda train station main beach for the majority
impressive commercial structures. There (now a light rail route) holds an important of 1841.
is an abundance of public transport and position in the mid-point of the street. The
clear walkways, as well as beachside width of the street enables it to also carry • During the Edwardian and
paths. Restaurants, cafes and pubs satisfy two lanes for cars and a bicycle lane on Victorian eras, St Kilda was
the foodies through to the casual diner. either side. the address of the wealthy
Art, theatre and major entertainment and elite who constructed
complexes cover small to large events Beaconsfield / majestic mansions and
– be it a gallery, a large music concert, Marine Parade large public buildings which
utilised the beach views and
a comedy show or live theatre. Parks, Bridging Acland and Fitzroy Streets is
proximity to the city – many
gardens, sporting clubs and exercise Beaconsfield Parade (changing its name
of which still grace the
paths offer the active individual an outlet to Marine Parade through the middle of
streets today.
for physical exertion, while countless retail the suburb); the beachside road that runs
destinations line the streets with such a between some of Melbourne’s most iconic
• Following World War II,
wide variety that there is something to suit entertainment buildings and the sand of
a decline in the area
everybody. Port Phillip Bay. A short stroll will take you
spawned a number of
This is cosmopolitan lifestyle at its best. alongside landmarks such as Luna Park,
low-cost rooming houses,
the majestic Palais Theatre, the beautifully
before becoming a red-light
Acland Street restored St Kilda City Baths and a number
district of Melbourne.
Often seen as the link between ‘residential of restaurants that continually rate highly in
St Kilda’ and ‘lifestyle St Kilda’, one end every good food guide.
• By the 1960s, an artistic
of Acland Street shows classic Victorian A few hundred meters further on and
and bohemian scene
terraces, while the other runs into the Beaconsfield Parade holds some of
had emerged, bringing
hub of the entertainment precinct with Melbourne’s most desirable dwellings. in musicians, artists and
beautiful beachside views in the middle. Blending high-rise apartments with classic various other subcultures.
The street is a commercial strip of cafes, houses and modern mansions, most utilise
restaurants and retail shops with classic views of the beach and provide character • Numerous events and
cake shops and bakeries that have been to the area. pi festivals still run in St Kilda
held in the one family for generations. every year, paying respect
Summer or winter, Acland Street holds a to the many different
creative feel suitable for the family. incantations of the area.

69
U S li fes t y le

The temple
of boom
For some, Indianapolis is hallowed ground. This capital’s history is deep; its 500
famous miles is home to one of the greatest events in sporting history. Yet, as
Property Inc. discovered, there is much more to Indianapolis than a storied car race.

I t would be remiss not to mention the famous

Indianapolis race straight off the bat: the drives
are legendary, the winners immortal and film
studio DreamWorks is about to release Turbo, a movie
about a snail, who after a freak accident may just win
All of these factors contribute to overall quality of life.

A lifestyle loved
It’s the quality of life that attracts people to
Indianapolis; the economy is stable and security the
the Indy 500. envy of many US cities. The cost of living is low and the
taxes don’t rip the heart out of its residents.
The Indianapolis Motor Speedway (IMS) is the world’s
largest spectator sporting facility, with more than This is a city that was once called NapTown. If you
250,000 permanent seats. If all seats were laid end-to- were migrating from Los Angeles or New York in
end it would reach 99.5 miles. The IMS could fit Yankee the 1970s and 1980s you were faced with a big dose
Stadium, the Rose Bowl, the Roman Colosseum and of culture shock. However, all that has changed.
Vatican City all inside its 253 acres. Indianapolis has evolved into a major contender for
just about any activity (social and/or recreational) that
That’s a lot of real estate. you would find in much larger cities. NFL and NBA
teams, Indy 500, world-class Children’s Museum, live
And it’s not the only real estate that sets Indianapolis music... the list goes on.
aside from other US cities. Before we get into the city’s
lifestyle, let’s look at why you’d want to invest there. In fact there is no shortage of things to do and see
and tourists are indeed surprised by all that is on offer,
Indy facts while residents bask in the brilliance of some of their
In November 2011 Fortune Magazine listed Indianapolis attractions.
Real Estate as one of only seven cities expected to see
home values increase in the next five years. Two downtown landmarks, Monument Circle and
Indiana War Memorial Plaza, are among America’s
Further to that, Forbes Magazine rated the Indianapolis great urban spaces. The Circle centres the city and
real estate market the number one least over-priced furnishes its ‘Circle City’ calling card. The 24-acre plaza
major city in the country. It also ranked the city ninth for (think greenspace and monuments, like Washington
best places in the US to buy foreclosed homes. D.C.’s National Mall) gives Indy the distinction of
devoting more acreage to honouring veterans than any
The National Association of Home Builders/Wells other city.
Fargo Housing Opportunity Index named Indianapolis
Real Estate the most affordable major market nine Indianapolis is an innovative city. It is winning praise
consecutive times. for reinventing the bicycle and pedestrian experience.
Celebrating its grand opening in May 2013, this $63
Indianapolis is known for its good schools, access to million, eight-mile urban bike trail connects all six of
transportation, parks and recreation, and public safety. Indy’s cultural districts. Flanked with incredible public

70
 lifestyle

“...Indianapolis is a
city with spirit...”

Indianapolis Motor Speedway.

Soldiers and Sailors Monument.

71
U S li fes t y le

City of Indianapolis.
art, the trail leads visitors and residents For those who are after the culinary
to the front door of many of Indy’s experience, chefs at top independent
greatest restaurants and attractions, restaurants have long partnered with
including its galleries. Indiana farmers to bring the freshest
ingredients to the menu. Indy’s signature
The art world was paying attention when dish is the breaded pork tenderloin
the Indianapolis Museum of Art unveiled sandwich.
the largest contemporary-art park (100
Acres: The Virginia B. Fairbanks Art and A city for sports
Nature Park) in the country in June 2010. lovers
The museum is curating 40 works of art Indianapolis has hosted the 1987 Pan
totaling $2 million. American Games, both Men’s and
Women’s NCAA Basketball Tournaments,
University of Indianapolis.
Then there’s the Alexander Hotel, which the Big Ten Conference Men’s Basketball
opened in January 2013 with 22,500 Tournament, the Allstate 400 at the
square feet of event space, innovative Brickyard, the United States Grand Prix
restaurants and an emphasis on art and (2000-2007), the 2002 World Basketball
design. Plat 99 and Cerulean Restaurant Championship, and is perhaps most
make up the hotel’s unique, local dining famous for the annual Indianapolis 500.
options. This hotel is Indy-centric from The attendance at both the Indianapolis
the artwork featuring Indianapolis 500 and the Allstate 400 makes them the
legends to the meeting space being two largest single day sporting events
named after Indianapolis historic in the world, with well over 250,000
neighborhoods. In fact, the name, The fans in attendance at each. Indianapolis
Alexander, derives from the name of also hosts NHRA’s US National Drags
the city’s architect, Alexander Ralston, just west of Indianapolis in the town of
Lucas Oil Stadium.
who not only platted Indianapolis, but Clermont with attendance over a four-day
Washington D.C. as well. period making it one of the largest racing
events in the world.
Compared to much of the midwest,
Indianapolis has a profile closer to The IMS is not the only legendary venue.
the Sun Belt than to the Rust Belt. In The Hinkle Fieldhouse is the site of the
contrast to many shrinking cities in the 1954 “Milan Miracle” that inspired the
region, Indy is attracting people, with its basketball film Hoosiers.
population growing 50% faster than the
national average. And the city is showing Why Indy?
impressive gains in industries such as life Indianapolis is a city with spirit. This once
sciences and technology. Indy is also now sleepy post built on swampy marshes and
home to growing Mexican, Chinese, Sikh, a non-navigable river, has transformed
Burmese and Nigerian communities. into a competitive and determined city, by
people who displayed those same traits.
Better yet, Indy is home to Madam CJ
Walker, a cosmetics entrepreneur who a From those pioneers of the early days,
century ago became the country’s first to Madam Walker rising to riches when
female self-made millionaire. What made African-Americans lacked opportunity, to
this even more significant was her African the legendary battles at the Speedway,
American heritage. to a downtown full of construction
cranes in the middle of a recession...
The cultural district surrounding Indianapolis is the city that won’t quit. pi
the Walker Theatre celebrates her
accomplishments. And today, the
Indiana Black Expo Summer Celebration
is the largest cultural/ethnic event in the
United States.

72
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b oo k r e v i e ws

Book in
your success
Value investing in property: The author is a young entrepreneur who has set about asking
What would Warren Buffett do if some candid questions to reveal the mindset of some

he was buying property in of Australia’s best business people.

Each story is unique and offers all who read it a great insight
Australia? into successful minds.
BY Gavin McPherson

Too many people just buy a property – and then call themselves a My 4 Year Old,
property investor. After spending hundreds of thousands of dollars
on a purchase, wouldn’t you like to know how to get it right?
the Property Investor
In Value Investing in Property, Gavin McPherson takes aim at BY Cameron McLellan
those whose so-called ‘advice’ has lead to huge losses for the
average Australian property investor. Their time is up! In his words: What do 90% of the world’s millionaires have in common? They
“130 properties in 2.5 years is a great way to go broke… but just all made their first million by investing in property.
remember doing nothing at all runs a very close second.” In this book, author Cameron McLellan reveals how you can
This book teaches the reader how to take control of their achieve financial freedom in as little as 10 years, even on
financial destiny in just enough time to make it count! With the a modest income.
world’s greatest investor Warren Buffett as the perfect reference My 4 Year Old, the Property Investor is a step-by-step guide
point, Gavin also demonstrates how having a rock solid investor that sets out the key wealth-building strategies that successful
mindset is just as important as buying great properties for a great property investors use themselves and then teach their kids,
price. including:
His book includes chapters on investor mindset, shattering • The three things you must do before buying an investment
the positively geared bubble, negative gearing, house and land property.
value, timing the buy and why price matters. • Correct structure of finance: how to keep your own home
It is well written and a solid addition to your library. safe, keeping you in control and not the banks.
• Why paying off your own home with earned income from
a job is a waste of time.
• How the property market really works. (Hint: It’s a lot more
Business Owners’ Wisdom straightforward than you think.)
BY Brett Kelly • Why you don’t have to be an expert before you start
investing.

There is a long list of business books featuring interviews with the • The tools and check sheets you need to continually select
exceptional property and then manage your growing
world’s top business people, but Brett Kelly’s is one of the better
portfolio.
ones: insightful, incisive and easy to read.
This is a collection of 16 interviews that give you an • How to successfully duplicate your portfolio without losing
understanding of Australia’s leading business owners. the farm.
Of particular interest to property investors are interviews with Whether you buy My 4 Year Old, the Property Investor for your
successful Sydney real estate agent and octogenarian Bill Bridges kids to use when they’re old enough, or use it to create a failsafe
and builder Harry Triguboff. plan for your retirement, this is essential reading for anyone who
Also of interest are Collette Dinnigan, Mark Carnegie, James wants more from life than a 25-year mortgage and a never-
Erskine, Imelda Roche and Tom Waterhouse. ending cycle of debt. pi

74
 Rudd
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6 7 8 9 10
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11 12 Ban cigarette sales to

13 Run a smart efficient
14 Increase the tax free
threshold to $22,500
15 Remove contribution tax
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Removal or reduction of payroll so as to create savings to reinvest to give a boost to low 15% to nil. Helping all Australians
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16 17 18 19 20 rail system to take
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qualifying immigrants. the current flat 30% friendly way. to the government and
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Turn Northern Australia

21 22 23
To overhaul dole
into a special economic
zone to boost Australia’s
payments that after 90
days recipients must
24 Equip every student
with new technology for
25
wealth. This would learning such as iPads Make the government
attend specialised career
see lower taxes for workers and or tablets at school and access transparent and declare all
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gains via innovation and technology help solve Australia’s skilled worker
Duty relief also for home buyers in better quality education for less cost as an example when you
without needing one shortage and increase
these regions to help to leave our 19th century purchase fuel the taxes
extra cent of revenue productivity so everyone
solve the high cost of education system behind. charged are shown clearly
to deliver. feels they can contribute to
housing and to provide for consumers to see.
the nations success.
much needed workers.

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au s pr o pe r t y s h owcas e

Property
showcase:
come on down!

No matter whether you purchase property for somewhere to live or for investment purposes, buying a home, unit or block
of units is always a personal choice. While it is possible (and recommended) to take the heart out of an investment purchase,
you will more than likely still purchase a property that appeals to you. Throughout this magazine, we’ve spoken about local
and international investment and we’ve talked to people who have invested for their own reasons. So now you know all about
strategy and what you should be looking out for, it’s time to consider a purchase. Following are examples of properties that
would render great returns. It’s just a matter of putting some due diligence together to find similar properties that would
appeal to you.

You’ll be glad It’s dotted with impressive coral cays and

reefs that are only a stone’s throw away
to invest in from the coast. Also of stunning beauty in

Gladstone this region are Heron Island, Fitzroy Reef

and several other destinations that you
could make a short escape to.
There is a lot that has been written
about Gladstone in this issue of Property Inland you will find the famous Lake
Inc. Most of it is technical investing Awoonga with its recreation area, sporting
information, but let’s have a quick look at free barbecues, swimming, landscaped
the lifestyle and why you would want to set walking trails, as well as a caravan park.
up camp there.
This mining town is in an exceptional
This is a beautiful area, with an exceptional location. It is known for its schools and
cost of living; it is also a close-knit place its easy living. So if you are thinking of
to raise a family and depending on your making a move or investing into this area,
expertise, a great place to make a few don’t think twice.
above average dollars.
Following are just a few properties
The Gladstone Region is the gateway to that may capture your interest into this
the Southern Great Barrier Reef and home beautiful region.
to what is considered to be one of the top
dive and snorkelling sites in the world.

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century Property Direct for the latest property listings.
 au s pr o pe r t y s h owcas e

ca s h flow p o s i t i v e

4 4 2
Land Size 680sqm
Build Size 220sqm
TOTAL COST $587,000
Weekly Rent (unfurnished) $800-$850
Interest Only Loan Repayments* $563pw
CASH FLOW POSITIVE $12,308-$14,908 p.a.

Lot 451 Kandel court, Weekly Rent (furnished)* $1,000-$1,100

little creek estate,

Interest Only Loan Repayments* $588pw
CASH FLOW POSITIVE $21,391-$26,591p.a.
gladstone, QLD *Interest Only Rate calculated at 5% p.a.

4 4 2
Land Size 602sqm
Build Size 220sqm
TOTAL COST $593,015
Weekly Rent (unfurnished) $800-$900
Interest Only Loan Repayments* $627.23pw
CASH FLOW POSITIVE $8,984-$14,184p.a.

Lot 112 Parkview circuit, Weekly Rent (furnished)* $1,100-$1,300

forest springs estate,

Interest Only Loan Repayments* $655pw
CASH FLOW POSITIVE $23,132-$33,532p.a.
gladstone, QLD *Interest Only Rate calculated at 5% p.a.

4 4 2
Land Size 897sqm
Build Size 229.69sqm
TOTAL COST $636,000
Weekly Rent (unfurnished) $800-$900
Interest Only Loan Repayments* $672.69pw
CASH FLOW POSITIVE $6,620-$11,800p.a.

Lot 159 Parkview circuit, Weekly Rent (furnished)* $1,100-$1,300

forest springs estate,

Interest Only Loan Repayments* $700.61pw
CASH FLOW POSITIVE $20,768-$31,168p.a.
gladstone, QLD *Interest Only Rate calculated at 5% p.a.

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century Property Direct for the latest property listings.
au s pr o pe r t y s h owcas e

ca s h flow p o s i t i v e

4 4 2
Land Size 680sqm
Build Size 220sqm
TOTAL COST $594,000
Weekly Rent (unfurnished) $800-$850
Interest Only Loan Repayments* $570pw
CASH FLOW POSITIVE $11,959-$14,559 p.a.

Lot 579 Cornforth drive, Weekly Rent (furnished)* $1,000-$1,100

little creek estate,

Interest Only Loan Repayments* $588pw
CASH FLOW POSITIVE $21,042-$26,242p.a.
gladstone, QLD *Interest Only Rate calculated at 5% p.a.

4 4 2
Land Size 680sqm
Build Size 230sqm
TOTAL COST $603,750
Weekly Rent (unfurnished) $800-$850
Interest Only Loan Repayments* $563pw
CASH FLOW POSITIVE $12,308-$14,908 p.a.

Lot 463 Kandel Court, Weekly Rent (furnished)* $1,000-$1,100

little creek estate,

Interest Only Loan Repayments* $588pw
CASH FLOW POSITIVE $21,391-$26,591p.a.
gladstone, QLD *Interest Only Rate calculated at 5% p.a.

c a p i ta
l
grow t
proper h
ty

Magnolia Townhouse,
Central Park,
Cheltenham, VIC
Central Park is a new master-planned residential
development, with private tree-lined streets centred around
Cheltenham’s newest park. Central Park provides a balance
of sensitive urban planning and residential design that will
ensure the development integrates with Cheltenham’s
Build Size 140.60sqm
existing streetscapes. Choose from a versatile range of
six different contemporary townhouse and home styles; TOTAL COST $635,000

Gardenia, Camellia, Magnolia, Ivy, Jasmine and Orchid. Weekly Rent (unfurnished) $650
Each architectural design offers its own unique qualities and Interest Only Loan Repayments* $610.57pw
individual characteristics. CASH FLOW POSITIVE $39.43pw
*Interest Only Rate calculated at 5% p.a.

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century Property Direct for the latest property listings.
 u s a pr o pe r t y s h owcas e

ca pi ta l g r ow t h

9105 Troy Dr,

DALLAS, Texas

When you think of Dallas, you the United States, with a 2010
think of JR, big Texan hats and gross metropolitan product of
oil, but Dallas is a gateway to the $374 billion.Its 2010 Real GDP
US. It is the ninth most populous amounted to $325 billion.
city in the United States and the
third most populous city in the The city’s economy is primarily
state of Texas. The Dallas-Fort based on banking, commerce,
Worth metroplex is the largest telecommunications, computer 3 2
metropolitan area in the south and technology, energy, healthcare
Year Built 2006
fourth-largest metropolitan area in and medical research,
the United States. transportation and logistics. The Monthly Rent $1,195

city is home to the third largest Annual Rent $14,340

The city is the largest economic concentration of Fortune 500 Net Yield 6.8%
center of the 12-county companies in the nation. County Taxes $2,462
Dallas–Fort Worth–Arlington Management Fees $1,148
metropolitan area (the DFW This is a rich and spectacular place Annual Repairs $300
MSA) and had a population of to invest and one that offers a Hazard Insurance $800
6,645,678 in 2012. The metroplex world of opportunities. Annual Expenses $4,710
economy is the sixth largest in
Annual Cash Flow $9,630

1444 Rumstone,
Charlotte, Nth carolina

Here’s a bit of history: Charlotte, acres of parkland throughout 3 2

North Carolina was named in 1972 Mecklenburg County. Parks in
after UK queen Charlotte Sophia, Mecklenburg County come in all Year Built 1997
while the county was named shapes and sizes ranging from Monthly Rent $1,000
Mecklenburg to denote the region small neighborhood parks to large Annual Rent $12,000
in Germany where she was born. district parks. Net Yield 7.2%
County Taxes $1,355
Charlotte is considered to be one Charlotte has thriving sports
Management Fees $960
of the top 10 places to live in the programs, a strong economy and
Annual Repairs $240
US. The Mecklenburg County most importantly, property that is
Hazard Insurance $750
Park and Recreation Department affordable and attractive to both
is home to 210 parks and facilities owner and investor. Annual Expenses $3,305

located on more than 17,600 Annual Cash Flow $8,695

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century US Property for the latest property listings.
u s a pr o pe r t y s h owcas e

ca s h flow p o s i t i v e

5829 E 9th,
Kansas City, Missouri

Kansas is the largest city in the Park is one of the nation’s largest
state of Missouri and has a deep city parks, comprising 1,805 acres;
and invested history. more than twice as big as New
York’s Central Park.
It’s a vibrant city; famous for jazz
and blues and great food. Equally, live music venues can be
found throughout the city, with
Kansas City is most famous for the highest concentration in the 2 1
its steak and barbecue. There Westport entertainment district
Year Built 1922
are more than 90 barbecue centred on the Country Club
restaurants in the metropolitan Plaza, as well as the 18th and Vine Monthly Rent $650

area and the American Royal area for local jazz music. Annual Rent $7,800
hosts what it claims is the world’s Net Yield 15.0%
biggest barbecue contest every Downtown Kansas was voted by County Taxes $358
year. Forbes as one of the greatest Management Fees $624
downtown areas in the US. Annual Repairs $156
Kansas City has 212km of spacious Kansas is a great place to live as Hazard Insurance $500
boulevards and parkways winding evidenced by the numbers on our Annual Expenses $1,638
their way through the city. Swope Kansas listing.
Annual Cash Flow $6,162

8437 Hawkesbury,
St. Louis, MissOuri
St. Louis is not only famous for The city of St. Louis is served by
Judy Garland riding a cable car, four interstates and several US
it is also an independent city and highways and state roadways.
a major United States port on the Although there are no airports
eastern border of Missouri. With a within the city limits, the city owns
population of 318,172 in July 2012, and operates Lambert-St. Louis
it was the 58th-largest US city at International Airport, located
the 2010 US Census. They’re great in northwest St. Louis County. 3 1
numbers if you are thinking of Freight rail and passenger rail
investing. services operate in the city on Year Built 1957
tracks owned by BNSF Railway. Monthly Rent $800
There’s a lot to like about St. Bus service, light rail, and para- Annual Rent $9,600
Louis; it is a highly cultural region transit service the city, with Net Yield 12.7%
with libraries, museum and regulated taxis within the precinct.
County Taxes $1,278
cultural venues all showing off The port authority is imperative
Management Fees $768
the rich history of this city. There for river shipping.
Annual Repairs $192
are parks and gardens, a great
Hazard Insurance $550
nightlife and the shopping and Meanwhile, cost of living is very
dining experience is a crowd reasonable and the property Annual Expenses $2,788

pleaser alone. market is an attraction alone. Annual Cash Flow $6,812

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century US Property for the latest property listings.
 u s a pr o pe r t y s h owcas e

ca s h flow p o s i t i v e

2823-25 E 36th St,

Indianapolis, INdiana

Indiana is also a thriving city. It and a growing presence in tennis

is self-sustaining and boasts the through the Indianapolis Tennis
second highest manufacturing Championship.
industry in the US.
There is also an extensive
Indianapolis prides itself on its municipal park system with nearly
rich cultural heritage. Several 200 parks occupying over 10,000
initiatives have been made by acres, offering great opportunity 4 2
the Indianapolis government in for residents to escape the daily
Year Built 1946
recent years to increase the city’s grind.
appeal as a destination for arts Monthly Rent $1,200

and culture. As for the real estate, prices are Annual Rent $14,400
going up and people are flocking Net Yield 15.6%
Undeniably, Indianapolis is famous to the city because of strong County Taxes $271
for its iconic car race, the Indy growth and excellent cost of living. Management Fees $1,152
500 – the premium event in open Annual Repairs $288
wheel car racing in the US National You can read more about Indiana Hazard Insurance $750
Championship. It is also home to in our lifestyle section. Annual Expenses $2,461
two major league sporting teams,
Annual Cash Flow $11,939

Aspen woods, st.

louis, missouri
With a major port on the eastern The rivers of St. Louis play a large
border of Missouri, St Louis is a role in moving goods, especially
vibrant city and the 19th-largest bulk commodities such as grain,
metropolitan area in the United coal, salt and certain chemicals
States. and petroleum products. The Port
of St. Louis is one of the largest
Famous for the St Louis Cardinals inland ports by tonnage in the
baseball team, the city embraces country. 3 2
sport and recreation, with more
than 100 parks for citizens to The city is also defined by Year Built 1979
enjoy, including sports facilities, music and the performing arts, Monthly Rent $1,100
playgrounds, concert areas, picnic especially its association with Annual Rent $13,200
areas, and lakes. blues, jazz and ragtime, while Net Yield 12.3%
regional cuisine such as toasted
County Taxes $1,491
The city also boasts almost 80 ravioli, gooey butter cake and the
Management Fees $1,056
schools and two national research Gerber sandwich are synonymous
Annual Repairs $264
universities, with Washington to the area.
Hazard Insurance $550
University considered to be one of
the largest employers in the area. Annual Expenses $3,361
Annual Cash Flow $9,839

The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century US Property for the latest property listings.
t h e l as t wo r d

The positive
spin of property

S
hane Warne: The Musical has be excused for thinking it’s a bad time become very popular to only run negative
been touring the country to to be troubling yourself with property in stories about the property market in
great reviews. It’s an update of Australia. After all, that’s the spin we’ve Australia – even though many of the stats
the successful 2008 show by all-round- been hearing for a long time. suggest it is holding firm.
entertainer Eddie Perfect, taking into The heritage-listed property was Many ‘experts’ have been predicting
account all that has happened in the bought for $8.55 million in 2009 with a sharp decline in property values for
world of our greatest leg-spinner in the his then-wife Simone Callahan; however a number of years, yet the market has
last five years. And there have been some there have been substantial renovations managed to hold on. Claims that the
updates: he hosted a television show (very throughout and so Warnie is looking for a bubble is about to burst have been rife
briefly), met Liz, made some... umm... little more than his original outlay. for a long time with forecasts as high as a
physical changes... became a professional There are only four bedrooms, however 60% drop.
poker player and replaced texting with the master bedroom does run the full Now if we take Mr Warne as an example
tweets. The drama never stops. depth of the first floor and comes with of someone who bought right on the
Now, with the announcement that the a spa ensuite and a large dressing edge of the glory days – but is now trying
Spin King is selling his bayside mansion in room – plus its own private skygarden to sell at the worst – well, maths may not
Brighton, Melbourne, a permanent move terrace with outdoor fireplace. As well be my strong suit, but surely we couldn’t
to the UK is on the cards – which I guess as the glamorous white-on-white interior expect him to get a dollar more than what
means Eddie Perfect will have to go back makeover, it is reported that Warnie also he paid – and that’s only because of the
to the script and start working on Part III. added a custom gym (must explain the extensive renovations.
Although it’s fair to assume that Warnie new body), a 15-car basement garage,
is certainly not short of a buck – at the tennis court, cinema and a pool with
very least I’m sure Liz could throw him a Warne’s cricket number, 23, inscribed ...Claims that the bubble is
quid or two to bridge the gap – you would on the bottom. Other features include about to burst have been rife for
an aquarium, theatre and Gaggenau
a long time...
appliances.
Estimates have the new asking price
somewhere in the range of $15 million to This is obviously a pretty extreme
$20 million, which – if we are to believe example, but the same theory applies to
the doomsayers – is an impossible figure. property across most of the country in
Yet agent Jonathan Dixon of JP Dixon is nearly all price points.
entirely confident of a sale, stating, “We’re Quite simply, the Australian economy
definitely going to start with a private sale, has held firm in respect to property – and
but we still have to decide whether it will with mortgage arrears at negligible rates,
eventually be put to auction.” relatively low unemployment and steady
So which is the real spin? Is the agent figures from resources, it maintains a
proudly bluffing, hoping that the current position of relative strength.
owner’s star appeal will help push a sale The property market may have
across the line? Or is it actually that sales flattened out in recent years, but it is far
like this are occurring anyway, but we are from being in decline.
only hearing about this one in particular So perhaps it is time for some warranted
because it’s a celebrity? After all, it’s confidence and a little positive spin. pi

82
For exclusive property news
and offers head to
Propertyincmag.com

Foundations. Features. Lifestyle.

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