Richmond Development #2

[sash]

OK....lots in Brighton proper for well under $2m. You have a pick of Balwyn, Hawthorn, Kew, etc for that price. No sure that $2m properties sell well in Richmond...maybe in the future by not now.

My personal opinion only but anything over $1m-$1.2m is on the nose at the moment. That end of the market has not reallty recovered since 2008 (post GFC).

The white collar market - i.e. finance, professional service jobs are being cut drastically at the moment. Outsourcing is now not only limited to IT but also Accounting, Law, Mortgage Processing, etc. will be interesting how this hits the upper middle class suburbs.

Anyway don't want to burst your bubble ..but I personally would find it too risky! Maybe....say 600k townhouses in places like Burwood or Ashburon might be a better product??

Those townhouses you are talking about are not comparable to mine (except the Riverside Richmond one).

http://www.realestate.com.au/property-townhouse-vic-brighton-107546986 - Located right next to a train station. I don't know about you but if I was going to spend $1.5m I would not want to be right next to a train line. Overcapitalisation fail.

http://www.realestate.com.au/property-house-vic-richmond-108414191 - Located right next to a Freeway. Why would you spend money on a house next to a freeway?

http://www.realestate.com.au/property-townhouse-vic-richmond-108443906 - Ugly, horrible location, hard to get to, bad architecture around, small (the land content is ~70sqm and that includes 2 car parks on ground level).

Plus I'm not relying on 100% finance so I can hold. I know it will be harder to sell $2-3m properties - everyone knows that. But the rewards are there for me if I do sell them for that price.

http://www.realestate.com.au/property-townhouse-vic-brighton+east-108522936 - It's Brighton East...it's not Brighton, nor is it a Richmond.

 

[Aaron_C]

Anyway don't want to burst your bubble ..but I personally would find it too risky! Maybe....say 600k townhouses in places like Burwood or Ashburon might be a better product??

Of course it's risky but that's the nature of the game. Key thing in development is whether you can hold...if you can't hold if an unforeseen delay occurs, you die and that's when the mortgagee steps in and cleans you out for all you have.

Developers make money from both the increased value of the land from when you bought it, and from the margin you make on the building itself. There's a significant void of quality housing in Richmond which I am seeking to fill - especially as the area because more attractive due to gentrification and the trend towards higher-density living.

Sure, I could develop in Burwod or Ashburton - but why would I bother? People in those areas ask for crazy prices for development sites, there's so many of them around (have you seen Burwood Highway between Middleborough Road and Station Street?) so even if you are only asking $600,000, you won't make money.

If you're not comfortable with the figures I'm dealing with, that's fine. Leave it up to people like me to take that risk and if I make it, I'll make a lot of money. If I fail, well I'll lose a lot too. But nothing is ever guaranteed.

 

[SamSiam]

Without spending a lot of time looking at them, but first glance reaction....

I would surely prefer the Brighton $169 property over the richmond locale and design.

The richmond design did not wow me, the lift in the corner looks like a box stuck in the middle of your lounge and should not be stuck there next to that view.

I hope you do well with it though, some people have the gonads to jump and try something a little out there and different.

One question...do you have to deal with the Unions on a building site like that in that location ??

Just asking cos I know a developer from a long time ago now, but said we would never ever develop again in Albert Park because of the issues he had with the Unions.

 

[sash]

Sam very good points.....

The stats for developers in Australia is not good...very high rate of failure for exactly the following reasons:

1. They build a product which is not targeted to correct market
2. They get the timing of the market incorrect
3. Understimate the building and compliance costs (unions are in this)
4. Do not manage the what is (or risks) well

You are correct in saying that Brighton is a better choice.

The median price in Richmond is 750-800k....the median in Brighton East is 1m-1.2m and Brighton is about 1.7m-1.8m.

The rule of thumb I use is to buy below 30% under the median for older houses. Recently I bought one of my slums for 246k...the real worth is aobut 320k!

On a new development ....you would not want to be selling the product any more than 60% over the median as the market disappears after this point. So your townhouse development if you want to sell it reasonably quickly should be priced at no more than $1.2m to $1.3m! Why....because valuers will not give the appropriate valuations beyond this. Now you will tell me that Chinese buyers will buy....well they are not stupid...they will rather buy in Brighton for that price!!

Without spending a lot of time looking at them, but first glance reaction....

I would surely prefer the Brighton $169 property over the richmond locale and design.

The richmond design did not wow me, the lift in the corner looks like a box stuck in the middle of your lounge and should not be stuck there next to that view.

I hope you do well with it though, some people have the gonads to jump and try something a little out there and different.

One question...do you have to deal with the Unions on a building site like that in that location ??

Just asking cos I know a developer from a long time ago now, but said we would never ever develop again in Albert Park because of the issues he had with the Unions.

 

[Wise1InOz]

What is your target market? Families, DINKs, investors, retired downsizers?

 

[Aaron_C]

It's ok sash - if you don't think I've made the right decision re my target market/area then you're welcome to your opinion. We'll just have to wait and see how it all unfolds 2 years from now. But if I have done it properly I sure as hell won't be dealing with median prices in Richmond - I'm sure I'll be buying a property 500% above median values in Kew somewhere just for fun.

 

[Aaron_C]

What is your target market? Families, DINKs, investors, retired downsizers?

Gen X executives looking for somewhere close to work, CBD, lifestyle, bridge road et al. Other main demographic would be the baby boomers who want to retire closer to the CBD and with lower-maintenance living. Basically the people who can afford the price I want.

 

[sash]

Chill Aaron...this is public forum..so robust debate is good. You of all people have been party to this debate on other topics.

Who am I to say if you will or will not make money. I was just offering my 2 cents!

For all you know...I am just a Slum Lord who knows very little about Luxury property.

PS - The target market of BB and Gen X executives...please read this thread.

http://www.somersoft.com/forums/showthread.php?t=75143

I like to wear Kevlar when I am in a firefight...does not always save you but hey it gives you a fighting chance!

It's ok sash - if you don't think I've made the right decision re my target market/area then you're welcome to your opinion. We'll just have to wait and see how it all unfolds 2 years from now. But if I have done it properly I sure as hell won't be dealing with median prices in Richmond - I'm sure I'll be buying a property 500% above median values in Kew somewhere just for fun.

 

[Aaron_C]

Chill Aaron...this is public forum..so robust debate is good. You of all people have been party to this debate on other topics.

Who am I to say if you will or will not make money. I was just offering my 2 cents!

For all you know...I am just a Slum Lord who knows very little about Luxury property.

PS - The target market of BB and Gen X executives...please read this thread.

http://www.somersoft.com/forums/showthread.php?t=75143

I like to wear Kevlar when I am in a firefight...does not always save you but hey it gives you a fighting chance!

I've done the whole slumlord thing too - doesn't mean I don't have good taste in luxury. But like I said you are entitled to your opinion and to question my rationale/reasoning because that's what this forum is about.

While you are right in saying that Macquarie/bank executives are doing it tough now, let's not forget that for a property of this size, you typically do not borrow a significant amount for it. Banks would probably only lend a 60% LVR as it is considered a 'jumbo' loan...so I'm not attracting the cowboys who go on a 95% lend and rely on their bonus to service it.

Re Unions - I don't think they'll be a big problem from my understanding. They are usually a problem in the Melbourne CBD.

 

[BernieLarkham]

They certainly look schmik! Can you provide us with a bit more on the features of the townhouses - brms, ensuites, size, decks, courtyards, spas etc etc? The initial photos look like you walk past peoples dining/living rooms but I cant have that right.

What does a lift cost to maintain and could you shave any coin by having them just go to the kitchen level for instance and then have staircases?

Gen X might be the way to go, you are more chance there than old money who wouldnt be in to Richmond. Certainly they would be easier to sell in other more blue chip suburbs but maybe you will be ahead of the curve.

As a general statement on Richmond I think it will be just too over populated with so much more stock to come on board and more in the pipeline. It will be a nightmare (if it isnt already) but then again some people love having Sunday breakfast with the traffic and trams banging in their ear

 

[Aaron_C]

The large townhouses will have 4 bedrooms, 3 bathrooms, decking outside at the rear garden, open common-area courtyard, bathtub in the master bathroom, 2 car spaces, theatre room. Internal areas (not incl garage and balconies) is about 270-300sqm.

Lifts don't cost that much to maintain and if you can afford $2m+ you can afford to maintain the lift!

You are right - Richmond will be (already is) inundated with cheap quality apartments and townhouses on 70sqm land plots. This is a point of difference.

 

[sash]

Good to know that you had humble beginnings also.

You are correct in saying that banks will only lend 60% LVR and at a stretch 70-80%.

But hey I love to be a cowboy....love my stetsons and boots..I love my 97% LVR loans!!! Love country music (seriously ..I spent 1 year in the Southern USA and i grew on me!). Trouble is people look funny when I play it...they must think I am relative of Arnie Roach or Charlie Pride or something.

Re unions - should the need arise happy to ride in with people I know who trained as Orthopaedic surgeons...trouble is they are not recognized by the AMA or ever went to medical school. They do some great jobs in knees and shins with baseball bat though. ...I''ll even charge you mates rates.

I've done the whole slumlord thing too - doesn't mean I don't have good taste in luxury. But like I said you are entitled to your opinion and to question my rationale/reasoning because that's what this forum is about.

While you are right in saying that Macquarie/bank executives are doing it tough now, let's not forget that for a property of this size, you typically do not borrow a significant amount for it. Banks would probably only lend a 60% LVR as it is considered a 'jumbo' loan...so I'm not attracting the cowboys who go on a 95% lend and rely on their bonus to service it.

Re Unions - I don't think they'll be a big problem from my understanding. They are usually a problem in the Melbourne CBD.

 

[shuggy]

You sound jealous sash
It's possible Aaron has timed this right with rates coming down, builders hungry for work and the location is definitely excellent with a strong history of growth. Aaron have you priced a lift yet? I was getting quotes of $40-$50k a few years back.

 

[BernieLarkham]

OKthanks for the quick reply, they are big then by the sound of that. Presume all double brms and how many have ensuites of the 4?

A few things to consider if I were paying $2m - Generally I would want to entertain a bit so would a common area be what I want for a decent outdoor space? What options for rooftop decks? Or is that just out of the question?

Are those living dining areas in the photo deceptive or is the common area the part straight down the middle?

 

[sash]

No Shuggy...no reallty....have evaluated a couple of projects this year. Not as big.....but the headaches and insufficient margins was not worth it.

Plenty of people I know who have done developments in good areas in Sydney who started with 35-40% margin. But by the end of the project it was down to 10%. ...and in some instances they did not make a profit.

Each to their own...do a poll on SS and ask the big Kahunas how they made money???

Most would say simple reno, simple builds, land sub-division, commercial real estate....but very few would have made it on largish developments.

You sound jealous sash
It's possible Aaron has timed this right with rates coming down, builders hungry for work and the location is definitely excellent with a strong history of growth. Aaron have you priced a lift yet? I was getting quotes of $40-$50k a few years back.

 

[RedCat]

Hey Aaron, look into that union issue a little closer. I don't know the exact details, but the site next to us was shut down for 2 months soon after work began. Something to do with unions is all I was told about it.

Maybe I'm getting defensive because I call Richmond home but I think you need to spend decent time here to understand what it's like to live here. I was a Fitzroy girl for 10 years and when we decided to relocate back into the city we had a short list of suburbs we would consider. The list got shorter and shorter and ended up being Carlton at 1 and Richmond at 6 because we didn't know it and didn't like that Punt Rd traffic.

Yet here we are in Richmond. Why? Proximity to everything (obviously), and because we LIKE that we have commission flats in Richmond because if gives the area balance and interest. Shops to suit all budgets from the $2 shop to Space Furniture. It's not just about cafes like Fitzroy. It has community spirit and I can get bread at the supermarket without being asked for change or pushing past 500 weekend visitors.

Unless something life changing occurs, I'm not leaving Richmond until they carry me out in my urn. And who cares about Punt Rd. I live in Richmond, I'm not driving to it every day so I don't have to deal with the traffic issues.

Aaron... Have you checked out that property in Lennox St for $1.5M+? Biggin and Scott so probably about $1.7M. Stunning street appeal. I guess it was a shop at some point.

 

[BernieLarkham]

Red - I dont know how you handled living so far out in Fitzroy! How is inner city living these days

 

[shuggy]

...do a poll on SS and ask the big Kahunas how they made money???

Most would say simple reno, simple builds, land sub-division, commercial real estate....but very few would have made it on largish developments.

Good points about risk vs insufficient margins especially with finance hard to come by. Agree that no-one on this board is a big kahuna developer as i doubt they'd have time to spend half their day posting in the coffee lounge. Is Harry Triguboff a member here.. i wonder what his nic is

 

[Aaron_C]

You sound jealous sash
It's possible Aaron has timed this right with rates coming down, builders hungry for work and the location is definitely excellent with a strong history of growth. Aaron have you priced a lift yet? I was getting quotes of $40-$50k a few years back.

Yep that sounds about right. Should be less due to the volume I will order, and I think they're quite aggressive for business right now.

 

[sash]

Nah....far as I know...no one with a networth over $100m!!...I could be wrong??

Yes...correct about posting on the Coffee Lounge bit....I am strictly small time.

Now can I hit you up for a few dollars??? I would like bed down for GFC mark 2!

Good points about risk vs insufficient margins especially with finance hard to come by. Agree that no-one on this board is a big kahuna developer as i doubt they'd have time to spend half their day posting in the coffee lounge. Is Harry Triguboff a member here.. i wonder what his nic is