Despite heady cycle, there are still opportunities

From
Adam Murchie

Adam Murchie

Current market dynamics are creating an interesting opportunity set says boutique property fund manager, Forza Capital. Established in 2010 by Adam Murchie and Ashley Wain, Forza Capital has developed into a business known for its savvy investment positions, with investors averaging IRR’s of 29% per annum net of fees based upon exited investments.

A credit squeeze on both residential purchasers and developers has significantly impacted the short-term supply/demand dynamics, but it is unlikely to change the overall long-term market trajectory.

According to director Adam Murchie, the availability of credit for both residential purchasers and residential developers has been seriously curtailed.

“This has seen demand for residential property fall at the same time supply has decreased, as residential developers can no longer get their stock to market.”

“Short term, this is providing a ‘sweet spot’ for purchasers who want to upgrade their residence opportunistically.”

Adam Murchie believes these banking changes are not actually changing demand, rather, they’re simply deferring it.

“Current purchasers who cannot get finance will still want to purchase in the future, however the future residential stock supply pipeline has been squarely curtailed.”

“This will take time to mobilise again and it is going to create a supply bottleneck. Eventually this will see prices increase,” he said.

Co-director Ashley Wain believes this dynamic will worsen affordability; because rental vacancy is very low (see Chart 1), this supply squeeze will eventually put serious upwards pressure on rents (refer Chart 2).”

“Essentially, the affordability crisis is going to be relocated from owners to renters short term,” he said.

“Add in population growth that’s not tapering to the same degree as supply, in future years we are going to see some real pressure on housing supply and demand as evidenced in Charts 3 and 4.”

 

 

 

 

 

Forza Capital is known for its ability to find value in turbulent markets and it sees the current market dynamics as presenting some interesting reference points.

“Developers are unable to finance and develop sites and yet we have very strong long-term population growth. In Melbourne alone, we have witnessed an average of 145,000 new residents per annum over the last two years,” said Adam Murchie.

“Looking forward, we see a real need for future supply; over the last 20 years, 53% of this growth has been accommodated on the fringe, however infrastructure constraints will become an impediment to future significant growth on the fringe.”

Ashley Wain believes the ‘middle ring’ will be ‘tapped on the shoulder’ to accommodate the bulk of this growth.

“There are only so many new train lines, hospitals and schools that Governments can build on the fringe; as such, Governments will look to locate people where this infrastructure already exists.

“Large format land holdings in strategic locations with public transport and social amenity nearby will become highly sought after,” he said.

“For Forza Capital, the holy grail is securing income producing, large scale land holdings.

“With time, the investment performance of such sites can often be exponential and generally with reduced risk as you always have a fall-back position – they are very hard to find but are worth the wait”.

You must be logged in to post or view comments.