Footscray, Maidstone, Thornbury and Preston offer good value for investors.

Four inner-western and inner-northern Melbourne suburbs have offered the best investment value, according to the Annual Recommended Suburbs Survey of the Melbourne-based independent research advisory firm Nyko Property.

The suburbs, Footscray and Maidstone in the inner west and Thornbury and Preston in the inner north, are located within 10 kilometres of the CBD and were undervalued when sold in 2008/09 with a median unit price of under $400,000, in line with the Melbourne Unit Median of $377,000.

Nyko Property Director Bill Nikolouzakis says: “Their price and location gave these key suburbs substantial upside; we identified that they were poised for growth, even in a flat and falling market.

“Although Footscray and Thornbury had a lower socio-economic demographic, our research suggested their proximity to the CBD and the high performance of the neighbouring suburbs would ensure their gentrification,” he says.

Nikolouzakis says that Nyko’s Annual Recommended Suburbs Survey, which uses rigorous and impartial research to assess new property projects for their investment suitability, has stood the test of time.

“The suburbs we have selected in the Nyko surveys from 2008-13 have outperformed the Melbourne unit market by 2.77% per annum – a 63% improvement – as well as holding up well against the Australian unit market, outperforming it by 2.52% per annum – a 54% increase.

“For the clients that bought in Thornbury, their suburb outperformed the Melbourne market in that time by over 100%.

“Our survey takes into account the demographics of the suburb as well as the new demographic entering the area through gentrification and selected projects that we felt most suited that change.”

Nikolouzakis says that Plan Melbourne has been a key factor in identifying which locations are likely to see the highest spike in employment and population growth.

“The State Government has pinpointed suburbs, and even key areas within those suburbs, in which they anticipate growth and therefore have committed extra funds for improvement of infrastructure and amenities.

“An in-depth knowledge of the local areas and the micro-economic factors affecting them are the keys to selecting high growth locations.

“Historically, Australians have bought investment property driven by emotion rather than logic, buying in the area they live in, grew up in or locations that have a certain prestige; this is never the best investment option.”

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SPAA backs ASIC warning on property advice by unlicensed real estate agents.

The SMSF Professionals’ Association of Australian (SPAA) fully supports the ASIC statement issued on Wednesday that strongly warns the real estate industry about agents recommending investors to use an SMSF to invest in property.

SPAA CEO Andrea Slattery says: “The ASIC warning is both timely and needed in light of the enormous media attention that has been given to this issue in recent months.

“From SPAA’s perspective, it’s been our constant stance on SMSFs investing in property that there are technical dangers, and as such we have always recommended that trustees get professional licensed advice, either from a professional SMSF Advisor who holds a licence or is an authorised representative of a licensee.

“We took that position a year ago in a detailed technical bulletin to all our members warning of the risks of property investment, and it remains our position today.”

She says property is an investment option for an SMSF, but, like any investment, it must be suited to the fund and take into consideration the members’ circumstances.

“In relation to property, there may be an interest in this asset class now because, in a low interest environment, people are looking for investment opportunities with higher yields than cash or bonds, and while there are still fears held about equities.

“It’s exactly because of this heightened interest in property that the regulator should be on the front foot to warn the real estate industry that its members must use licensed advice when recommending setting up an SMSF or recommending an SMSF acquires a property.

“ASIC is the ‘consumer awareness’ regulator and gained new powers on 1 July 2013 to target inappropriate marketing and spruiking within the Financial Services sector.

In its statement, ASIC said it was concerned that with the increased popularity of SMSFs and property investment, adding that real estate agents may not realise they are providing financial product advice and need an Australian financial services (AFS) licence when making recommendations or statements of opinion to a person to use an SMSF to invest in property.

ASIC has written to the REIA, the state and territory real estate institutes and property investment associations (real estate bodies), setting out its concerns and asking the real estate bodies to communicate these to its members.

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“Depending on whether the cash rate drops below the current 3 per cent, term deposits are likely to return between 3.2 and 4.2 per cent, while unlisted property funds can provide an income return around 8 per cent in the coming year. 

“In addition, property valuations have stood up well over the past period, even with the economic uncertainty.  At AUI, we think they are unlikely to go backwards in the next 12 to 18 months, providing much-needed certainty to investors on their capital value. 

“Property values have generally increased in line with rental growth over the past 12 months, a situation we expect to continue in 2013 with cap rates forecast to largely remain stable over the same period. 

“The recent weak credit environment constraining the supply pipeline for the next two to three years in some sectors, is a further factor supporting our view. 

“On a risk-adjusted basis, unlisted property is an ideal asset class for those investors seeking yield, yet also concerned about their capital stability. 

“Well-managed open ended funds also provide a very attractive investment option, with lower entry costs, good diversification, and structured liquidity,” Mr Pratt said. 

He pointed to AUI’s Healthcare Property Trust (HPT) as an example of what an unlisted property fund can deliver to investors. 

“HPT provides excellent exposure to the major demographic change taking place in Australia, with an ageing baby-boomer population, coupled with the growing trend for private healthcare services to supplement public healthcare. 

“Furthermore, in line with our active management approach, we have recently made some changes to the HPT’s financing arrangements which we believe will further improve returns to investors during the course of the year,” Mr Pratt said. 

These changes are expected to improve distribution returns by up to 0.5 percent per annum (for Wholesale Units). 

In addition, AUI has undertaken a new round of valuations for five of the properties in the trust, following the completion of major redevelopments of two hospitals owned by the Trust. 

As a result, there has been a net increase in the book value of the Trust’s properties of 2.07 per cent, or $3.31 million (as at 31 December 2012). 

Chris Smith, head of healthcare and retirement properties at AUI, said the changes were made to continue improving the already strong returns for investors. 

“We are committed to actively managing the trust, including its borrowing and hedging arrangements, and redeveloping and expanding properties to help meet the growing needs of local communities, which in turn delivers better outcomes for investors. 

“For example, we recently completed the expansion of the Peninsula Private Hospital in Langwarrin, Victoria, which includes a new intensive care unit and an additional operating theatre. At The Valley Private Hospital, we are halfway through a $23 million redevelopment and have now opened a state-of-the-art hybrid operating theatre with Australia’s first laparoscopic 3D camera system. Additionally, the Beleura Private Hospital now has a new 25-bed ward, a new chemotherapy unit, expanded operating theatre complex as well as additional consulting rooms. 

“Such developments help meet growing demand in Australia for healthcare services, maintaining quality long-term tenants and stable income for our investors,” Mr Smith said.

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Bendigo and Adelaide Bank’s Executive Retail, Dennis Bice, said the report shows there has been growth across a number of market sectors.

“The results underscore the old property adage that there really are ‘markets within markets’ both at different levels in different cities and in regional centres around the states and territories where good value and solid returns can still be found,” Mr Bice said.

The report also revealed an increase in the number of loans to first home buyers, which increased by 5.9 per cent to 25, 101 over the June quarter 2012, up from the June quarter of the previous year by 11.8 per cent.  

“People have been putting the big decisions, such as upsizing or downsizing their housing preferences on hold for some time now but there is evidence to suggest that activity in the property market is beginning to build again, said Mr Bice.  

“Investors are also seeing strong demand for rentals in the major centres with tight vacancy rates.

“The positive impact this has on rental returns, coupled with lower borrowing costs, should see a more active spring real estate season,” he said. 

“The report also finds that around Australia, residential investment property returns for three bedroom houses and two bedroom ‘other dwellings’, such as apartments and townhouses  show an average annual return over the past five and 10 year periods in the range of 6.6 per cent to 16.2 per cent*,” Mr Bice concluded. 

To read the full report, click here.

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While many investors may be unhappy with poorly performing investment managers, without the guidance oftheir advisers, many will not know how they can make a difference to the way the fund is managed.

Denison was recently been approached by a group of investors, representing 9.2% of issued capital in the 360 Capital Industrial Fund, to take control of the Fund and eject the existing management team and Responsible Entity.

To hear the views of investors and discuss how it would manage the Fund, Denison recently a country-wide roadshow where they met with approximately 300 investors. 

Denison Funds Management CEO, Matthew Burrows, said that while the vast majority of those present at the roadshows wanted a change in management, many were unsure of how they should vote and what their rights were as investors.

“Most investors were concerned with the recent move by 360 to change the constitution of the Fund, which has been ruled as in breach of the Corporations Act.  They are also concerned that listing the fund at this time will have a serious, negative impact on the value of the Fund.  However, many investors said the information sent by 360 was confusing.  In particular, the proxy voting form is ambiguous in terms of the treatment of votes from abstaining investors.”

Mr Burrows said dialogue with advisers was crucial at times like this to ensure investors’ interests were protected.

“Advisers need to speak with their clients to help them decide what is the best course of action for their circumstances.   Too often in the finance industry we assume a level of engagement or knowledge from investors that they simply don’t have.  Most investors simply want a good return and their advisers can help them set the course to achieving that.”

According to a letter from the group of investors requesting the change, unitholders listed the dilution of  their investments, changes to the constitution and 360 Capital’s plan to list the Fund on the ASX as their major concerns. 

Legal proceedings undertaken in the Supreme Court of Victoria and resulting orders made on 31 July 2012, found constitutional changes made on 31 May 2012 and 5 July 2012 contravened investors’ rights and were ordered to be ineffective by The Honorable Justice Sifris. Additionally, the order restrained 360 Capital RE Limited from putting the special resolution to investors of 360 Capital Industrial Fund, as proposed in the Notice of Meeting dated 12 July2012.

Mr Burrows said should Denison be appointed managers of the Fund, they would:

• Immediately reduce management fees from 6% to 5.5% of the Fund’s gross rent and permanently remove the special exit mechanism fee.
• Reduce fund management and operational costs by leveraging existing operational efficiencies to improve net asset cash flows.
• Defer any capital raising to avoid heavy dilution of Members’ interests.
• Establish a liquidity facility specifically for those Members who require special consideration due to a valid, urgent need for liquidity by using our global relationships including Forum and its networks
• Seek Members’ approval for an extension of the Fund’s investment-term for three years.

Mr Burrows said this would allow Denison to execute a strategy aimed to stabilise and enhance the portfolio value.

“This will pave the way for the opportunity for liquidity in the future. By being measured in our process, we believe that we can retain and improve on Member value, which would be preferable to listing on the ASX in current market conditions.”

The unitholder meeting to vote on the proposed change of Responsible Entity will be held at 10.00am (AEST) on 17th September 2012 at Oaks on Collins, 480 Collins Street, Melbourne.

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Median weekly family income is now $1,560, compared to $1,493 in the June Quarter 2011. The average monthly loan repayment is $2,155 compared to $2,290 in the June Quarter 2011.   

Compared with the June quarter 2011 all Australian states and territories recorded improvements in housing affordability. The number of loans to first home buyers increased by 5.9% to 25,101 for the June quarter 2012 and by 11.8% compared to the June quarter of the previous year. 

The number of loans to first home buyers increased in all states and territories with the exception of New South Wales and the Northern Territory. 

Victoria was the standout, recording the largest increase in the number of first home buyers for the quarter, up by 23.5%.   Victoria also recorded the largest increase in the total number of loans, up by 16.0%.   The total number of loans Australia-wide (excluding refinancing) increased 8.9% over the June quarter to 91,982. 

General Manager of Adelaide Bank, Damian Percy said: “The figures seem to indicate that many people are now deciding to get on with their lives and are again making decisions about their housing choices – regardless of continuing volatility in global financial markets.” 

“I think simple timing is a factor.  Age waits for no-one. Older people in bigger houses make lifestyle choices to ‘downsize’, younger people have growing families and need to upsize.  The imperative to ‘right-size’ your dwelling at a particular life stage can drive decision-making to an extent. 

“Many people have been delaying these important choices and housing decisions for nearly five years.   

“In June 2011, 35.4% of family income was required to meet home loan repayments. In the June Quarter 2012, the figure had come down to 31.9%, a 3.5 percentage point drop. 

“This is still a significant chunk of family income, but moving nonetheless to relieve some of the pressure on household budgets. Appropriate and affordable housing underpins stable and successful communities and we forget this at our peril.  

“In terms of rental costs across the nation, we are seeing stability in most cases and mounting evidence to suggest that in some areas, it can now be more affordable to meet the cost of mortgage repayments over renting,” Mr Percy concluded.

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Strategically placed to provide investors with a diversified exposure to healthcare related assets, the Trust has traditionally represented a solid investment with exposure to defensive assets on long-term leases and high calibre management. Zenith has issued an updated Product Assessment on the Australian Unity Healthcare Property Trust (Retail, Wholesale and Class A units) and confirms the retention of the Highly Recommended rating across all unit classes.

Zenith’s View
Zenith has retained their view of the Trust as a superior offering within the sector. Since our last review, management continues to pursue value-adding works within the HPT and monitor opportunities to potentially divest mature assets to recycle capital. Historical returns have traditionally performed well against performance benchmarks, generating solid risk adjusted returns with low volatility.

While outperformance has slowed in more recent years, Zenith maintains solid conviction in the Fund’s merit as a defensive play with stable income and growth potential.

Zenith is of the opinion that the HPT continues to represent one of the few ways for investors to access this specialist asset class directly. Fund distributions were given a boost in FY12 from reduced credit margins and while burdened with recent losses from out of the money interest rate swaps, portfolio metrics continue to be very strong and we expected to see solid rental growth going forward.

Zenith has retained our rating based on our continuing opinion that the portfolio of diversified quality healthcare assets which are strongly defensive by nature and with high barriers to entry continues to provide strong risk adjusted returns to investors in this sector over the long term. Zenith rates the Australian Unity Healthcare Property Trust Highly Recommended.

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Strategically placed to provide investors with exposure to the strong Perth office market the Trust has a fixed term of 7 years and is open to Wholesale investors only. Target distributions from the Trust are forecast by management to commence at 9.25% pa for FY13 rising to 9.50% pa in FY14 with a reasonable level of tax advantage. Trust distributions should be relatively stable over the short to medium term owing to the low level of scheduled lease expires (commencing 2015).

The Trust is issued by GDI Funds Management, a wholly owned subsidiary of the GDI Property Group (GDI) who will act as the Trust’s Investment Manager. GDI are a specialist boutique manager of unlisted property funds founded in 1993. GDI are highly active in their investment approach preferring to seek strong value-add opportunities in office markets.

Zenith’s View
Zenith believes that the Trust represents a strategic opportunity to take exposure to the Perth office market which is currently generating very strong returns from resource led demand. With contracted building rents underpinning strong growth in a very tightly held market where tenants have little opportunity to move until at least 2015 owing to scant a supply development pipeline, we see opportunities for risk aware investors to dial up the risk in their property exposure for higher rewards.

Zenith has a high conviction in the abilities of the Investment Manager. GDI have carved out a very strong track record since inception, with past trusts predominantly generating very strong returns as befitting their predominantly highly active strategies. Zenith believes that the team has shown strong discipline in their investment approach and rate their processes highly.

The Trust will sit higher up the risk curve than those real estate investment strategies usually found in the Core Enhanced space however the risks are probably not as high as those typified by most Value Add strategies we have observed.

While the Perth market faces reversionary risks from a cooling resource investment, Zenith have high confidence in GDI’s ability to manage outcomes and extract value. Zenith rates the GDI No. 36 Perth CBD Office Trust Recommended.

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We consider that Mr. Duncan’s departure, together with Jason Hazell’s departure earlier in 2010 has resulted in a loss of multi-management experience and expertise, as well as knowledge of the fund and the underlying managers. The effect of these departures has led to our reduced rating conviction.

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“We hold new portfolio manager, Stuart Keighran in high regard, although his multimanager role is somewhat of a departure from his previous role as a property securities fund portfolio manager,” said S&P Fund Services analyst Peter Ward.

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“We expect conviction to build as Mr. Keighran settles into his new role and builds his fund manager knowledge and relationships with assistance from his MLC team members. His strong investment experience will stand him in good stead, together with the framework provided by MLC’s multi-manager research, philosophy, processes, and portfolio implementation capability,” said Mr. Ward.

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The funds affected by this announcement are:

(headline funds in bold)

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x

x

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According to the report, total returns from REITs are expected to be in the 8-12% range this year, as dividends grow and continue to be an important component of total return. The primary driver of real estate company returns will be growth in cash flow per share.

Rising interest rates need not be feared, as listed real estate often delivers positive returns in periods of economic improvement, even if interest rates rise, according to the report. The year will also see large scale IPOs emerging out of the US.

Region by region, in Asia Pacific, Hong Kong property companies are expected to outperform over the next 12 months, growing earnings by 15-20% and producing dividend yields of 2-3%. Japan should deliver a total return of 5-10% and Singapore 10-15%.

In Europe, Western and Northern Europe are believed to represent more attractive investment opportunities compared to Southern and Eastern Europe, with a 5-10% total return expectation across Continental Europe over the next 12 months and a 5-6% dividend yield. The UK is expected to deliver a total return l of 8-12% over the next year.

North America should see total returns of 8-12% in the US and Canada. In the US, property investment is predicted to be helped by economic recovery as a result of fiscal and monetary stimulus, although the continued depressed housing market and high unemployment remain as obstacles.

While property markets are at different stages in the real estate cycle, the earnings growth trend remains positive according to the report.

Click here to download the full report (pdf)

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