Robert Olde, Questus Ltd and PFA president

11 May 2012 – The Property Funds Association conference at Sanctuary Cove on the Gold Coast last week provided a bird’s eye view of how hard the challenge is for owners of secondary properties to engage in energy retrofits.

PFA president, Rob Olde asked where all the money had gone. Property would come back, but for many in the industry it was currently a waiting game, he said.

Low Carbon Australia’s Meg McDonald outlined the opportunities and assistance available. But there were forthright views on the economy that gave pause for thought from speakers including:

Andrew Bell, Ray White Surfers Paradise and chairman Gold Coast Commonwealth Games Bid and

Andrew Bell, Gold Coast 2018 Commonwealth Games Bid

On day 2 of speaker events came perhaps one of the big reasons that the Labor Government got slaughtered in Queensland – things are far worse in some parts of the state than many southerners might realise. The Gold Coast property market in particular is on its knees.

Speaking at the Tuesday morning breakfast, Andrew Bell, chair of the Gold Coast 2018 Commonwealth Games Bid – Business and Community Consultative Committee and chief executive officer of Ray White Surfers Paradise Group said values of much waterfront residential property on the Gold Coast had halved. The area led the country  in repossessions and defaults

“Values are down about 50 per cent along the beachfront,” he said, there are “massive defaults in mortgages, the highest bankruptcies in the country.”

But in true agency fashion Bell extracted an upside to the story. He said that Queensland had now corrected itself from an unsustainable boom and now represented “one of the best real estate markets in Australia.” It was now good value for interstate buyers who were starting to see this. By contrast Melbourne and Sydney prices had “not come back much.”

But Bell also urged caution. He said investors who thought the Commonwealth Games for the Gold Coast would suddenly boost values were “delusional.”

The Games would boost the local economy by bringing forward infrastructure expenditure for the next 10 years and yes, around important infrastructure property values would improve. For instance, the new $1.7billion Gold Coast University Hospital  under construction and the $1 billion Griffith University to Broadbeach light rail.

Andrew McCasker, NAB
Andrew McCasker head of property finance Queensland NAB confirmed the bleak view. There were 1000 completed units in the hands of the banks right now in the Gold Coast.

“Until that surplus is absorbed the market will continue to be flat,” McCasker said.

In the commercial sector it was a different story with low vacancies and buildings such as One One One Eagle Street, Brisbane, “set to be delivered at the peak of the market and with pre commitments will be a cracking asset.”

There were also optimistic forecasts for growth in mining led towns which would draw demand for support services, and in Townsville from the military presence.

McCasker said: “There’s light at the end of the tunnel but the tunnel is longer than we expect.”

Among comments from panel sessions and attendees were the following highlights:

Meg McDonald asked about the political risk of a carbon price being dropped by a coalition government said that the carbon issue “transcends politics”. There could be changes to her LCAL and to the Clean Energy Finance Corporation; the two could be merged. But essentially the carbon price “performed a valuable function that addressed market failures that you experience day by day.”

Frank Gelber said that from an investor’s point of view at least a retrofittable building made a lot of sense.

But “within a reasonable cost and it should be part of the cost of a building.

“What is it going to cost to get to 4.5 stars or whatever?

“If you have a two star building and can’t retrotfit, you will get caught.”

Tony Crabb
There were bad examples of investors facing price blowouts in retrofitting. Issues such as floor loads that emerge after construction has started leading to major cost over-runs.

Some people had been “wiped out from embarking on major building upgrades.

“I’d be punching the lights out and going from scratch.”

Anthony de Francesco IPD

Meg McDonald said there was “quite a track record” that disproved that scenario now.

“And it created improved star value. You can use our fund and end up with an improved asset and tenancies.”

Dominic Brown, DTZ also said there were plenty of horror stories on refurbishment where there was not much hope of recouping the cost through increasing value and rent increases.

Comment
Another comment (unsourced) was that there was a certain amount of path finding: “What can be done what can’t be done.

“There was no point to shoot for a six star building if five star is best that can be expected with modest rent or capital value increases.”

Meg McDonald agreed. “Overshooting has been the primary cause of why people have crashed because they haven’t looked at where the returns are for them.”

It was important to look at the right combination of technology and investment in other areas. To see the “right value proposition.”

Frank Gelber
Europe doesn’t matter that much and Greece’s economy is the size of Seattle.

We’re not directly exposed…75 per cent of our exports go into Asia; it may impact on our ability to borrow.

Meg McDonald
The regulatory risk of carbon legislation was “not so much in the regulation itself but in the risk of changes to the legislation.
“The constant change and reversal, the uncertainty is where the risk comes in.”

Take away messages

Nick Anagnostou, chief executive officer, Austock Property Funds Management, speaking after the conference thought sustainability was already a significant issue among unlisted investors.

“It probably could be a higher priority; it will come down to the nature of their stock. If their stock is inherently B grade then it’s not necessarily a motivating factor and the tenants are not motivated. If the stock is premium grade and the tenants are demanding it then it will be a priority.”

Mr Anagnostou said that in recent times there had been greater acceptance that there would be greater costs – and greater preparedness to pay – for green premium buildings.

Nick Anagnostou, said there were a mix of messages in the conference.

“There’s not a lot of foreseeable growth – that’s what came out of the conference for me but there are certainly signs of life through the right financial planning networks and there is certainly signs of life in the listed sector. Overall AREITS (Australian real estate investment trusts) are up 5 per cent in the last month.

Securities managers and fund managers were now starting to see “plenty of value outside of the listed REITS.

“A lot of securities manager have mandates written in rosier times and can only place a proportion of investment in ASX listed stock and if you look outside of that, it’s the unlisted stocks that are outperforming.”

Ultimately, he said, if the business has a sustainable model and is looking after their unit holders they’ve got a future and if their business is hanging on it needs to be acting for the benefit of the unit holders.”

– by Tina Perinotto