Portfolio

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GUEST OBSERVER
Not being able to pay loan repayments on time is one of the most frightening and common concerns of property investors, and rightly so.
Last year over 50,000 full-time jobs were lost in Australia alone, and with less than half of the country having private health insurance, many investors would be at risk of losing their portfolio if an unforeseen circumstance such as being fired or becoming ill, arose.
Preparing for situations that may result in a loss or diversion of income is essential when it comes to safeguarding your property portfolio. Although preparation is paramount, there are also processes that can be followed once unexpected financial difficulties strike that can offer assistance to avoid an investor having to sell.
To ensure investors are properly prepared prior to any unforeseen circumstances arising, see below:
<ul>
<li>
Make income protection insurance a priority. Often income insurance is considered too expensive or unnecessary; however as an investor it is vital to safeguard your portfolio. Although it will be an additional cost to pay monthly, if an illness or injury occurs, most policies will cover 80 percent of your income, meaning expenses incurred via your portfolio are still covered until you recover.  Also, in most cases income protection premiums are a tax deduction.</li>
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<li>
Research and ensure you have the policy which best suits you. Unfortunately there isn’t one specific income protection policy that suits everyone. To ensure you are choosing the most cost-effective and beneficial option for your situation, make sure you compare various options before committing to a policy. </li>
</ul>
<ul>
<li>
Aim to have a neutral to positive cash flow portfolio. If overall across a property portfolio the rents equal or exceed the costs and repayments, sustaining the portfolio will not be contingent on job income and will give peace of mind in the event you are forced to stop working.</li>
</ul>
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<li>
Create a buffer in your offset account. Once an investor has an offset account set up, you can keep surplus funds there which will give you two primary benefits:</li>
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<ul>
<li>Offset a portion of the interest being paid on the home loan.</li>
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<ul>
<li>If the property is negatively geared and you experience an unforeseen circumstance, these funds could be used to cover the weekly shortfall in rent.</li>
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If unforeseen circumstances arise that investors aren’t prepared for:
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<li>
Seek immediate expert counsel. If an unforeseen circumstance has caught you off guard and you are fearful for how this will affect your finances, arrange to meet with an accountant or financial planner immediately to implement a plan that ensures the obligatory loan repayment is able to be made.</li>
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<li>
Advise the bank of the situation. All lenders have a financial hardship line, so take the time to work with them on a suitable payment arrangement so you keep on top of your repayments.</li>
</ul>
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<li>
Research what the current market rent is on each of your properties.  The average rent in each market changes constantly. Keeping up to date with the current rate ensures you are able to see where you can increase the rent for better cash flow.</li>
</ul>
Zaki Ameer is founder of Dream Design Property and can be contacted <a href="https://www.ddpproperty.com.au/" target="_blank">here</a>.
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How to safeguard your property: Zaki Ameer

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SPONSORED POST
When considering property investment it pays to look at what the professionals do - the big industry and retail superannuation funds and institutional investment organisations such as insurance companies.
Professional investors generally allocate anywhere from 8 percent to 15 percent to property within their portfolio. These institutional investors live or die by their results – there is no room for emotion or personal preference. 
So what types of property?
One sub-class of property the professionals do not typically hold is residential. Why? Because long-term average yields on residential property are generally inferior to quality investment grade real estate.
Commercial property on the other hand is able to generate distribution yields in excess of 6.50 percent for investors. The dispersed or small scale nature of residential property means the costs associated with the accumulation and management of residential property also contribute to it being viewed as a less than optimal option.
Of course dinner parties are peppered with wonderful residential success stories, but headline numbers and real rates of return can sometimes be poles apart. Residential real estate investment has high transaction costs including stamp duty, legal and agent fees, and  holding costs of land tax, insurance, council/water rates, external property management, vacancies, repairs and capital gains tax.
Whilst some of these costs are also applicable to commercial property, many costs like repairs, insurance and rates are often paid for by the tenant instead and other costs are lower due to the economies of scale obtainable (such as agents fee). The other big difference is that the rents paid by commercial tenants are generally much higher as a percentage of the cost of the initial investment. 
Further, the heat in the residential real estate markets in Sydney and Melbourne is showing some signs of coming off the boil. Hopefully this will allow a chance to regroup and make more considered decisions.
Professional investors typically invest in investment-grade commercial property such as offices, warehouses, hospitality and shopping centres. The term ‘investment-grade’ is critical. In short, it means high quality buildings with high quality tenants, often with long leases, which translates into strong and predictable earnings flows.
The two pathways to investment-grade commercial property are Real Estate Investment Trusts (REITS) and unlisted property trusts, also often known as ‘direct property’. Charter Hall is now one of the largest and most successful commercial property investment group’s in Australia and consistently holds up to five of the top 10 performing funds as ranked by performance in The Property Council/IPD Australian Unlisted Core Retail Property Fund Index.
Regardless of what type of property, take the time to consider the full suite of property options available and proceed with care with a trusted and well respected Manager.
Steve Bennett is fund manager for Direct Property, Charter Hall and can be contacted <a href="https://www.charterhalldirect.com.au/?utm_source=propertyobserver&amp;utm_medium=post&amp;utm_content=charterhalldirectproperty&amp;utm_campaign=mk4" target="_blank">here</a>.
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What kind of property should be in my investment portfolio? Charter Hall

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Modelling by Dixon Advisory has shown that property investors may not be able to have an investment portfolio unless they have funds in reserve for every year of their loans under APRA's tighter lending standards.
Investors may have to set aside more capital to secure their loans or be priced out of the purchasing market.
The Australian Prudential Regulation Authority this week instructed the main four banks and Macquarie Group to hold billions of dollars in extra capital to cover mortgage loans, with the change potentially passed onto customers in higher borrowing costs.
The changes will have significant ramifications for some investors who could be priced out of the market, Dixon Advisory's Nerida Cole told The Australian Financial Review.
The managing director of Dixon Advisory's financial advice division suggests some investors will need a larger deposit to reduce their loan-to-value ratio or buy cheaper properties.
"For borrowers who are in a strong financial position, [and have a] particularly strong surplus cash flow and low debt levels, they may be able to acquire the property of their choice," said Nerida Cole.
Modelling by Dixon Advisory has shown an investor who wants to buy a $1 million property could have to prove they will generate an additional $22,500 in cash a year under new standards, assuming a 20% minimum deposit. 
An investor with a $500,000 property could need up to $12,300 in additional cash a year, in calculations that assume principal and interest repayment at 7%, rental income of 4% (before the bank reduction of 20% is applied) and a marginal tax rate of 49%.
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Investors need set aside more capital to secure their loans: Dixon Advisory

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Investor demand for prime retail property lifted valuations in BWP Trust’s portfolio by $108.5 million in the 2015 financial year as the trust reported a strong full-year result. 
BWP Trust, which owns retail properties mainly tenanted by Bunnings, reported a full-year net profit of $210.1 million, up from $149.1 million in 2014. Its income increased by 13.7% to $144.9 million.
“Our objective is to keep building on the current portfolio, and that’s from a pretty solid base,” BWP’s managing director Michael Wedgwood said in announcing the result. 
The trust bought one Bunnings Warehouse development site at Australind, Western Australia, in 2015. It completed the development there, along with six other developments. 
Wedgwood said it would be difficult for the trust to grow by acquiring additional properties in the near term as low interest rates were encouraging investors to look to property for yield, pushing capitalisation rates lower.
“It’s certainly a sellers’ market,” he said. 
The trust plans to divest a property in Cairns after Bunnings relocated to a nearby site. It sold six properties in 2015.
“We will continue to review the portfolio regularly and assess all properties. If it makes sense to over time, we will look to divest properties but it’s not top priority at the moment,” Wedgwood said. 
The portfolio has a 100% occupancy rate. Its weighted average lease expiry was 6.6 years as at June 30, 2015. 
Low inflation limited rental growth to 2.6%, compared with 4% for the previous year. Around 65% of the trust’s rental income is subject to CPI increases. 
BWP Trust was one of the strongest performing shares in the property sector during July, when the A-RIET index outperformed the broader market.
It paid a final distribution of 8.17 cents, making a total of 15.84 cents for the full year, up 7.7% on the previous year. It forecast distribution growth of about 5% for the 2016 financial year. 
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Prime retail property demand lifts BWP Trust portfolio

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Tom Brinkworth, one of Australia's wealthiest graziers, is reportedly casting his eye over the country's largest land holder, S. Kidman &amp; Co.
Tom Brinkworth, who owns 100 rural properties across Australia for the production of cattle and sheep, has frequently been compared to the famous cattle king Sidney Kidman.
The S.Kidman &amp; Co business, which covers almost 11 million hectares of cattle stations – including the world's largest, Anna Creek in SA, was placed on the market in April this year with accounting firm EY.
The Australian Financial Review reported Tom Brinkworth would not be drawn on details, but had said the overall portfolio of properties may be too big for him.
"It would be a very big undertaking," he told the Financial Review whose Street Talk column say the Kidman company has enlisted independent corporate advisory firm Leadenhall to value the business after CBRE valued the properties.
<div>
S Kidman is said to be worth at least $325 million.
Ernst and Young Adelaide is running the sale sending the information memorandum to prospective buyers last month.
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Meanwhile Macquarie Group's Paraway Pastoral and the Menagazzo family's Stanbroke Pastoral have both submitted bids for an entire portfolio of agricultural land owned by BG Group's Queensland Gas Company.
The 40 properties in Queensland's coal seam gas country, from west of Chinchilla to south-west of Dalby, is a  67,000-hectare portfolio offered on a long-term lease basis.  
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Tom Brinkworth eyes S. Kidman cattle empire

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GUEST OBSERVER
Investors should steer clear of the get rich quick approach and instead build up a quality portfolio that’s sustainable for the long term.
We’ve all read about the get rich quick stories where property investors build a large portfolio in a short period of time by using equity in one property to purchase another one and so on. On the surface it all looks pretty good but often there’s not enough equity in the overall portfolio to keep it afloat if any undesirable outcomes occur such as an increase in interest rates, long tenant vacancy periods or a drop in market values.
In many cases in these situations, the inexperienced investor will choose cheaper properties simply to increase the size of the portfolio instead of saving up a bigger deposit to purchase quality properties that will be able to better withstand a market downturn.
In addition if you don’t have a financial buffer then your portfolio can very easily come crashing down like a deck of cards especially if you’re relying on the rental market to go up to be able to pay the mortgages. Successful and sustainable property investing is very much about selecting the right types of properties in great locations.
Ask any seriously wealthy property investor who has seen a few property cycles and they will tell you that you should purchase property in areas where there has been good demand in the past, demand for it now and likely to be good demand well into the future.
When investing, quality comes first whether you are looking to start or add to your property portfolio.
Don't get hung up on how many properties you buy as you’re better off having say two million dollars invested in three or four quality properties than have two million dollars invested in 10 average ones.
Here's how you can get on the right track to becoming a successful property investor:
HAVE A PLAN 
By writing down clear goals for the future growth of your portfolio you should be able to determine how much money you’ll need for the necessary deposits and incorporate this information into your overall financial plan. Make sure you work out whether you’re buying properties to hold for the long- term or whether a buy, renovate and sell strategy would be better suited to your needs. You will need to factor in any major changes to your likely income (e.g. plans to start or grow your family) or expenditure streams when examining the timeframes needed to save the deposits.  BE A FARMER NOT A HUNTER 
There are people who are prepared to farm and cultivate a crop, with a several-year outlook and there are those who want a return almost immediately (the hunter mentality). Unfortunately most people have a hunter mentality. They throw a spear, and want an immediate result which in my experience is not the mentality of a smart, seasoned property investor. As the old saying goes “wealth is the transfer of money from the impatient to the patient”. 
TREAT YOUR PORTFOLIO AS A SMALL BUSINESS 
If you want to maximise the return on your investment you must ensure you are receiving the best return possible on it. Regardless of whether you have one, three, five or more properties you need to treat them all like a business and undertake regular reviews no less than six monthly. 
INVEST IN GOOD ADVICE 
Good property investors accept that they don’t know it all and are willing to pay for good advice. The old adage “you get what you pay for” rings true so if you’re not paying for the advice you’re receiving then it’s probably not worth following. Invest in a good accountant, solicitor, building inspector, buyer’s agent, quantity surveyor, property manager, finance broker, financial advisor etc. Ask your advisors if there are any financial changes that need to be implemented now to make it easier to achieve your property investment plans for the coming years. PROTECT YOUR CAPITAL
The preservation and return of your capital is more important than the return on it. Get that around the wrong way and you’re very likely to do your dough. Always remember that if an investment opportunity is offering a higher than average return for the asset class there will be a reason for it and it’s generally a higher risk investment. You need to decide: am I an investor or speculator? It’s ok to speculate just know you’re doing it and don’t do it with more than 10% of your net worth as if you do your dough you can recover from a 10% loss. It’s much harder to recover if you’re losing much more than that at any one time.
TAKE ACTION
The world is full of broke procrastinators. Good property investors take action. They’ve done their research, they know when and where to buy and they’re confident with their investment.
Patrick Bright is a Sydney-based buyer’s agent for EPS Property Search and can be contacted <a href="https://www.epspropertysearch.com.au" target="_blank">here</a>.
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Six tips for being a successful property investor: Patrick Bright

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Developer Tim Gurner has his Footscray apartment project site up for sale, having secured a permit for a $220 million twin tower project.
The Warde Street GURNER site has been listed for sale as it seeks to divide its growing portfolio evenly between Melbourne and Brisbane.
The 2,190 sqm site, located at 1 Warde Street Footscray and positioned within the State Government’s Joseph Road regeneration precinct, has been listed for sale by Colliers International.
The approved permit allows for between 350 to 380 apartments plus 4000sqm of retail at ground level.
The site has an approximate end value of over $220 million, GURNER founder and director, Tim Gurner says.
It is about to launch two new projects in Melbourne.
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Tim Gurner lists redundant Footscray apartment project site

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Caledonia Investments seems set to walk away from its ­hostile takeover bid for ALE Property Group, owner of a $900 million pub portfolio.
The largest investor in ALE Property lobbed its $770-million all-cash takeover offer in October.
But the Australian Financial Review's authoritative Street Talk column says Caledonia is expected to formally withdraw after prolonged talks with the company failed to strike a deal on the offer at a 74% premium to ALE's net tangible asset value.
ALE owns a $900 million portfolio of 86 pubs which are operated by ALH, a joint venture between Woolworths and Bruce Mathieson.
Woolworths is ALE's second largest shareholder with around an 8% stake.
Led by Mark Nelson, the Sydney-based private investment group holds around 26% of ALE, which engaged Macquarie Capital for its defence.
Caledonia, which hired Moelis &amp; Company, was set up in 1992 to manage the fortunes of the Darling family and later adding the Nelson and Vicars families.
It has $2.8 billion under management.
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Caledonia Investments takeover bid for ALE pub portfolio languishes

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As many property investors know, the city you currently call home isn’t always the best location to invest.
But there are many steps to the buying process, and they can differ from state to state.
There are plenty of reasons to purchase property interstate.
You may want to diversify your portfolio to lower your risk profile.
Perhaps you're planning a move next year, but you know that now is the right time to buy.
Or maybe you've heard that the next big up and coming suburb isn't on your doorstep, but 2,000 kilometres away.
Even if you are a seasoned property investor in your local area, there are some key differences between buying locally and purchasing further away.
Investing interstate can be difficult, especially if you're not experienced and you're looking to invest somewhere you haven't lived before.
There are a range of experts who can assist you with an interstate purchase and help alleviate the costs of travelling back and forth.
Conveyancers or specialist lawyers can help prepare and lodge your legal documents (including your contract), handle your deposit, research the property and calculate your expenses. They can also assist in the settlement process.
A buyer's agent can help you inspect properties and do a lot of the footwork for you. They may also be able to refer you to reputable local experts to help carry out inspections.
Make sure you communicate honestly and often with those helping you invest interstate, and make the most of the experts available.
While buying property interstate can seem like a daunting task, there are a lot of benefits to developing your property portfolio beyond the bounds of your local neighbourhood. Make sure you contact reputable, independent experts and do your homework.
Don’t forget that stamp duty or land transfer taxes change from state to state, and depend your property’s intended purpose.
Each state’s revenue office website has a stamp duty calculator that can help you estimate how much you’ll be charged.
Purchasing interstate is a great way to spread risk across your property’s portfolio or capitalise on growth areas – just make sure you do your homework.
 
For more real estate traps and tips visit <a href="https://realestatetraps.com.au/">realestatetraps.com.au</a>
 
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Tips for buying property interstate

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Scentre Group, owner and operator of Westfield Australia and New Zealand, has reported comparable specialty sales in the Australian portfolio grew 5.3% over the past 12 months, with average annual specialty sales of $10,826 per square metre (psm).
It noted strong sales performance was seen across most categories, with good increases in the fashion, footwear, jewellery, leisure, health and beauty, technology and cinemas categories.
Average annual specialty retail sales in New Zealand increased to NZ$12,117 psm, representing comparable specialty sales growth of 6.6% for the year.
In Australia, average specialty retail sales had been at $10,666 per square metre and comparable specialty store sales growth was 5.8% for the nine months to September.
In New Zealand, average specialty retail sales increased to NZ$10,534 per square metre, and comparable specialty store sales growth was 6.5% for the initial nine months.
 
Comparable property net operating income increased 2.6% for the 12 months, higher than the forecast range of 2.0 - 2.5%, reflecting lower vacancies and additional income streams. 
Scentre was spun out of the Westfield empire in 2014, and now runs the local malls. Westfield Corp runs the overseas malls.
It reported a 58.9 per cent drop in after tax profit to $2.71 billion for the full year, despite a 32.5 per cent jump in revenue to $2.87 billion. 
Funds from operations for the period was $1.199 billion. 
The group will pay a final dividend of 10.45c a security on February 29, taking the total dividend for the year to 20.9c. 
The results were for the 12 months to 31 December 2015. 
The Chairman of Scentre Group, Mr Frank Lowy said the rationale for the creation of Scentre Group has been validated with the strong results released today.
“Scentre Group’s pre-eminent portfolio and unique market position have provided a strong operating performance and excellent returns for security-holders since the Group was established as a separate entity.”
Scentre Group’s shopping centre assets saw significant revaluations of $1.5 billion during the year.
The value increase was driven by growth in underlying income, the completion of developments and a firming of capitalisation rates across the portfolio. The portfolio weighted average capitalisation rate reduced by 38 bp during 2015 to 5.57% reflecting the quality of the centres.
At 31 December 2015, Scentre Group had a balance sheet with total assets of $31.8 billion, a gearing ratio of 33.3% and liquidity of $3.7 billion.  
In 2015, the Group commenced $830 million (SCG share: $583 million) of redevelopments, including projects at Casey Central, Chatswood, Hurstville, Kotara, North Lakes and Warringah Mall.
“We have already opened the redevelopments at Chatswood, Hurstville, North Lakes and Kotara which are trading strongly. These developments will be accretive to earnings and create substantial long-term value,” chief executive officer of Scentre Group, Peter Allen, said
These recently opened developments featured new experiential precincts and offerings for shoppers and retailers with:
<ul>
<li>a “Hawker Lane” Asian dining market at Westfield Chatswood alongside a new five-level mall on Victoria Avenue including a flagship two level Topshop Topman, H&amp;M, Uniqlo, a relocated Rebel Sport and 40 new retailers.</li>
<li>an extensive ambience upgrade and a new rooftop dining and entertainment precinct at Westfield Hurstville, with a range of late-trading casual dining outlets, linking directly to the refurbished Event Cinemas. New retailers to the centre include a Woolworths supermarket, BIG W discount department store, JB Hi-Fi HOME, Cotton On Mega Store and Rebel Sport.</li>
<li>“The Marketplace” fresh food and “The Laneway” al fresco dining precincts at Westfield North Lakes. </li>
<li>A Hunter Valley-inspired outdoor dining and entertainment precinct, “The Rooftop”, featuring nine new restaurants, a performance stage, play area, and a new Event Cinemas complex at Westfield Kotara.</li>
</ul>
In 2016, the Group has commenced the $355 million redevelopment at Westfield Chermside, which will include the introduction of five international mini-major retailers, a broadening of the range and depth of the centre’s fashion offer as well as the largest lifestyle and entertainment precinct in an Australian centre. The centre will add 26,000 sqm of retail space bringing the total size to 156,643 sqm on completion.
At Westfield North Lakes the Group has also commenced the $140 million Stage 2 IKEA Link Mall project which connects a new IKEA-owned store with the existing centre. The development will include a new Kmart discount department store, JB Hi-Fi HOME, Rebel and approximately 50 new specialty stores over a single level with completion expected in December 2016.
Pre-development work continues across the portfolio and the Group maintains a forward development pipeline in excess of $3 billion.
During the year Scentre Group completed the sales of Figtree, Strathpine, Warrawong and North Rocks in Australia for gross proceeds of $783 million and also announced the sales of Glenfield, Queensgate and Chartwell in New Zealand for a total of NZ$549 million, the latter two being expected to settle in the first half of 2016. 
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