The head of a funds management group has acknowledged the property market is currently falling in value significantly and that any growth opportunities will be rare and driven by one singular factor.
“The naysayers that were saying at the beginning of the pandemic that we are going to have a 30 per cent price correction, and now that the market is correcting, they’ll be saying that forever basically, but right now they are probably correct,” CFMG Capital general manager Andrew Thomson told delegates at the smstrusteenews SMSF Trustee Empowerment Day 2022 held in Sydney last week.
“[However], the market is not going to be a bust, it’s simply cooling off after a record growth period, but any kind of price growth in the property market, certainly in new developments in existing real estate, is going to be milestone driven.”
From his own organisation’s perspective, these types of milestones include events such as construction commencement, the laying down of a footpath and construction completion leading to settlement, Thomson said.
He used the situation of an investor buying real estate off the plan to illustrate his point.
“Those people buying off the plan on a greenfield estate where there is nothing but grass and trees and a for sale sign, they’re getting in early on their purchase and therefore are entitled to the most affordable price. [Then] as you drive through the milestones during construction, that’s the only opportunity for price growth in development in the coming 12 to 18 months in our view,” he said.
According to Thomson, the situation should not necessarily deter SMSF members from investing with a fund manager specialising in property development as they have alternative methods to create value.
“Certainly we enjoy market growth, but we’re not driven by market growth. We look to create and add value to a property via active development,” he shared with the audience.
“So there are mini-cities and regional CBDs and things like that [allowing us] to enhance projects.”
Elements such as this will add value to property developments as they will be attractive in providing accommodation for workers in those mini-cities, allowing them to live very close to their place of employment, in turn sparking demand, he noted.
“Proximity to a major capital CBD is one of the most overrated metrics in driving property value. Its not relevant to your average buyer in a greenfield estate who has no desire or reason to frequent the CBD and instead wish to live close to their particular employment hub, retail amenity and where their children attend school. With the recent pandemic further fast tracking this decentralisation, this has become even more relevant where the onus is on developers to identify growth market opportunities” he concluded.
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