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Palladium Insights - Winter 2013 Edition
 
Dear Subscriber,

We trust that our Winter 2013 Palladium Insights will be of interest and informative as we review in brief three key topics pertinent to property investment, development and strategic asset management focusing on the east coast of Australia.

We welcome any queries for further information and would be pleased to assist with any particular or project queries you may have.
 
1. Recycling of Property in the Current Climate   2. Significant Investor Visas – A new source of funding for developers
The opportunity to recycle “grey-field” properties and sites in the current climate, whether a new build or adaptive reuse, depends on a number of key factors. These drivers are demographics, planning, infrastructure and economics and have a tangible influence on profitable development projects... Read more...   From 24 November 2012 the NSW Government opened applications for the new 188 and 888 – Significant Investor Visas. This new visa paves the way for affluent non-Australian residents who hope to immigrate into the country on a temporary basis with prospects of permanent residency after four years... Read more...
3. Cloud computing and its effect of property use    
Cloud Computing is not a new phenomenon but has recently evolved and gained some traction in the past few years. The narrowest definition of the term is “virtual servers available over the internet” and encompasses any free, subscription-based or pay-per-use service that extends IT’s existing capabilities... Read more...    
 
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Recycling of Property in the Current Climate
The opportunity to recycle “grey-field” properties and sites in the current climate, whether a new build or adaptive reuse, depends on a number of key factors. These drivers are demographics, planning, infrastructure and economics and have a tangible influence on profitable development projects.

Sydney’s demographics are constantly evolving with a new set of lifestyles, tastes and preferences. Current tastes and preferences skew consumer and investor decisions to move toward more environmentally sustainable outcomes.
This has benefits, not only to the developer (e.g. marketability, higher net rents and sales, alignment with council objectives etc.), but to the greater community as well (e.g. waste minimisation and energy efficiency).

Planning controls (i.e. zoning, FSRs, height restrictions etc.) generally set parameters on development scope and potential with additional constraints placed on heritage items. Despite Sydney’s short history, there are countless buildings, structures and entire neighbourhoods holding heritage status at national, state and local level. The opportunity is to derive a highest and best use whilst maintaining the “heritage character” of the site. Consider Newtown’s old grain silos which in 2005, after years of dilapidation and neglect, were converted into apartments, making the asset an innovative and attractive part of the neighbourhood landscape.

Infrastructure defines the relationship between the development and its surroundings. This may have significant influence over accessibility and may delay the approval and construction process. The delivery of new infrastructure surrounding the development is especially important to the intrinsic value of the site. For example, a recent study by Ge, Macdonald and Ghosh (2012) found that the value of properties within a 1.5km radius of the Macquarie Park train station site was significantly increased by the new infrastructure. Surprisingly, this study also found that there was a levelling and slight fall in property prices during physical construction of the rail link. If these findings hold true for the new North West Rail Link, significant opportunities are bound to present themselves in the area.

Economics delves deeper than just considering the cost of a development and comprises of making smart decision given economic circumstances, not just at a national/macro level but at a suburban/micro level as well. Consider the gentrification of Inner Sydney’s derelict industrial districts of the 80s as a result of economic restructuring. Savvy developers freed up obsolete industrial space and recycled old warehouses and factories into trendy offices, bars, retail and residential developments. Inner Sydney is now considered a major cultural, residential and retail centre.

Palladium Property provides preliminary development assessment and development management of feasible projects. Our expertise will guide property owners in ensuring that development projects are strategically planned and rigorously managed to ensure development success.

For further information, contact Phillip Hoare on 02 9432 7866
 
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Significant Investor Visas – A new source of funding for developers
From 24 November 2012 the NSW Government opened applications for the new 188 and 888 – Significant Investor Visas. This new visa paves the way for affluent non-Australian residents who hope to immigrate into the country on a temporary basis with prospects of permanent residency after four years. This creates an additional sweetener for foreign investors not only looking to make a solid investment in Australia but to potentially live here as well.

"Significant investors bring with them their skills in business, their links to international markets and additional capital for investment in other projects in Australia that interest them," stated Mr O'Connor, Minister for Immigration and Citizenship.

These significant investors would only need to spend 160 days out of four years in Australia, have no age or language requirements and are instead required to invest no less than AU$5 million in Australia for the opportunity to set up residence.

Each state has different requirements for the visa to be granted (with some requiring investment into state government bonds, and others not) the common requirement is that these would-be residents also have the option to invest in managed funds, or directly in Australian proprietary companies. Interestingly, this does not include business whose primary income is through the provision of rental property or passive property investments. As such, those investors hoping to get into property can only do so through managed funds, AREITs or direct investment into property development projects. With many Chinese investors in particular achieving their wealth through development projects in their homeland, the latter option may be a comfortable choice.

While there has been a great deal of anticipation of the wave of affluent foreigners flocking to Australia, the first 188 Visa was only granted six months later in May to a Chinese toy manufacturer and his young family. This was the first of over 170 applications at the time. However, the flood gates are yet to open and little developments have been made since May. Few explanations have been offered, but with foreign (particularly Chinese) investors being educated in the intricacies of Australian Property Trusts (of which there is no Chinese equivalent), and the Australian dollar depreciating over the past month, investment into Australian property projects by these high net worth individuals are becoming increasingly attractive.

It is anticipated that these foreign nationals supported by credible, local advisors and development managers will channel funds into boutique mixed use and other developments within Australia’s capital cities.

For further information, contact Phillip Hoare on 02 9432 7866
 
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Cloud computing and its effect of property use
Cloud Computing is not a new phenomenon but has recently evolved and gained some traction in the past few years. The narrowest definition of the term is “virtual servers available over the internet” and encompasses any free, subscription-based or pay-per-use service that extends IT’s existing capabilities. For example, GoogleDocs and Dropbox constitute as Cloud systems.

Cloud service providers are outsourced to provide and maintain the IT infrastructure of a business, from sole traders to multi-nationals, and have significant impacts to the property industry, especially in the office sector.

Firstly, cloud service providers eliminate the need for a server room within the office premises. Tenants will no longer require space to store stacks of hard drives that run a company’s IT infrastructure. This has pros and cons to owners/developers. The advantage here lies in not having to provide the space in the design phase, leaving the opportunity to use additional space for the office for utility functions such a kitchenette or showers. The disadvantage is in the demand for a smaller space, affecting absorption rates.

Second, reduced need for in-house IT staff and contractors saves business owners from paying additional salaries (with IT staff comprising of approximate 2% of the typical office environment). Property owners must find a means to add value to the space they already own and developers must consider appropriate floor plates to accommodate this structural change.

Thirdly, energy consumption to power and cool in-house servers is significantly lowered. This reduces the running cost to businesses. Note that this creates an opportunity to provide higher grade office space to capture part of these cost savings.

Finally, cloud service providers need to store their servers in appropriate locations. Specifically, providers would look to high-tech industrial space that accommodates and provides ideal environmental conditions (particularly to assist with cooling and power supply) as well as facilities to accommodate ample optical fibre cabling. There is potential to increase the value of select industrial properties.

For all its advantages to businesses and the property industry, cloud computing is yet to match the classic local area network (LAN) server speeds. Consumers may be accustomed to waiting on a slow internet connection but they are not accustomed to waiting a long period of time to open an application stored in the cloud.

Cloud computing has some time yet before reaching maturity, but as it does, property investors and developers should plan for the technology’s evolution which will have an impact on existing and new property values.

For further information, contact Phillip Hoare on 02 9432 7866

 
Palladium Property - www.palladium.net.au
Palladium Property is a property advisory and development consultancy firm with a strategic asset management and development management capability.

We identify optimum solutions and deliver tangible benefits for our clients through analysed research, independent advice, diligent and rigorous management; ensuring the maximum return on our Client’s time, investment funds and property development projects.

Our client base comprises high net worth individuals, private investment trusts, global banking institutions and the NSW Government.

Palladium Property is a founding Member of the Gravitus Group.
 
Contact
For further information regarding current trends and opportunities, contact
Phillip Hoare (Director) on 02 9432 7888


Disclaimer
The information contained in this newsletter is understood to be accurate and is based on sources deemed reliable. Any comment and analysis is of a general nature only and should not be interpreted to provide any form of guarantee or project financial returns as regards the potential of any property asset class, geographical region or particular project. Investors should rely on their own investigations and due diligence prior to making any acquisition, divestment or development decisions.