Greville Pabst from WBP Group has noticed an increase in the number of properties being knocked over for reconstruction. We ask him why the increase, what to be aware of before starting and how, if you are doing it, to add value.
Listen to the interview now:
Kevin: Apparently, according to Greville Pabst, who is the Executive Chairman of the WBP Group, there has been an increase in the number of properties that are being knocked over for reconstruction. Interesting. This could be an interesting development.
Greville, welcome to the show. Thanks for your time.
Greville: Thanks, Kevin.
Kevin: Greville, how big as the increase been?
Greville: Around Australia, the increase in knockdowns is up to 37%, so it is quite significant. I think it’s driven by quite a number of factors. Firstly, I think it’s more affordable to do that now because of the low interest rates that we have. But the other point, too, is because house prices around Australia have become quite expensive, it’s now prohibitive to go and sell and buy because of the high transfer costs and stamp duty.
Kevin: Greville, define a knockdown for me. And who’s doing it? Are these current owners or are these people who are buying them to knock them over to redevelop them?
Greville: Look, it’s a combination. It’s a combination of existing owners who have older properties in the inner-city areas of the capital cities where the land is highly valuable. So, they’re doing that and building something new, or they’re doing a dual occupancy.
Or the other thing is developers are moving in because what the state governments are trying to do is increase the level of density within the inner-city areas, the in-fill. So, the zoning changes have now allowed two houses side by side.
I was dealing with a developer the other day and he was getting 30 apartments on two suburban house blocks. The councils and state governments are encouraging this density, and so a lot of people are actually, in those middle ring suburbs, cashing in to developers.
Kevin: It makes a lot of sense, doesn’t it? Particularly in some of the capital city areas, empty-nesters, they probably have a really nice home on a big block of land. It makes a lot of sense to pull it down and rebuild something that’s going to fit their existing lifestyle because their situation has changed, and then they get the bonus of having some additional property that they can sell off or even hold and lease.
Greville: And I’m seeing that even in Sydney, in areas like Coogee where land is quite expensive. They’re typically only 400-square-meter blocks, but people put in granny flats in the back and things like that.
This whole density is driving it, and the fact that land is so expensive, if you can carve it up and create two or three or four lots, there’s actually good money in doing that.
Kevin: Someone contemplating doing this is listening to this now and saying “That’s not a bad idea. I’ve been thinking about doing it,” what should they be aware of before they start, Greville? What are you seeing?
Greville: There are a number of factors. One is the size of the land. I think the frontage is really important. If you have, say, a 55-meter frontage, particularly in Melbourne, it can allow you to do a side-by-side development. Corner sites are particularly valuable because you can get two street frontages, or if you have a dual street frontage, so if you have another street at the back, you can go a back-to-back development. That’s really important.
Kevin: Greville, is heritage a consideration for people wanting to do this?
Greville: Heritage is very important. It’s something that people need to investigate beforehand, because, of course, there are some properties that are covered by heritage overlays and height controls and so forth, so they simply can’t demolish it completely; they may have to retain the façade.
The same with vegetation. There are now, of course, lots of planning controls around vegetation. They couldn’t simply cut down a tree these days. You need to get that permission to do so.
Kevin: You could go to the council to find that out or even go to a town planner, I would imagine. They would give you all that information.
Greville: Yes, that’s correct. You really need to investigate the local council regulations and engage a town planner.
Kevin: You’ve no doubt been involved in a number of these over the years. What advice have you got for someone to help them add more value to what they’re going to be doing?
Greville: It’s the selection of the property. The selection is critical because that really can dictate what you’re allowed to do. The orientation of the site is particularly important as well. Does it have a north-facing backyard? Is it a corner block? What is the size? What is the frontage? All of these factors affect that.
And zoning is particularly important because, of course, that will dictate the height that you can go and the density and the number of unit that you can put onto the site.
Kevin: I would imagine someone who has the property themselves, they might live in it right now, they should probably also research the marketplace to see, if they’re going to redevelop it, what type of property is probably going to be in tune with the current market.
Greville: Yes, that’s correct. When you’re building and looking to sell something, you really need to build for that demographic. So, you need to look at who is in that area? Are they young professionals? Are they older people? That’s going to dictate what you’re going to be able to get you a good price when you do sell it.
Kevin: Greville, have you been to any auctions lately? Because we saw you on The Block, performing well there. You’ve been still buying plenty?
Greville: The market has gotten easier for us, funnily enough. When the clearance rates are sort of in the range that they are now – between 65% and 75% – it makes it easier for us to buy. It was quite difficult there for a while when clearance rates are nudging 80%. As professional buyers, we were getting outbid. So yes, it’s a much better market now for buyers.
Kevin: Isn’t that interesting? We do a segment every week with Andrew Wilson. We talk about clearance rates, and we bemoan the fact that it’s a 60% clearance rate. We say “Oh wow, what’s happening to the market?” But from your perspective, that’s probably a good thing.
Even 60% or 70% is still a good clearance rate. I think we got spoiled with 90% and 90%.
Greville: 65% to 70% is a very good market. It ensures that there’s balance and you’re still going to get capital growth of 5% to 8%. You’re not going to have four or five bidders at auction, which is going to drive your prices to absolute silly figures. You’re going to have maybe two bidders at auction.
Kevin: You can handle that, yes.
Greville: You can handle that. And certainly, we don’t want competition when we go to auction to buy, so it’s a good market for us and our clients.
Kevin: Spoken like a good buyer’s agent. Good on you. Greville Pabst there, Executive Chairman of WBP Group. You can certainly have him on your side. Good on you, Greville. Talk soon, mate.
Greville: Thanks, Kevin. Cheers, mate. Bye.
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Originally published as: https://realestatetalk.com.au/knockdowns-increase-greville-pabst/
Kevin Tuner worked in radio as General Manager of various east coast radio stations. He started in real estate in 1988 and was ranked in the Top 10 Salespeople in the state until he was appointed as State CEO 1992.
He operated a number of real estate offices as business owner and was General Manager of several real estate offices in Christchurch.
He now hosts a real estate show on Radio 4BC and a weekly podcast at www.realestatetalk.com.au. He is the host of a daily 7 to 10 minute podcast show for real estate professionals at www.reuncut.com.au.
To hear more podcasts by Kevin Turner, click here
Disclaimer: while due care is taken, the viewpoints expressed by interviewees and/or contributors do not necessarily reflect the opinions of Your Investment Property.