Equiti Blog

A new housing boom

NEW YORK (CNNMoney)

 

The long-battered housing market is finally starting to get back on its feet. But some experts believe it could soon become another housing boom.

Signs of recovery have been evident in the recent pick ups in home prices, home sales and construction. Foreclosures are also down and the Federal Reserve has acted to push mortgage rates near record lows.

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Latest SMSF Statistics from the ATO

The latest ATO SMSF statistics make for interesting reading.

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Equiti News

On behalf of everyone at Equiti Private Wealth, I would like to wish you a Merry Christmas and a very Happy New Year as we say goodbye to 2012 and get ready to welcome in 2013 in our New Parramatta Office!

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We Have Moved!

We are excited to announce that our Parramatta team has moved into larger new offices in the heart of Parramatta’s financial district.

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Multifamily Fundamentals Do Not Face a Cliff

Credit to Victor Calanog, NREI Contributing Columnist

Apartment fundamentals have bounced back robustly since the recession ended in June 2009. Despite middling economic growth, the national vacancy rate dropped sharply from a peak of 8.0 percent at the end of 2009 to 4.6 percent in the third quarter of 2012. Vacancy rates that are this low have not been observed since late 2001.

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How Exchange Rates Affect Us

The Aussie Dollars UP. The Aussie Dollars DOWN. This brief article explains the effects that rising and falling exchange rates have on everyday Australians and gives an example to make it easier to understand and refers to more current rates.

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Consumers give US economy a lift

A flurry of reports show US consumers are growing more confident and spending more, boosting a still-weak economy just five days before the presidential election.

Consumer confidence surged in October to its highest level in nearly five years. Americans were encouraged by recent declines in the unemployment rate. And they responded by spending more on cars and trucks, at retail businesses and on goods produced at US factories.

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Your chance to participate in a property development syndicate

A forecast 24% p.a.* return may seem an overly ambitious aim for a property development syndicate in today’s economic climate of declining interest rates and uncertain global stock markets. But when you consider that the best returns in property are not normally found in buying completed apartments but are more often found in the development of the property itself, it begins to make a lot more sense.

Property Funds Continue to Evolve

In an environment where yields on investment grade properties are relatively low, it has been difficult for investment managers to acquire properties that generate the returns demanded by investors. As a result of this low yield environment, appropriately structured and professionally managed property development funds are emerging as a popular choice for the astute investor.

A property developer adds value to property by acquiring, planning, constructing and selling real estate for profit. It’s a business transaction that is based upon a combination of opportunity, experience, management and mathematics and will generally produce greater returns to investors in comparison to buying completed investment property.

An investment in a property fund that undertakes development activity also gives the investor an opportunity to diversify their exposure to property and to potentially achieve higher returns than may be achieved from an equivalent investment in a fund holding core property assets. The potentially higher returns available to investors are generally due to the fact that property development has a higher level of risk relative to other investments, and these risks may have an adverse impact on financial performance and therefore returns to investors. These risks are set out in the replacement prospectus, which you should carefully read before making a decision to invest.

Share in the ownership. Share in the profits.

Equiti Beveridge Syndicate Limited (the Company) provides investors with an opportunity to participate in the acquisition and development of a residential land subdivision project that is scheduled to be completed over a 14 month period and aims to offer investors a 24% p.a. pre-tax distribution yield (annualised and grossed up for franking credits).

Unlike some property development funds, investors in a true syndicated development fund with an appropriate level of gearing and operated by an experienced investment and development management team, can take some comfort in knowing that the vehicle in which they have invested is the entity that actually owns the land and the development project. This structure provides a greater level of security for shareholders and avoids the potentially higher risk strategy of second mortgage and/or mezzanine financing arrangements.

A Medium Density Land Subdivision Within a Master Planned Community

The Company has secured a 3 acre medium density land subdivision site in the northern Melbourne suburb of Beveridge and has in-principle development approval that, once granted, will allow for the subdivision, development and sale of 49 residential housing allotments.

Located within the Mandalay at Beveridge Estate, a master planned residential and community estate located just 10 minutes from Craigieburn, around 40% of the Mandalay Estate is dedicated to open spaces and the estate features an 18-hole golf course designed by golfing legend Peter Thompson.

The property is located within close proximity to the future golf club house and residents’ club and is within a short walk from what will be the future retail centre comprising approximately 5,000 square metres of retail space, a community facility, childcare centre, a school and a soccer field with associated open space.

The People Behind The Investment

 The Company has appointed an investment management team with a strong and proven track record in the management, development and marketing of property investments:

The Issuer is Equiti Capital Limited: an Australian public company, responsible entity and holder of AFS Licence No. 391452.

The Investment Manager is Equiti Funds Management Pty Ltd: a part of the Equiti Group of Companies and its role is to oversee the management of the Company on a day-to-day basis and has highly experienced and qualified staff focused on ensuring our values of integrity, transparency and diligence.

The Development Manager is Goldfields Living Pty Ltd: with considerable experience and track record in sourcing, acquiring, managing and ensuring the performance of residential property development projects and currently controls around 1,500 conventional and medium density lots at various stages of development.

Your Next Step

This investment is for the purchase of shares in Equiti Beveridge Syndicate Limited and is for 1,500,000 shares at $1.00 a share. The shares will be offered pursuant to the replacement prospectus dated 7 August 2012 and you should consider the replacement prospectus in deciding whether to acquire the shares. To invest, you (or your SMSF) will need to apply for a minimum of 10,000 shares at $1.00 each by completing the application form accompanying the replacement prospectus. Applications close at 5.00pm on 31 October 2012, or earlier if fully subscribed before the closing date.

To discover how you could share in the returns of a property development project, you can obtain further information and download a copy of the prospectus from www.equiticapital.com.au or by calling 1300 246 600 today.

 * The forecast return to investors of 24% is annualised and grossed up for franking credits and has been calculated based on assumptions made by the directors of Equiti Beveridge Syndicate Limited (Company). Please read the prospectus as it contains the assumptions on which the forecast return is based. You should be aware this forecast return is predictive in character, may be affected by inaccuracies in the assumptions or by known or unknown risks and uncertainties, and may differ from results ultimately achieved.

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Apartment Demand Undeterred

The Apartment Outlook by Marcus & Millichap

The disappointing and markedly slower pace of employment gains had little impact on the steady demand for apartments in the second quarter.

Rental housing remains essential for a growing population, even in periods of uncertainty and economic malaise.

Conditions remain favorably aligned for sustainable, strong apartment performance. Robust demographic trends, including higher levels of immigration, the surge in echo boomers forming their own households, a further shift away from homeownership, and the growing diversity in household composition support continued demand for rental housing. In addition, economic trends maintain a favorable bias toward renting as the sluggish pace of growth slows even further and payroll expansion cools. Other factors influencing the market include the often high level of college debt diminishing the purchasing power of young people as well as the significant decrease in the net wealth of baby boomers, which has limited their ability to help with down payments.

As the national vacancy rate dipped to a decade low, rent growth and inflation continued to outpace income growth.

Second-quarter net absorption totaled more than 30,000 units. The second-quarter apartment vacancy rate measured 4.7 percent, representing a 20-basis point decline from last quarter and 120-basis point plunge from one year earlier. Effective rents grew 3.5 percent nationally measured on a year-over-year basis, with coastal and supply constrained markets continuing to garner double-digit increases. Effective rents across most markets now meet or exceed their prior peaks. The trough of rent declines occurred in the fourth quarter of 2009. Since then, the U.S. has posted cumulative effective rent growth of 6.9 percent to the current $1,002 monthly rent, or 2.7 percent annually. In fact, half of the major U.S. metro markets increased rents by 3.0 percent or more. In comparison, the compounded annual growth rate for hourly wages over the past year has been 1.9 percent, eroded by a 2.3 percent inflation rate, thereby causing a decline in discretionary income. In many markets, annualized rent increases have been much more robust than the national average and renters have displayed increased sensitivity to strong rent hikes. In addition, employment gains historically exhibit a stronger correlation to rent growth than to net absorption, so a weaker pace of job growth implies temporary near-term moderation in the magnitude of rent increases.

The low cost of funds and ample liquidity for apartment development has ignited a new construction cycle.

Last year’s record-low completions totaled less than 40,000 units. The forecast for supply in 2012 calls for 85,000 units, of which less than 15 percent was delivered in the first quarter. Whether the other 85-plus percent will deliver as scheduled remains a question as construction loans and the potential for development delays can shift timing unpredictably. Apartment REITs will lead the development charge. Avalon Bay (AVB) focuses on coastal, high-barrier-to-entry markets and reportedly has a $1.6 billion development pipeline, while Camden Properties has $550 million of product underway in high-growth, affordable markets such as Dallas/Fort Worth and Atlanta. Dallas, Houston, Austin, New York, Washington, D.C., Seattle and San Jose will receive the majority of new supply in 2012, but only San Jose, New York and Washington, D.C., really stand out in terms of risk with new supply to inventory ratios running well above their long-term averages. These three markets, however, have expensive housing costs that create a large base of renter households and the lowest vacancy rates in the country at 2.7, 1.8 and 3.9 percent, respectively. Therefore, they tend to assimilate new product relatively quickly in a rising economy.

Ready capital availability, favorable demographic forces, and a lower investment risk profile continue to attract investors to apartments.

Second-quarter apartment sales volume totaled $24.9 billion, representing a 38.6 percent year-over-year increase. Although the number of transactions in the $40 million-plus market segment declined modestly, the dollar volume for $40 million-plus transactions surged nearly 79 percent on a year-over-year basis, boosted by a surge in portfolio sales. The average price per unit rose 6.6 percent to $101,000, nudging cap rates down 30 basis points to 6.2 percent. Portfolio sales of garden apartments drove an 8.2 percent rise in the price per unit to $78,000, still 12.0 percent lower than the 2007 peak. A significant increase in distressed sales reflects investor confidence in improving market fundamentals for Class B and C properties and secondary markets. To date this year, Class C properties have made the biggest strides in occupancy, up 100 basis points in the first half of the year. Stronger sales will ease value and financing challenges and create a broader spectrum of opportunities and investment strategies.

Forecast:

  • Interest rates are forecast to remain low until the economy proves it is in a self-sustaining recovery and less reliant on aggressive monetary policy support. Low long-term interest rates support home mortgages and suggests home sales will continue to strengthen. While this does pose some risk to apartment demand, with home sales having already trended back to the long-term average, most apartment owners and managers report that the incidence of residents leaving to purchase homes remains well below their historical norm. It is likely that prospective homeowners do not feel significant pressure to lock in current interest rates as most perceive the opportunity will remain open for some time to come. Assuming the economy strengthens and employment forecasts come to fruition, housing demand will be adequate to support both the multifamily and single-family sectors.
  • The U.S. apartment market shows no signs of weakening, as demand for apartments transcends age cohorts and income groups. The U.S. is expected to add 2.4 million residents in the prime renter age cohort of 20 to 34 year olds over the next five years at annual growth rates not attained since the early 1980s. The momentum of increasing numbers of echo boomers entering the work force and forming their own rental households, and rising immigration levels will continue to significantly surpass new construction of rental units.
  • Forecast completions of 85,000 units will total about half of what is necessary to accommodate expected demand, pushing the national vacancy rate down another 30 basis points to 4.4 percent by year end, the lowest rate in 11 years. Tight supply conditions will narrow the gap between monthly asking and effective rents, with annualized effective rent growth expected to approach 5.0 percent and set a new peak at $1,027.
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Apartment demand up across the DFW area report says

Demand for apartments in Dallas-Fort Worth was strong in the second quarter because job growth was strong, the latest MPF Research report says.

Between April and June, renters leased 8,031 apartments, which was more than five times the number of units that were completed in the quarter, or 1,563 units, said Greg Willett, MPF Research vice president.

“Substantial job growth in North Texas is keeping apartment demand robust at the same time single-family home sales are rebounding from their recently low levels,” Willett said. “These are the kind of housing demand numbers we were hoping for and expecting to see. While loss of renters to purchase is beginning to move upward, plenty of replacement renters are coming through the front door at most apartment properties.”

Apartment occupancy in North Texas is now at 94.1 percent, up 1 percent from the first quarter, MPF Research said. A year ago, occupancy was 92.7 percent.

Willett said most of the vacancies are now in the oldest, least-desirable properties, some of which date to the 1970s and earlier.

As a result of the demand, rent has also risen. Rents on new leases rose 1 percent in the second quarter, and 4.3 percent from this time a year ago, MPF Research said.

Some areas, including Grapevine and north Fort Worth, rents have risen as much as 6 percent from a year ago. Rents are up as much as 8 percent in the popular Dallas urban core neighborhoods of Uptown and Oak Lawn, the report said.

Developers have 14,832 units under construction right now in North Texas, which will come on the market about 3,000 at a time for the next five quarters, which is well spaced out, Willett said.

“It makes it easier for the market to handle,” he said. “In Dallas-Fort Worth we’re experiencing the job growth needed to support a sizable increase in apartment completions. That’s not true in all locations where building activity is picking up across the nation.”

_ Sandra Baker, Tarrant Business

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