Welcome to Episode Eight of the “The Constructive Finance Podcast”.
Today, Eric spoke with Peter Hobbs of Metro Property Development about his market views, opportunities and challenges he has faced and some advice/lessons learned thus far in his career.
The podcast will be released every fortnight on Tuesday and will feature an elite developer discussing these same topics.
The podcast will be available to stream from iTunes and via the HoldenCAPITAL website.
For more information about the podcast or getting involved please email paige@holdencapital.com.au
Read full transcript below:
Eric Trieu: Well, welcome. Thanks for joining us here today on the constructive finance podcast. Today I've got a very special guest to join us, a good long friend of mine, Peter Hobbs from Metro Property Development. Hey there, Pete. How are you?
Peter Hobbs: Hi, Eric. Good, thank you.
Eric Trieu: Thanks for making the time, I know you're a busy guy. Yeah, just, I guess, by a quick way of introduction, maybe you can give us and our listeners an overview of Metro and how it was created and how it's grown to focused areas in today.
Peter Hobbs: Sure, definitely. Look, Metro Property Development was created just over five and a half years ago by ex-Devine Limited directors David Devine and Ken Woodley after they were bought out by Latent Holdings. Luke Hartman, who was the national general manager for Devine, joined David and Ken shortly after and since then have become one of the fastest growing private development companies in Australia with over $4 billion of property in the pipeline and offices now in Brisbane, Sydney, Melbourne, and Adelaide.
Eric Trieu: Fantastic. My goodness. So, how long have you been in the role and prior to ... helped you become the guru that you are.
Peter Hobbs: I don't know about Guru, Eric, but I've been working now at Metro Property Development for over five years. I guess in terms of my property experience, a long period and experience that I've been able to enjoy had been with David and Ken and Luke historically for 11 years in a national executive role with Devine Limited. Post-that, I had a small stint with Springfield Land Corporation and also Meridian Marinas and Developments.
Eric Trieu: Fantastic. Well, you definitely have vast experience. So, just talking about the property I guess. I guess you, being Metro, are quite national. Maybe you can share to us about where you see the market ... [inaudible 00:02:14] market that is nationally at the moment.
Peter Hobbs: Yeah, look I totally believe that each state is very different in it's own and then within each state, there's certainly sub-markets. No matter where you are, there's always areas of over-supply, but for Metro, it's really focusing on that niche market and identifying where those strong growth areas are, whether it be home and land, land development, town house development, or boutique unit residential markets.
Eric Trieu: Fantastic. So, pretty much, in Brisbane particularly, we've seen a surge of projects through 2015 and 2016 where the banks applied brakes combined with a high volume of sales in 2015, which are now slow but not dropping off a cliff. There's a lot of talk about potential over supply of sites, in particular with DAs, but given the natural barriers to entry for developers have increased which we knew is a good thing for a number of developers taking on them projects limited.
The questions is, how do you decipher the relevant data to get to handle of what will actually come onto the market?
Peter Hobbs: I think you probably hit the nail on the head there. The biggest impediment to new projects getting off the ground at the moment is the access to bank funding, to be honest, whether it be from a construction funding perspective, a consumer funding perspective or a foreigner purchaser perspective Certainly that whole financial landscape has changed dramatically over the last six months. And really, at the end of the day, certainly in Brisbane, unless your project is fully funded and under construction, it'll be very unlikely to get out of the ground, certainly with the big Australia banks.
Eric Trieu: Yeah, indeed. I think you're quite right, Pete. So, how's the volume of sales changed, I guess, in the last 12 months particularly? [inaudible 00:04:11] the market.
Peter Hobbs: Well, certainly for the first six months of this year was still an extremely strong market, Brisbane particularly continued to have some strong growth. There's some economic drivers in Brisbane compared to the other states which still makes the investments very attractive, including affordability and rental yields. So, certainly from that perspective, Brisbane and South east Queensland are very appealing investment for many people. Certainly with the brakes being put on by the major construction funders. I think this is a good thing for the industry as a whole. It certainly allows the market to absorb the stop that's currently under construction and whilst they say, "Look, I believe a small drop in rental yields in the city of Brisbane will still be extremely appealing when you compare it to the likes of Sydney and Melbourne.
Eric Trieu: Fantastic. Thanks. So, basically, have you seen the rental, those apartment sediments in terms of maybe local buyers and third buyers.
Peter Hobbs: Well look, Metro's probably been the major developer who's been in the hot seat in terms of inner city settlements. We've settled, over the last five months, in access of 750 odd apartments.
Eric Trieu: Wow, fantastic.
Peter Hobbs: Which has been a fantastic result to date. Look, we're certainly not seeing any major red flags. Probably the biggest issue, whether you be a foreign purchaser, a domestic purchaser, or someone buying a self-managed cheaper fund, it's just the time it's taking to secure your finance. There's certainly many solutions out there, but it's just taking a lot longer and in some instances three to four times longer than historically it would have taken.
Eric Trieu: Wow, okay. The media's always portrayed a lot of massive defaults, maybe 40% drop offs and so forth. You haven't seen that?
Peter Hobbs: Certainly not a major influx of defaults at al. To be honest, 99% of purchases want to settle their investment. As I said earlier, there are some very good key drivers in Brisbane that make that investment sustainable over the medium to long term.
Eric Trieu: Fantastic. Yeah, well done. So, what do you think of this? Have you noticed if their product changed in the last 12 months? Where do you see that going?
Peter Hobbs: Look, I think the major change in product in certainly Brisbane would be, as we touched on earlier, probably a lot of the major developers now staring away from the larger inner-city residential developments. I guess the other type from the Australian banks for 30 story inner-city residential development has greatly reduced and as such we're seeing the major developers diversify into other areas. Smaller boutique unit developments in the middle ring, more and more home and land development, and more boutique town house development. I guess we at Metro are one who's embracing that change under our creation homes brand.
Eric Trieu: Beautiful, wow. There you go. I guess with the market changes, you got to adapt with it, so well done.
Peter Hobbs: Well, absolutely correct, Eric. I guess having the 35 years of industry experience that David Devine and Ken Woodley have. They've seen these cycles come and go and they're very [a-fei 00:07:48] with adapting their business model to suit the market.
Eric Trieu: Fantastic. [inaudible 00:07:54] experience. So, given South East Queensland's past growth has been closely noticed like a strong net migration or employment growth, the back of [inaudible 00:08:01] economic cycles. Can you see any signs that the federal or state governments are likely to play a role in stimulating these markets in the near future.
Peter Hobbs: Look, I think probably the major area that the market can be stimulated and is being stimulated in South East Queensland is increased infrastructure spending. This will certainly be a key driver of economic growth over the short to medium term. And I mean certainly in Brisbane we're seeing major developments such as the Queen's Wharf casino precinct, the Howard Smith Wharf Precinct, the expansion of the Brisbane Airport, and certainly, a bit longer term, the Herston Quarter Hospital Precinct. All of those major projects will drive expenditure, drive employment, and certainly have strong benefits to the local economy.
Eric Trieu: Indeed. Appreciate it. So, South East Queensland, I guess it comprises three very different sectors. With Brisbane, the self-sufficient commercial and [inaudible 00:09:05] tourism and discretionary investment spending and then the sunshine coast catering for [inaudible 00:09:11] tourism and starting to benefit from associating with structure spending as well. Where do you see each of these three markets sitting in the current property cycle? How do you see them evolving the next 12 to 24 months?
Peter Hobbs: Sure. I feel certainly in Brisbane, in the city market, what we'll be seeing over the next 12 to 24 months is really delivery stage of residential apartment market and probably the absorption of those projects that are delivered. In addition to that, I truly believe there'll be strong growth over the next 12 to 24 months in that mainstream housing market. There seems to be a greater demand with the owner, occupier, and first home buyers at the moment. So I think certainly we'll see that market in Brisbane increase over the next two years.
In terms of Gold Coast, obviously Gold Coast is undergoing some good growth after a pretty low period during post-UFC, but certainly with the lead up to the Commonwealth Games I think we can see continued growth in that housing market. There seems to be a lot of investment from major offshore developers on the Gold Coast. I would suggest Gold Coast is looking pretty good for the next couple of years and certainly the Sunshine Coast will be reasonably stable, I think, over the next 12 to 18 months. We seem to be seeing a large amount of infrastructure development going on in and around Kawana, which I think is very positive for that region.
Eric Trieu: It is. Fantastic. Obviously metro's also nationwide in other cities and states. How do you find down south?
Peter Hobbs: Look, our southern markets in Sydney and Melbourne are certainly going extremely well at the moment, albeit very different markets and we're delivering different product in each of those areas. Melbourne for instance, we've been targeting high end inner city executive home developments there which have average price points of one and a half to two million dollars and they have been going extremely well. In Sydney, certainly that traditional home and land market but in more affordable areas has been very strong from our perspective. Look, one market that often gets overlooked is Adelaide. We've got a very experienced operator over there with the Devine general manager Steve Wakeman, and that market continues to deliver very good profits for the group in that traditional home and land first home buyer market.
Eric Trieu: Fantastic. Thanks, Pete. So, across all the sectors, have you seen any trends emerging from overseas or other states that are likely to influence the way we plan our individual developments or broader town planning requirements that we should be starting to think about?
Peter Hobbs: Look, I think certainly there's more and more focus on green buildings and buildings that breath at the moment and Brisbane City Council seem to be very intent on delivering those sorts of designs. And these are designs that we've seen in Asia I guess for many years, I think, to Brisbane City Council seems to have a major focus on retirement and age care and only recent with seeing that AVO have announced a major inner-city retirement style development in Newstead, just one and a half kilometres to the Brisbane CBD, which 20 years ago would have been unheard of.
Eric Trieu: Definitely. There was a new technology change. So I guess with that new technology, how does it affect your day-to-day approach to new projects that you take on today?
Peter Hobbs: Look, I think certainly from a sales and marketing perspective, we're operating in a global economy and technology becomes more and more important. On any one weekend, we could be selling properties in down town Brisbane to people in China, Singapore, Malaysia, anywhere throughout the world. So having that 24 hours, 7 day a week access to technology and live systems is imperative in today's market place.
Eric Trieu: Fantastic. Talk about different system in marketing. Have you seen much of the virtual reality goggles and things like that when you think of technology?
Peter Hobbs: Yeah. Very much so. I think certainly over the last couple of years, the evolution of virtual reality, whether it be goggles or fly-throughs in specific apartments is all part of that marketing space these days. It assists people to buy off the plan and buy projects in other countries that they're not living in. So, certainly that's very important from Metro's perspective.
Eric Trieu: Fantastic. What do you forecast as the next big game-changer or tech disruptors? Is it to our sector? And how do you see property developers and sort of needing to be preparing to deal with them?
Peter Hobbs: Look, I think there's obviously a lot of challenges with first time buyers and raising the funds to save a deposit, so certainly crowd funding developments, I think, certainly in Sydney will see a market where they'll end up being more renters and less buyers due to affordability, but in saying that, those renters before they buy their principal place with residents, will buy an investment property sooner rather than later and I guess mom and dad will certainly have to inject or assist with savings and their deposit. I think too, as we've touched on, certainly the range of digital avenues that we have available to link the buyer and the seller. As we touched on, the virtual sales displays, the fly-throughs, and virtual reality are just getting more and more imperative in today's marketplace. I mean really the world is getting smaller. Travel is easier and international purchasing, I think, will continue to expand.
Eric Trieu: Fantastic. So, what would you say to a younger you about navigating through the game of property development?
Peter Hobbs: Probably don't stress as much. Certainly one of the famous sayings that Ken Woodley has is, "If you know what the problem is, we can find a solution." That's probably one of the major things I've learned in my career working David and Ken is, "We'd rather know what the issues are than what the good things are. Once we know what the issues are, we can find a solution."
Eric Trieu: Very good insight, yeah. Appreciate that. So Peter, a good question a lot of people are thinking about, the listeners, the rental market, how do you find sale, with apartments nowadays particularly, how do you find the rentals going?
Peter Hobbs: Certainly from our perspective, Eric, they're extremely strong. I know there's been all this doom and gloom in the media about vacancy rates and over-supply. Certainly, I think, what you'll see is the older product, the 20 year old walk up apartments that will suffer the most, but certainly from a new product perspective, those new towers that have all the fantastic resident facilities such as man-made beaches, swimming lagoons, spas, gymnasiums, rooftop gardens, billiards room. At the end of the day, they will continue to attract the residents, they will continue to supply good rental units and as I said, it'll probably be the older style apartments. We have a three stage development up at Fortitude Valley called Central Village. We have three towers there, 520 apartments, and as of today, we only have six apartments out of 520 apartments that are vacant, which is a fantastic result. Our average rental yields at the moment are sitting anywhere between 4.7% and 4.9% growth yields. Which, when you compare it Sydney and Melbourne, is unbelievable.
So certainly what we're seeing in the marketplace is still a very strong market from a rental perspective and I think a lot of that also comes down to the location of your development site. I mean we always make sure, and we have some key selection criteria, that all of our developments have to be near major employment nodes, public transport, near major education facilities. And all of our developments, as we touched on earlier, have all of these key resident facilities, making them very appealing to the renters.
Eric Trieu: Okay, fantastic. So you find those vacancy rates are quite low then.
Peter Hobbs: Certainly in our buildings, where we do have extensive resident facilities and they are, as I touched on close to all of those major attributes. The vacancy rates were extremely low.
Eric Trieu: Amazing, okay. Just another question now, Pete, I guess. If you were new to property game and you're looking at buying your first investment property, where would you choose and why?
Peter Hobbs: Look, certainly that's a very good question. To start with, look, I would certainly, if I had the money, buy a mix of product, I'd spread my risk. I'd certainly buy inner-city apartment, I'd buy a town house with some land component and then I'd certainly buy brand new home and land. And I guess collectively, that diversifies your portfolio, it really gives you a good balance with your rental yields, and really I think across the board, it should, no matter where you're at in the property cycle, deliver long term capital growth.
Eric Trieu: Fantastic. I think you hit the nail on the head there as we diversify with different product mix and then different cycles as well so you're not caught in the middle of a cycle.
Peter Hobbs: That's exactly right. You know, as we all know, whether it be inner-city, middle ring, or 20 to 30K out, all of those arrears have their time in the sun.
Eric Trieu: I mean Metro's across all the different cities in Australia. Would there be any particular city that you think you would buy more so than others?
Peter Hobbs: Look, each state is very cyclical, as we touched on earlier and certainly I guess once again very important to diversify not only the product type but the location. So I think having a mix of investments in different states is very smart.
Eric Trieu: So this is the most important question for you today, Peter, is what is the best bottle of wine you've had recently?
Peter Hobbs: As I said to you before this meeting, Eric, I think more of a beer and prawns man rather than a white wine and champagne. So certainly a nice cold beer, especially on a day like today.
Eric Trieu: Absolutely. Appreciate it. Thank you, Pete from Metro Property Development. And look forward to our future discussions.
Peter Hobbs: Great. Thanks, Eric.
Eric Trieu: Thank you.