Forty-odd Old Melbourne Grammar alumni came together at Kay & Burton’s Armadale office in March to discuss ‘where the property market is heading’. With the recent Hayne Royal commission having concluded into the banking world, ramifications are being felt throughout the property industry. Organised by Nick Devidas, managing director of an IT company and also an OM (an old Melburnian), the purpose was to re-connect, as well as learn from fellow graduates. “I wanted to create a forum for fellow students, with an emphasis on ‘growth and connection,” says Devidas, who put together a panel of speakers including James Gooley, director of Visioneer Builders, architect Rob Kennon, developer and finance expert Simon McDonald, and Michael Armstrong, a partner at Kay & Burton.

One attendee Will, who graduated from Melbourne Grammar in 1990, is now focusing on finding a family home after years of investing in the commercial property market. “I’ve done my own research. I know where I want to buy, but I’d like to know where the market is going,” says Will, who is looking in East Malvern, where he grew up. “I spent almost my entire life trying to get out of that suburb and, ironically, I am now drawn back. You see it differently as a parent, with the parks, the bicycle tracks and the schools,” he says.

Insurance brokers, architects, developers and builders, together with a smattering of lawyers, were keen to find some insider information rather than simply rely on the daily ‘gloom and doom’ headlines featured in newspapers or on current affairs programs. It was made clear from the outset that bank funding to purchase properties has become more difficult and the hurdles to gain a loan approval getting higher. “If you are self-employed, it’s now considerably more difficult to obtain a loan compared to 15 months ago,” said panelist Simon McDonald. “But the good news is that the RBA is starting to loosen the taps,” he adds.

The process of overseeing loans by banks has also tightened considerably. And while contractors are accustomed to being paid monthly, they now often need to have work inspected by banks at every stage in order for them to release funds. “Sometimes even quantity surveyors are brought in before bank funds are released,” says Kennon. Others, including Gooley, mentioned that a number of private investors are moving into the property market to assist with projects going forward. “You could say the lending process has certainly slowed down, which obviously affects our industry,” adds Gooley. Developers who once needed to raise 30 per cent of the project cost to fund a development are now required to cover considerably more.

Michael Armstrong sees the immediate ramification buyers and sellers have to changes to government policy, including the disincentives for investors and overseas buyers, but reminded us the reaction is also swift when the cycle turns. “Changes in APRA (Australian Prudential Regulation Authority) have certainly put a halt to what was once an extremely buoyant market,” says Armstrong who with others on the panel, pointed to the role of buyer confidence in the market place. And while Armstrong has seen the property market come ‘off the boil’ in the last 15 months, the smaller turnover of properties has helped stabilise prices. “People aren’t moving house as often and there are some houses that now take a little longer to sell, but we generally find a buyer for most of our properties; the signals are definitely better right now than they were late last year” he adds.

Kennon, whose work centres on some of Melbourne’s more salubrious suburbs, sees some of the problems a head coming from suburbs where there’s an over capitalisation in the cost of renovations. “People living in some of the northern suburbs in large houses on large blocks will find they won’t get their investment back in the short to medium term.” However, irrespective of where one looks for a property in Melbourne, Kennon emphasises the importance of buying well and the value of a site or house with the right orientation and street position. Good properties that are well designed will always be appealing; lemons will always be lemons!” Others on the panel also clarified some of the news headlines, such as ‘Toorak properties fall 20 per cent!’ “But if you look more carefully, these properties are C-grade and are difficult to sell even in a good market,” says Gooley.

Selling off the plan also came up for discussion at the event. Now, particularly with top-end properties, prospective buyers prefer to walk through a space and see a finished product. And although people may think that costs of building will be reduced with this latest downturn, it was made crystal clear that building costs, both labour and materials, will continue to head north. “The difference is that now we’re fielding more calls from contractors looking for work. But the costs remain high,” says Gooley. “Now everything is more scrutinised, just like the banks, with every cost being accounted for,” he adds.

Michael, a lawyer, currently looking to buy his first home after years of renting, has already seen the effect of the downturn. “I’m really here just to learn from the experts about Melbourne’s future, as much as catching up with old school mates. It has been a terrific venue and event.”

Kay & Burton Partner Michael Armstrong was host and panellist at the Old Melburnians Business Leaders event

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