How I'd invest $1 million
Scott Keck, founder of strategic property consultancy firm Charter Keck Cramer, was one of the few in the property sector that predicted the demise of some property trusts. Now he tells SmartCompany his outlook for property, his business strategy, why Melbourne is the nation's hotspot and what property he would buy if a fairy godmother handed him $1 million tomorrow.
Amanda: Scott, last year in the doom and gloom you were very positive. You had revenue of around $26 million. How's the year gone for you?
Well, we've had revenues this year of $30 million, so we've had a better financial year this year than we did last year, and we truly expect to have even a marginally better year next year. So although we're not recession-proof, we're reasonably recession resilient. The reason for this is that our firm's operations involve quite a bit of public sector work and our views about property are very much in demand in these turbulent times.
Now you went through the 1990s, what's different this time around? Back then there was quite a lot of controversy around property valuations and pressure on consultants to value things certain ways. What's it like this time around?
Well, in fact it's very, very similar. The same stresses, the same anxieties, the same pressures are there. They're all debt related. The difficulty was that in the 1990s they were debt related because interest rates were too high. Now, they're still debt related not because interest rates are too high but because there's no debt availability.
So what does that mean in terms of pressure?
Well, very viable projects of which there is a true market demand and for which there is a viable strategy, are not being able to be implemented because the debt that the private sector normally relies upon to carry these projects is not available. Previously, it was not available because the cost was too high in the 90s. Now it's not available because the banks have a liquidity problem.
So are we going to see more companies go broke in that sector?
Things are not as bad as the anecdotal commentary would make out. There's a lot of positive, viable, development occurring, particularly in the residential sector. There's also a lot of private investor support for commercial property that is well leased and although there is a lot of talk about prices having softened or values having softened, the only values that have softened have been for properties that have weak credentials.
Properties that are well leased and are good properties, the price decline has been very little.
There's still very good demand at very strong prices for good property. The property that has suffered most in this current cycle is non-residential property, that is to say retail or commercial property which is secondary by location, secondary by building quality and most importantly secondary by weak lease structure. If there's no secure income stream, if there isn't reliability of leasee commitment, those are the properties that have been suffering.
So where are the hotspots then, where are we looking?
If you make a priority list of hotspot real estate opportunities at the moment, Melbourne is the hotspot. And I'm not just saying that because I'm in Melbourne. That's the truth of the matter.
Why are you saying that?
Well, we don't have the paper thin economy of Queensland, we don't have the higher value, now de-escalation values, that Sydney's going through. We've got a far broader based economy than Adelaide, Perth or Tasmania, and we also have (and this is probably the real reason) the fastest growing population and the greatest demand for new housing.
And where is that concentrated, inner city?
It's always been the case but there's a very strong housing demand in Melbourne, increasingly more of it is medium density and apartment orientated and it's probably 55% in the outer suburbs and 45% in the inner suburbs. So of all the new housing demand, and it's very strong, 45% of it is basically towards the apartment or townhouse market and 55% of it is towards the traditional subdivided block and traditional house market - the house and land package.
And how's that changed from five years ago?
Five years ago the 55% outer suburban fringe (house and land package) and 45% inner urban mix would have been 60% outer fringe and 40% inner urban. And so it's come off 5% for the outer urban and gone up 5% for the inner urban.
Looking forward what's it going to be in five year's time?
Over the next 10 years there will be big number changes and move to 50/50. That doesn't sound like a big change but it is. So the 55% outer suburban demand, 45% inner urban demand, over the next 10 years will probably change to 50/50, that is to say less outer urban demand and more inner urban demand.
So if someone gave you $1 million Scott, what would you buy and where?
I'd buy two townhouses for $500,000 each in the inner suburbs and the reason for that is if you can't afford a house, and most people can't now and you have to opt of some other form of housing, would you rather have a townhouse or flat? And I ask you Amanda Gome what would you rather have, you'd rather have a townhouse. Okay, so the next best alternative to a house is a townhouse.
So houses having got too expensive, the demand will now shift to townhouses. And for the next four or five years in Melbourne, particularly in the inner suburbs both east and west, the lowest risk, most assured investment you could have would be to buy a townhouse, a residential townhouse.
And what does the townhouse look like?
It's two stories, it is two bedrooms with a study. It's about 125 to 130 square metres. It's been built in the last eight to 10 years and is probably one of up to 10 in the particular development.