Tax jump jolts investors
Many had raised serious concerns about the transparency of the Australian investment landscape and were considering alternative investment destinations.
A leading Australian property group has strongly criticised federal government tax changes, arguing they have stopped international investors from putting their money into Australian property.
The government in the budget doubled the withholding tax rate for international managed investment trusts (MIT), from 7.5 per cent to 15 per cent. The measure has since been approved in the Senate, with a concession for new energy efficient buildings.
Peter Frith, managing director of property and development adviser, Napier & Blakeley, said the action, with no consultation or warning, was a huge mistake and was apparently based on misguided thinking. Continue reading
Buyers Beware… Investigate or Reach for your Wallet
In the last year Napier & Blakeley have undertaken more than 100 physical due diligence and capital expenditure forecast exercises with a combined value in excess of $10billion.
It’s rare to find nothing that would be considered problematic for an incoming owner, but the last few years there have been a few issues that have become commonplace through either lack of ongoing investment and maintenance or as a result of new market legislation.
The GFC brought substantial financial constraints to the entire economy but for property owners it brought pressures through loan to value ratios (LVR’s), reductions in value and rental income. This created a catch 22 situation where many knew they had to keep maintaining and spending capital to keep their assets compliant, relevant and therefore rentable, but were unable to directly fund or borrow funds to do so.
We recently re-analysed an asset that we had prepared due diligence and capex forecasts for a few years ago, and the list of items that we identified in our initial report were almost completely the same as now. Nothing had been fixed, maintained or repositioned. So, many years down the track the asset has fallen deeper into redundancy and therefore costs more to rectify. Continue reading
New Disability Access Standards – Effective 1 May 2011
The purpose of the Premises Standards (and corresponding changes to the Building Code of Australia and State / Territory Building Law) is:
- To ensure that dignified, equitable, cost-effective and reasonably achievable access to buildings, and facilities and services within buildings, is provided for people with disability, and
- To give certainty to building certifiers, developers and managers that if standards are complied with they cannot be subject to a successful complaint under the DDA in relation to those matters covered by the Premises Standards.
1. General Application
The Premises Standards will apply to all new buildings and to extensions or additions to existing buildings.
In most circumstances it will also be necessary to provide an accessible path of travel from the principal public entrance to the new or modified part of an existing building.
R & M Diminished
Is your ‘too good to be true’ property deal rally sustainable?
According to Napier & Blakeley managing director Alastair Walker, lack of capital post GFC has lead to a significant neglect of repair and maintenance (R&M) and Capex spend. Having worked on property due diligence valued at plus $10B since the GFC, Napier & Blakeley has seen only nominal spend on upkeep compared with previous years.
Reduced Life Expectancy and Premature Capex
Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.
To put this in context, without appropriate R&M, major plant items may have an economic expected life of (say) 25 years, however the reduction of removal of maintenance can result in a major shortfall in expected life to around 15 years.
The Reaction
Astute purchasers have become aware of this risk and look for these patterns in their technical due diligence reporting to ensure that appropriate Capex costs are factored into the purchase price to account for a vendor’s R&M expenditure shortfalls.
Condition assessments, maintenance reviews, energy assessments and risk weighted strategic Capex forecasts have become 2010’s essential tools for good asset and facility management and sustainable property solutions. Continue reading
Recent Trends in Technical Due Diligence
Is your ‘too good to be true’ deal really sustainable ?
Lack of Capital post GFC has lead to a significant neglect of R&M and Capex spend.
Having worked on property due diligence valued over $10B since the GFC, Napier & Blakeley have seen only nominal spend on upkeep compared with previous years.
Risk of Non-Compliance (i) 
During this period the increasing trend has been a notable reduction of Repair and Maintenance (R&M) and Capital Expenditure (Capex) budgets. Whilst this strategy may have been necessary in some circumstances e.g. postponement of non-essential Capex, we have found too commonly evidence of non-compliance regarding statutory maintenance such as testing, auditing and reporting of essential safety measures and fire safety systems.
Reduced Life Expectancy and Premature Capex
Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.
Commercial Building Disclosure (CBD)
Commercial Building Disclosure (CBD) is a national program designed to improve the energy efficiency of Australia’s large office buildings.
The disclosure requirements under the CBD program will commence on 1 November 2010.
The CBD program will ensure that credible and meaningful energy efficiency information is available to prospective purchasers and lessees of large commercial office space. Owners and lessors of commercial office space with a net lettable area of 2,000m² or more will be required to disclose energy efficiency information to prospective purchasers and tenants when the space is to be sold, leased or subleased.
Transitional Provisions
The legislation contains transitional provisions that will apply for the first twelve months of the program (i.e. from 1 November 2010 to 30 October 2011). During this period, a valid National Australian Built Environment Rating System (NABERS) Energy base or whole building rating, must be disclosed. After the transition period, a full Building Energy Efficiency Certificate (BEEC) is required to be disclosed.
Don’t let your refurbishment get you hot under the collar
When undertaking due diligence work, we often identify instances in which owners have carried out quality refurbishments that include foyers, floors and ceilings.
While this certainly does help with the building’s maintenance and appearance, the refurbishment often overlooks a critical part of the equation: the air conditioning unit.
Air conditioners are a critical resource for buildings everywhere. Why is it then that they are so often overlooked? Many building owners do not consider the air conditioning unit to be particularly important in terms of refurbishment. Some owners do not even consider that air conditioning units would ever need to be refurbished. This however, is certainly not the case.
For most buildings, the air conditioning units were installed when the building was constructed. In some cases, this is as many as thirty years ago. As such, these air conditioning systems were designed to suit conditions relevant to the times when the building was originally constructed. For older buildings, this means that the air conditioning was designed to cater for factors that we consider common today such as computers, longer working hours and work station clusters.
Why is this a problem? Computers and body temperature each affect the general air flow required within a building. Consider a 10 storey building with a central air conditioning unit. It is likely that over a period of years, the number of employees within the building would have increased; the required electricity would have significantly increased; and the hours of work would most likely also be significantly greater.
So you think you can’t afford it
A number of our articles have covered a variety of individual topics in isolation but in reality they’re all inextricably linked providing the platform for balance and maximum return from your property investments.
Our affordability index provides an amalgamation of a variety of property information to provide a balanced look at how your asset might perform over a period of time and how you can influence that performance.
Whether the investment is residential or non residential the same basics apply –
§ How much is it going to cost me
§ What risks are involved
§ What return will I secure
These questions then have multiple layers – how much is it going to cost me initially and in the short and long term, what kind of costs are they, capital, repairs and maintenance, refurbishment or compliance costs. What must I do legally, what must I spend to benefit and retain the tenant.
As a result Australia is no longer considered so transparent.
Since the budget, we have seen prudent comments from Property Council of Australia and reports from the likes of Business Council of Australia. These confirm what intuition tells us – that 7.5% of something is better than 15% of nothing. Continue reading →