STRICTLY FOR DISTRIBUTION ONLY TO LICENSED FINANCIAL ADVISORS, WEALTH MANAGERS AND PRIVATE WEALTH BANKERS
Why Serviced Apartment accommodation has been a popular choice
Serviced apartments depends more on business travellers, whereas hotels and motels depend more on domestic and foreign tourism.
Since the early 2000s, the Serviced Apartments industry has grown steadily. Demand was boosted as leisure and business travellers recognised the benefits of serviced apartments compared with hotels. Advantages such as more space, the ability to self-cater and comparatively lower prices have appealed to travellers. In the five years through to 2015, IBISWorld estimates that industry revenue has increased by an annualised 2.3% to $3.0 billion in 2015.
The key business and leisure serviced apartment providers in Australia are Quest, Mantra and Accor groups. They are well established hotel managers and operators, with Quest offering a 25 year track record.
On the supply side, investors, managers and franchisors have targeted serviced apartments as a growing market. Industry development was aided by favourable strata schemes and the relatively low development costs of serviced apartment complexes compared with traditional hotels.
Sydney and Melbourne Serviced Accommodation available in the April to May 2015 Timeframe
|Address||Bedroom||Price (AUD)||Rent (AUD) (Gross Yield %)||Managed by:|
|111 Punt Road, Prahan, VIC 3181||2 bedroom||$430,000||$514 per week.(6.2% p.a.)||Quest|
|3 Kingston RdMoorabbin, VIC 3202||2 bedroom||$406,000||$527 per week.(6.75% p.a.)||Quest|
|741 Whitehouse Rd, Mont Albert, VIC 3127||1 bedroom||$280,000||$361 per week.(6.70% p.a.)||Quest|
|616 Glenferrie Rd,Hawthorn, VIC 3122||1 bedroom||$295,000+||$364 per week.(6.43% p.a.)||Quest|
|15 Springfield Ave,Potts Point, NSW 2011||1 bedroom||$345,000||$423 per week.(6.38% p.a.)||Quest|
|Source: Serviced Apartment available in April-May 2015|
The serviced accommodation generally yields a net income for property owners in the 6.0%+ range. Serviced apartments tend to be purpose built, with long leases of 5+5+5+5 years with dedicated professional hotel operators. The leases have built in rent reviews and fully managed by the hotel room operator. The capital value is currently AUD280,000+ for a 1 bedroom and AUD400,000+ for a 2 bedroom serviced apartment.
Income and Expense Illustration
|Student Studio (A$ Value)||$ 475,000|
|Gross Rental Yield (%)||6.7%||$ 31,668|
|Management Fee inclusive (% of rent)||0.0%||$ 967|
|Body Corporate (A$ fee)||$ 1,400|
|Rates and Water (A$ usage fee)||$ 1,810|
|Net income (A$)||$ 28,458|
|Net income yield (before tax, %)||6.0%|
|Source: Student Property available in April-May 2015|
Quest was born from humble beginnings in 1988, with one property in Fitzroy, on the fringe of Melbourne’s central business district. Since then, Quest has emerged to become the largest and most successful serviced apartment brand in Australasia with 25 years’ experience under their belt. Currently, there are more than 150 Quest sites across Australia, New Zealand and Fiji. In total Quest has over 5,000 strata titled properties. This growth is a testament to their commitment to meeting the accommodation needs of the business travellers. As their businesses have grown over the years, the Quest group has too.
It is a mutual prosperity, where Australian investors see the benefits. Quest has stayed involved in the growth of every property. From location, through to planning, opening, and the day to day operations, Quest is a recognised leader in the Australian Serviced Apartment industry. Since 2000, Serviced Apartments have gone from strength to strength, growing to a 25% market share in accommodation.
Typical residential property
|Lease||Long term lease with a trusted Australian brand.||Short term 12 month lease and changes of tenants|
|Rental increases||Fixed annual rental increases at 4% or CPI with 5 year market reviews||Uncertain and subject to market conditions|
|Vacancy periods||Nil – rent paid regardless of occupancy||No rent when vacant between tenants|
|Agent Management fees||Nil||Landlord cost – typically 7-8% of rent|
|Repairs and maintenance||Quest responsible for non capital repairs.||Landlord cost – all major and minor repairs|
|Body Corporate fees (Admin fee)||Paid by Quest Operator||Landlord cost – paid quarterly|
|Body Corporate (Sinking fund)||Landlord obligation – capital account contribution||Landlord obligation – capital account contribution|
|Building Insurance||Paid by Quest Operator||Landlord cost|
|Furniture and Fittings||Quest obligation to maintain and replace||Landlord obligation (fittings)|
|Letting fees||Nil||Landlord cost – typically 2 weeks rent|
|Capital works||Landlord obligation, programmed & managed by Quest||Landlord obligation as required|
|Building depreciation allowance||Full taxation benefits||Full taxation benefits|
|Property Inspections||Daily||6 monthly|
Anniversary of 1st bookbuilds
We’re excited to say we are approaching the anniversary of our first property bookbuilds in mid-August. These were commenced in July 2014 under the auspices of Australian financial planning firm Shartru Wealth Management. Shartru have since introduced more than 40 clients to DomaCom’s innovative fractional property investing platform, purchasing several residential property investments through the DomaCom Fund.
Alternative property types for fractional investment
Since launching DomaCom, a number of alternative property types have been listed on the platform for bookbuilds. Among them are strata car parks, rural property, student accommodation, new developments, existing houses and small to medium commercial/retail properties including an office complex, a hotel and a KFC fast food store.
The significance of these listings is that they offer varying levels of yield, capital growth or a balance of both, but the preference of the investors for one property type over another must also be considered.
One of the most interesting bookbuilds is a Southern Mallee Victorian property of 1,281 Ha, a $2m property with a long term lease. This property offers a 5.1% yield. Farmland in the Mallee shows an historic growth of 7.2% p.a over 20 years (1990-2010).
Gen Ys – a generation that knows what they want and how to get it!
It’s pretty well known that Australians love bricks and mortar. It’s the “great Australian dream”. With record low interest rates, property investment is an increasingly attractive option for building wealth.
But is it held in the same regard for Gen Ys?
The Gen Y’s often also called the ‘millennials’ are often referred to as precocious, demanding and rude, the ‘entitled generation’. But that may just be a by-product of the previous generation’s need to feel superior. The war generation had an opinion of the baby boomers who had an opinion of the Gen Xers. It’s a generational thing.
One certainty in relation to property is that for many, the price of property it seems has roared well ahead of their ability to get their foot on the ladder, and that is a concern.
However, what a recent survey has revealed may floor us. Literally!
According to the Domain Consumer Insights Study, 16% of Gen Ys own two or more properties, compared to 17% of Baby Boomers and Gen Xs. The study shows that younger generations are entering the market at an earlier age. The average age that Gen Y Australians became investment property owners is 25 years, whereas the average age for Gen X was 35 years and 45 years for the Baby Boomers.
So for the financial advice industry there is opportunity aplenty if they embrace the property asset class, specifically residential property, to help the clients of tomorrow who are showing early signs of strong interest in this sector. It seems they prefer property rather than the equities market which is seen by many as risky.
It is worth noting that Gen Ys are by far the most tech savvy, which gives them the ability to access information, and they like participating online.
With many Gen Ys living at home with their parents for longer, delaying marriage and children until later, they are able to complete their higher education and seek life experiences such as travelling a lot earlier. Naturally, living at home with parents has the significant benefit of allowing them to have sizable savings.
Despite government incentives to enter into home ownership, plenty of wised-up Gen Ys are buying investment properties as their first purchase. And it makes so much sense!
From a cashflow and lifestyle point of view, it does seem like a win-win situation. They have:
- A home – they can continue living with their parents where they have the freedom to come and go (plus less cleaning, less cooking, less expenses); and
- An investment property – where they get the tax benefits, and a purchase which requires less commitment than a home.
We shouldn’t underestimate Gen Ys. They know what they want and are quick to work out how to get it.
If Gen Y are the next generation of financial planning clients and property is what they want then help them achieve it in the best possible way. Be flexible enough to engage this demographic at their level and in the way they want, or get out of their way seems to be the message coming through.
We have added a property advice page to our marketing site www.domacom.com.au to help you find a suitable buyer’s advocate or agent to take a brief from you to source suitable investment properties for your clients.
You’ll find some information about PIPA and PIAA, two industry bodies who represent professional buyers’ agents who will help you produce a property SOA for your client’s property investment.
Below each association you will find a list of members who are happy to assist you and your clients in this process.
The key things to look for in selecting a property adviser are: they do not sell stock, they are fee for service based, they are hold a QPIA or APA qualification from their respective membership and they also hold PI insurance.
In the media
- Easy tax reform: axe capital gains discounts
- Scrap developers for cheaper, better apartments, say researchers
- MAX – 2015 Marketing, Advertising & Sales Excellence Awards
- DomaCom added to another APL
- Property – aspiration to fulfilment
- Aussie investment firm, DomaCom, establishes Ag arm
- Encouraging ag investment
DISCLAIMER: DomaCom Australia Ltd ABN 33 153 951 770 and holder of AFSL No 444365 is authorised to provide general financial product advice in Australia. Whilst DomaCom has taken all reasonable care to produce the information in this material, it does not make any representations in respect of, or warrant the accuracy, timeliness or completeness of any of the information. The information provided in this material is general information only. It does not constitute financial, tax or legal advice or a forecast. DomaCom Singapore Private Limited is not authorised to provide advice. This information is strictly for distribution to Singapore licensed financial advisors, wealth managers or private wealth bankers only.