Like many of you, including myself were waiting for this moment for quite some time now. It has been a long journey but here we are, we have arrived to the last piece of the puzzle, the final step of the PILC (Property Investment Life Cycle). This stage is called REDEVELOPMENT.
When finding potential projects to invest in around the world, they may fall into one of 6 stages.
· Redevelopment
Depending on what you're interested in, as well as your risk profile and investing tendencies, the PILC is a good framework to give you a head start in understanding
a project.
Today we are going to put the final stage under the microscope, using our flagship project in New Zealand as the example to share in-depth details with you.
What is REDEVELOPMENT?
Redevelopment is any new construction on a site that has pre-existing uses. These can be small or much bigger scale improvements made by a land developer.
For example: adding new facilities, structures, erection of additional buildings or technically anything that would improve the existing site.
Many times, redevelopment of the entire property is required to fit the current market demand or because the properties were completely destroyed due to natural disasters like earthquakes, volcano eruptions or due to man-made accidents such as fire.
This is exactly what happened in our case. Christchurch were struck by two earthquakes between 2010 – 2012.
These events caused considerable damage to the city and the surrounding buildings, including residential houses. However, this incident also created an opportunity to rebuild the city and residential houses. The demand has surpassed the supply and in turn created the opportunity for rebuilding into highly profitable and safe investment. Although the PILC investment strategies may seem easy to learn and follow, implementing the right strategy in various stages of the PLC is also very much dependent on the area, country and most important, the timing.
In short, below are a few important factors to consider before making any concrete decision:
1. Location - Location - Location
2. Demand and supply - what, when, how, etc
3. Population Density - to ascertain the available land surrounding, inflow population, etc
4. Demographics - age, sex group, working class, income, etc
5. Infrastructure - public transportation, banking services, hospitals, etc
6. Political Stability - how frequent is the change of government and policies, etc
7. Economic Conditions - the fundamental domestic economy, etc
8. Taxes - capital gain tax, property tax, income tax, etc
9. Segment - land, residential, industrial, commercial, etc
10. Strength and experience of the developers, builders or contractors
11. Governance (Real Estate Law) - federal, district, zone, etc
Always bear in mind that the investment strategies may work successfully in one country but may not fit in all countries. For example, buying cheaper land to build mid-end sell-able condominium may work in Malaysia but may not be workable in HK or Singapore as the land cost is too high, sometimes going up to 40-50% of the Gross Development Cost.
Most importantly, it also depends on the individual or companies’ financial strength, risk appetite, risk exposure, and crisis management. One should always be prepared for the worst, so when a crisis happens, it can turn into an opportunity rather than disaster.
Investment Strategy (New Zealand)
The minority National Party Government elected in November 2008, and re-elected in November 2011, aims to elevate the semi permanent performance of the economy through five key policy drivers: building a stronger economy, investment in top-tier infrastructure; more developed public services; reconstruction of Christchurch after the earthquakes; and overall building a safer New Zealand.
The earthquakes have given Christchurch a revolutionary opportunity to remake it into an international city. Christchurch is the world’s first composition of blue skies development; the chance to combine rich natural and cultural heritage, a deep economic base where 21st century urban design is best practice; in an established, developed region.
Christchurch Central Recovery Plan And Land Use Recovery Plan (LURP)
Following the earthquakes, the city have been experiencing rapid growth with the central city rebuild, which is outlined in the Christchurch Central Recovery Plan in 2012. There is a massive growth in the residential sector, with around 50,000 new houses expected to be constructed in the Greater Christchurch area by 2028, as outlines in LURP.
The aims is to use altered reinforcement rules to deliver 8,000 to 10,000 new residence in Christchurch City within the next 5 years (Voxy, 2013). The only thing that will ease Christchurch accommodation pressures is by getting more lands and houses to market sooner. This enables for the clear direction on where and how new development can occur, in a manner that best assists our region’s recovery.
The economy continues to perform well and the fundamental physical and social infrastructure remain strong despite the damaged caused by the earthquakes. Christchurch is still exceptionally well placed to continue contributing significantly to the national economy. Therefore, there are rational economic reasons to invest in the recovery.
And by this closing statement we arrived to the end of the PILC. I hope you have enjoyed this exploration of the Property Investment Life Cycle with us and if you have any question or theory you would like to discuss please don’t be hesitant to drop us a message, a text, a comment, a DM, an email, or even a pigeon post if that’s what you prefer. We would be honored to be at your service.
This may sounds like an ending of a novel but I recommend you to stay tuned.
The next topic we are going to dive into is the Business Investment Life Cycle or BILC for short.