A Sceptic’s View of the Property Boom

Terry, the doomsayers have some valid points as the affordability issue is quite glaring in the current climate of uncertainty. I have to admit we owe it to ourselves to act responsibly to see our way clear of mass hype and chaos.

Properties are lumpy and one cannot get out as quickly compared to stocks (or shares). Three points are clear from the article;

1. the need to have a plan (including an exit strategy) for evaluation
2. set a stop loss similar to stocks (depending on risk profile)
3. allow enough cash buffer and not to over extend in credit

Then we are no longer hamstrung by Greed and Fear . Take back control and ownership, heed the warning from the experts, and act accordingly to reduce debt. Opportunities to invest in quality assets (be it stocks or properties) may arise soon enough. We’ll live another day, if not thrive along the way.

CT

here is the article

A sceptic’s view of the property boom

The game has changed and not for the better, in the opinion of Bill Bowness, who says it could end in tears.
Bill Bowness fairly drips with caution. With a dogged prudence he has ridden the booms and the busts of property for more than 30 years.

Last month he decided to sell up in a $330 million deal with FKP Property Group.

As he explains his motives for selling the company he co-founded, Wilbow Corporation, there is the usual talk of more time for tennis and seeking a new challenge. Yet the intensely private Bowness, 62, also has a very strong view on the future of the property market and he is not an optimist. He says the sun has set on an unprecedented boom in Australia’s residential property market and the next bull run will be different.

Bowness, like many long-timers in the industry, appears bemused by the quantity of investment capital available and the willingness of its minders to take a punt.

“There is so much money around there are fund managers who are wanting to do all sorts of things,” he says. “The money game has finally found the residential land game and probably joined it faster than [it] should have.

“There will be tears. I would have thought some of the funds seem prepared to pay higher prices than what I will call a private developer.”

His own deal is a perfect demonstration of the heated market mood. It took FKP less than a day over tea and biscuits with institutional investors to raise the $112 million for the purchase of his business.

It’s a completely changed world and Bowness has been in the business long enough to see the metamorphosis of the property industry.

“When I started there were literally hundreds of people doing 100 or 200 blocks per year, now it’s corporatised,” he says.

“The colour is going, not in a bad sense, but you go to the UDIA [Urban Development Institute of Australia] lunch and the environment is absolute dark suits. Go back 20 years ago and it was white shirts and gold chains.”

Not that he suffers from the common allergy to all things accounting shared by most old-style property developers.

In fact, Bowness, as an unremarkable high school graduate, started his professional life in a branch of the National Bank of Australasia in Queensland.

He emerged 10 years later in Melbourne with a scholarship-financed commerce degree and serious ambitions.

“My banking experience I don’t regret one little bit, in fact it has been a major plus,” he says.

“I learned during my banking experience that if you look after your bank, keep them informed, let them know what’s going on, keep your word, they will take care of you.

“The other fact is that I trained as a CPA – the capacity to understand financial statements, balance sheets, cash flows has been so important.”

Bowness concedes that this is not the language of the traditional property-is-in-my-blood developer.

“Quite a number of those people also go broke,” he says.

Aside from his obvious misgivings about the fast money feeding into property at the moment, he is still cautiously, of course, optimistic about Melbourne’s future.

“If there is no artificial shortage of land, then it should be reasonably stable. The market should be there to give some moderately consistent growth.”

You can forgive Bowness for viewing the future with suspicion. He saw the boom of the mid-1970s become the downturn of the early 80s and the boom of the late 80s disintegrate in the early 90s and is now leaving as the market bottoms out from the longest boom in history.

Perhaps it’s because he has survived it all.

“We played the late-80s boom as hard as we could, as we knew it would come to an end, and we prepared ourselves accordingly.”

His golden rules for working through a bust sound surprisingly simple: look for warning signs, do not get caught with stock or debt when the music stops, and keep plenty of good old cash at hand.

“We had the fiscal balls,” he says. “What breaks developers is not a bad buy but the holding costs.”

Spotting the warning signs is the key, and he says that comes from knowing your knitting.

“Understand the economic and political scene, understand that the world changes, [that] interest rates can go up,” he says. “You didn’t have to be a genius to see that the market was going to slow after the introduction of the GST.

“But one of the great things of a bust for a professional developer is it puts the part-timers – the would-be, could-bes – out of the marketplace.”

Planning and prudence are only part of the equation.

“Every developer has luck from time to time. If you play the game right, you almost deserve [it], the secret is to exploit it to the full.”

When you have luck, Bowness says, it is important to recognise it and not put it down to some special skill. It’s a rule he calls: don’t believe your own crap.

“I have rolled the dice a great deal but I have always had a plan A, plan B or plan C.”

Diversification was also an important part to that equation. For a small business, Wilbow had an impressive geographic footprint with commercial and residential operations in Melbourne, a residential business in Queensland as well as offices in New Zealand and in Texas.

In fact, by the late-1980s Wilbow was the third-biggest greenfields developer in Victoria.

In his early years in property the strength of the Australian dollar against the greenback allowed Bowness to get a taste for American property and a network of contacts.

In the early 1980s they pointed him towards Texas, which at the time was a basket case, but it did not go to plan immediately.

“There was hardly a bank or building society in the state that failed to go broke, but people said ‘Texas is a big strong state, it is going to come back’.

“We bought about 500 rental flats there – they were a total waste of time – essentially, crap is crap. We had a lack of knowledge, wrong locations, wrong stock.”

But as the 1980s wore on, Bowness was travelling there regularly and could see the family housing market was recovering.

“The timing was very fortuitous,” he says. “The local builders were starting to come back, the single-family market was starting to come back and the local builders couldn’t buy land, their balance sheets were too constrained, and local developers had mostly gone down.”

Again cash was king in a recovering market. Incidentally, Bowness did not sell his Dallas-based interests in the FKP deal.

Well known in the Melbourne property scene, he is variously described as cantankerous, honest, cautious, talented, private, hard-nosed and very successful.

He is certainly a straight talker. The monthly lunches of the UDIA are a Melbourne institution, and at one such lunch recently Bowness had a typically direct question for a state government speaker. “Can you look us right in the eye and say these funds will be spent there, for the advantage of those people living there, and not on the socialist chardonnay set?” he asked.

This was not bluster. Bowness is a man who picks his words carefully. Frequently, while speaking to The Australian Financial Review, he raises a hand in a stop signal indicating he needs to gather his thoughts out loud, in his headmasterly tone, before committing them to the record.

Bowness has also recently flagged his exit as chairman of the Monash Gallery of Art, which he helped save from closure seven years ago.

That Bowness ended up as the saviour – apart from his time he has donated hundreds of thousands of dollars to the gallery – of a large suburban art gallery seems to be an accident of geography.

The way he tells it Wilbow was based in Monash, was the biggest developer in that part of Melbourne and so had an obligation to contribute.

“I believe if you take, you should give back,” he says.

“I had been to the gallery a few times, I was collecting art and building a collection . . . I just phoned up a few people.”

Building a collection indeed. The walls of his offices in suburban Melbourne are jam-packed with paintings bearing names like Blackman and Boyd.

A Rupert Bunny sits on the floor in a spare office awaiting a home.

His assessment of his time at the gallery sounds very much like balance sheet entries.

“It was costing council $450,000 a year and getting 12,000 people through it a year,” he says.

“Now we cost the council $350,000 a year and get 55,000 people through it.”

He also sponsors a charitable trust and is a patron of the Australian Ballet but, with that characteristic gesticulation, declares the topic of philanthropy off limits and awaits the next subject.

It is a desire for privacy that is hard to begrudge. Bowness is not one who has ever sought the spotlight that some of his counterparts pursue with such vigour.

His family and personal life, not surprisingly, is a palm-forwards area as far as this discussion is concerned.

“I have always had a low profile. Why do you need a high one? Those who need to know, know,” he says. “Melbourne has 3.5 million people but it is still a small town . . . there are no secrets.”

As the deal with FKP settles over the next few years, it is believed Bowness will walk away with more than $110 million in his pocket.

Aside from Texas, Bowness plans to open a small office in Melbourne and says he might get into mezzanine financing or joint venture funding.

Looking back on the past 30 years he says he has no regrets, despite saying he believes he could have possibly made more money.

“I sleep well . . . there’s a saying you either eat well or sleep well.”

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