STRAIGHT TALK: HOW CRAIG TREASURE BUILT SUCCESS AT VILLA WORLD
Written on the 7 October 2016 by James Perkins
SINCE taking charge of Villa World Group (ASX:VLW) four years ago, managing director and CEO Craig Treasure has led the company through its most successful period.
In that time, the Gold Coast-based affordable housing builder and developer has grown its market capitalisation from $50 million to $220 million by building annual sales from 400 properties to 1,200.
Treasure talked to Business News Australia about Villa World's growth and trends in the housing market.
What has been the key to Villa World's growth?
It is having a strong plan to grow the business. The Villa World recipe is fairly simple - we do house and land in the affordable part of the market, we just do it in more places. We have been able to do it across Sydney, Melbourne and Brisbane sticking to the same recipe.
Also, we have become a more sales focused organisation. In property, you are as good as when you are buying your sites and selling your end product, we are very good at those two things so that is where we have put a lot of our focus.
What is behind Villa World's strong results, particularly in the past 12 months?
The really good thing is the profit this year is up 32 per cent from the previous year and that is all off core product. What is really pleasing in business is when the result comes from across a whole lot of products - it is in both land and house and land and its Melbourne and Queensland. That is when you know things are sitting pretty right. The beauty of our result this year is it was off a really broad base right across the business and that is also going to set us up for a really good FY17.
The results mention positive market fundamentals, what are they?
In terms of sales, the things driving them are low interest rates and first home buyer grants, but it does come back to consumer confidence and job confidence. Until recently, I said that the interest rates are so low they don't matter so much, and it is more about job confidence.
However, the last couple of cuts have helped in that it is so low - it is 3.8 per cent fixed - that people are doing things. Any money they are getting in a term deposit is less than 2 per cent, so people are saying 'I will go and buy a house'. Those things are driving sales alongside strong population growth. We see those things will keep going, certainly for the next year.
Where is the housing cycle at now?
It is in different places in different cities. Sydney has clearly been in the biggest property boom. Brisbane in general is still going quite nicely off a fairly low base. There has been no big boom in Queensland. If you look at the Gold Coast, things have recovered most of what they lost pre GFC, but it is still not in boom territory in my mind. There still hasn't been that price growth we had before. It is good, but it has not been boom. Melbourne is very strong, so it is different everywhere that we operate.
One of the things that frustrates me is that everybody sees the property sector as forever in this boom and bust cycle. When you have a long-term strategy, that isn't necessarily the case. Property is always going to be a cyclical industry but Villa World has been doing it for 30 years and it knows how to manage that.
How have you innovated within the business?
When a customer was ready to take over the house, we used to have the site supervisor and the sales supervisor both involved in that handover process.
These days, we have a customer ambassador. So once a person has bought, the customer ambassador builds a relationship with the customer; they hand over the house to them and stay in touch with them afterward and that way our site supervisor focuses on building more houses and our sales supervisor focuses on selling more and the client gets treated like they should.
A house is the most expensive thing you can go and buy and often you get treated much less than if you go and buy an expensive watch, or some other item. That doesn't make sense.
What do Australians see as providing value in their houses and has this changed?
Customers want the things they are seeing on TV programs like The Block. They see the designs and finishes and they like those things. We make sure we have got very contemporary, modern, up-to-date finishes in all our homes.
In order for people to afford this, we have redesigned the houses a little and have made them a bit smaller. Block sizes have continued to decrease. We used to sell a 450sqm block, then it drifted down to 420sqm, then 400sqm and I can tell you that in Brisbane our mainstream seller in 2017/18 will be the 375sqm block. The package price has stayed the same but they get less land and more house.
As we sell around 25-30 per cent to first home buyers, we have experimented with building a smaller house they can add to later. For example, a three bedroom, one bathroom, single carport home that is designed in such a way that they can add the double garage, master bedroom suite and family room later, but they are not really interested, because they want to sell it in three or four years.
Villa World builds houses, but there has been much talk of an apartment glut in South East Queensland and Melbourne, what do you think?
Brisbane and Melbourne are probably the most prone to that happening.
You are starting to see programs stretch out a bit. Some buildings are finishing, but the banks deliberately aren't funding some others yet. The settlements that are coming through are happening, slowly. Developers aren't getting all of their profit out, but banks are getting paid out.
It is taking longer, but there is no chaotic meltdown of that process. Melbourne could be more challenging next year.
In Brisbane, the new apartments will be OK, it is the 20-and-30-year-old apartments that will struggle to rent the ones the landlords haven't properly maintained. That will be where the trouble is.
We watch all that, but our customers are buying in growth corridors and because their family members are there, they have got kids they want to go to a specific school, and they have a job in that region - they are not going to go and live in an apartment.
Villa World's only foray into apartment building was in Tweed Heads and that ended in a legal fight which you recently settled for $6.5 million. Is that something you have learned from as a company?
The Tweed Heads building was built in 2007 and finished in 2009. Prior to that, Villa World had never built high rise buildings and never has since and that is certainly not part of our business model at all going forward.
It is a complex case where the owners corporation were suing Villa World and several other parties including the supplier of the walling, the installer of the walling, the certifier and the engineer. So you had all of these parties locked in a legal dispute, which has now been settled and we put out an ASX announcement in relation to that.
The lessons are to stick to the core business of what you are good at and don't step outside that. Unfortunately, we suffered some bad publicity and that was part of the owners corporation's tactics in mediating a settlement for that dispute. That is the beauty of Australia - it is a free country where you can say whatever you want; but if you are on the corporate side of that, you can't.
But it is OK. We are big boys; we took that on the chin. We have always taken a positive attitude to the issue and aimed to settle at the earlier possible time and that is what we did.
Thanks for your time Craig.