The Melbourne development site market is going through a period of transition. The depth of international apartment buyers, fewer tax incentives for investors and uncertainty regarding access to finance, from the apartment buyers and developers alike, have all resulted in a slowing down of acquisition and delivery.
This does, however, create excellent buying opportunity for those with healthy balance sheets and capital capacity. We are actively receiving enquiry from many of Melbourne’s largest developers, as well as generational high net investors/developers – all of whom have made it clear that 2019 is a year in which they want to be buying multiple development sites.
NON-TRADITIONAL BUYER PROFILESÂ
The buyer profile for a development site has become much broader and more diverse.
Only 12 months ago, 99% of enquiry received was from developers looking to undertake a major residential project on any prominent scale listing.
This has now shifted dramatically and, while there are still high numbers of enquiry for residential development, we are actively fielding interest from groups looking to undertake the following development outcomes:
- Office or mixed use
- Build-to-rent
- Hotel
- Student accommodation
All, bar one, of the major development site sales that have occurred in the Melbourne CBD or immediate fringe this year have been to these buyer profiles. Far East Consortium is the exception, recently acquiring 640 Bourke Street for $90 million. These groups, given their lack of reliance on pre-sales, have gained competitive advantage in the market and have been active in acquiring sites that are permit approved for residential and converting the end use.
WESTPAC OPENING UP TO FOREIGN APARTMENT BUYERS
Very recently, Westpac Banking Group announced it will commence funding offshore pre-sale buyers in the major Asian markets – excluding China. This is an exciting step forward for the industry, with many major residential projects reliant on offshore pre-sales to make them viable.
Our expectation is that it will take some time to filter into the market, with the other major banks needing to change policy for it to truly gain momentum – particularly NAB and ANZ who already have a strong presence in Asia.
Knowledge of this, and confidence that there will not be a reversion in policy after purchase, will be very important in reinstating a strong desire to buy an Australian apartment product in the Asian markets.
IMPENDING ELECTIONÂ
The impending federal election on May 18 will impact real estate markets. Proposed changes to negative gearing and capital gains taxation policy by the ALP have received the greatest attention and concern from the industry.
However, there are also some subtle elements to this. The Victorian State Government has put its budget on hold until after the federal election to fully appreciate the likely Federal contribution to major infrastructure spending. The Federal ALP party has promised significantly greater contributions to the state, if elected. Resulting in a potentially more modest state taxation policy (stamp duty and land tax) if an ALP Federal Government is elected.
POPULATION GROWTH & RENTAL RATES
Irrespective of the above market factors, two reoccurring themes that we predict will drive confidence in the market are population growth and the obvious shortage of housing stock off the back of rising rents and tight vacancy.
Victorian Treasurer, Tim Pallas, recently advised that state policy is for 70% of population growth to be housed in the Melbourne CBD, inner and middle ring as these are areas that have access to high capacity public transport alignments.
Couple this with vacancy rates at 1.8% for residential accommodation in Metropolitan Melbourne and a 7% growth in residential rents in 2018 and Melbourne is heading towards a period of accommodation under supply.
This will be a major driver in the development sector. With early signs of greater openness for major banks to fund Asian pre-sales, now is the time to buy sites and build a development pipeline, to take advantage of a prosperous market in the not too distant future.
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