Victoria Property, Australia

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Cities' off-the-plan unit values plunge

Apartments Duncan Hughes
553 words
20 Sep 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.
Apartment values in Melbourne and Sydney are falling by up to 20 per cent between purchasing off the plan and buyers receiving the keys, despite housing shortages and booming residential prices, according to analysis.

Nearly 44 per cent of apartment ­purchases in the most populous cities are below the sale price at the time of completion, and units in mushrooming high-rises in major capital cities are the hardest hit, according to WBP Property Group, a company specialising in ­valuations and property advice.

"It's a tragedy," said WBP chief executive Greville Pabst. "Some investors are losing their deposit because they can't settle, or they have to make up the funding shortfall. Those considering these types of properties as investments should seek details on rental performance and history of capital growth."

It takes between six and 10 years for the price to return to what was ­originally paid, according to industry experts. Mr Pabst said the negative equity appeared to be worst for ­two-bedroom apartments priced between $500,000 and $700,000.

Many buyers want to lock in a price and can buy on a low initial outlay because the entire deposit – usually 10 per cent – does not need to be paid until the property has been built. Others are chasing the tax savings, such as reductions in stamp duty and claiming depreciation on investment properties. Prices are also hit by oversupply, which has an impact on resale prices, similar to values falling on new cars.

A huge increase in the construction of high-rise apartments is reshaping the capital city skylines, particularly in Melbourne, where new inner-city precincts are being opened for development.

Even more supply is coming on; 41,400 high-rise apartments were approved last year for Melbourne, a 30 per cent increase on 2012. That makes it even tougher for investors, many of whom use self-managed super funds to find tenants who pay rent and generate income to repay the mortgage.

Property analysts have issued red alerts against buying apartments in Perth, Brisbane's CBD and parts of ­Melbourne's CBD.Acute problem

According to the survey, off-the-plan apartments in Sydney, mainly around the CBD, are slipping by about 13 per cent between purchase and possession.

The problem is most acute in Melbourne and Perth, where apartment construction is outpacing population growth, and the slowing manufacturing and mining sectors are reducing demand for labour and accommodation. In the Perth CBD, vacancy rates since March 2012 have increased from less than 1 per cent to more than 7 per cent, dropping average rents about 15 per cent. In Sydney, traditionally a mecca for migrants and property investors, the vacancy rate is about 2.5 per cent, which is expected to rise as new developments are ­completed. "Buyers need to do their research," warns Louis Christopher, managing director of SQM Research.

"It is no­toriously difficult to choose, because in some cases these ­apartments can do very well."

Timing is important. Developer ­Mirvac reports apartments bought ­off-the-plan two years ago in projects in the Sydney suburbs of Chatswood, Rhodes and Glebe, are now finished and being resold at prices 10 per cent to 15 per cent above the original purchase.

Key points

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Apartment glut may deter investors
Melbourne Rebecca Thistleton
510 words
25 Sep 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.
The Reserve Bank has singled out Melbourne's oversupplied apartment market as a threat to property investors.

The RBA's stability review, released on Wednesday, said the surge in small units targeting university students appealed to a narrow market.

Agents have also reported a spike in two-bedroom units around Melbourne's CBD, Southbank and Docklands, saying vacancies have been hard to fill.

Since Melbourne's market peak in 20010-11, when apartment construction took off, yields have tightened and vacancies have increased.

Rising vacancies in the face of ongoing supply mean asking rents have dropped. The RBA review said units targeting students may be harder to sell in the secondary apartment market.

"This could place downward pressure on apartment prices if student demand weakens or if there are other shocks that reduce foreign investors' appetite for these apartments," it stated.

An oversupply risk in the Melbourne CBD apartment market has been foreshadowed by analysts, including BIS Shrapnel in The Australian Finanical Review, for more than two years.

"I worry that if we keep building apartments in the same location, of the same type, for too much longer, we are going to see a case of sub-prime building," BIS Shrapnel associate director Kim Hawtrey said at the group's September forecasting conference. An oversupply has been consistently denied by the state's Planning Minister Matthew Guy who has automatic authority over all CBD development applications which are more than 25,000 square metres.

Property advisory and valuations firm WBP Property Group has found apartment values have fallen up to 20 per cent between selling off the plan and completion, leaving investors in negative equity.

The housing market resurgence has largely been investor-driven and the RBA noted activity was concentrated in Sydney and, to a lesser extent, Melbourne. New dwelling approvals for both states are near previous peaks. The RBA said the market was not oversupplied nationally and Sydney's upswing came after years of under-building.

"The risk of localised oversupply seems somewhat higher in Melbourne where there has been greater geographic concentration of building activity recently," the RBA said.

"Apartment construction in the inner city has been at high levels for some time and, given the time-lags in completing higher density constructions, is expected to remain elevated for the next few years.

"That said, liaison suggests that construction in Melbourne continues to be driven by strong demand, including from foreign investors, with pre-sale levels remaining high."

Melbourne developers including Paul Little and Max Beck have told the Financial Review there is no oversupply and they will confidently continue building more apartments in Melbourne. However Meriton boss Harry Triguboff has ruled out a Melbourne project and has described the city as a risk.

Mr Guy said Melbourne needed to accommodate more people in the inner urban renewal areas.

Key points The Reserve Bank finds that Melbourne's market for small apartments is oversupplied. With rents dropping the bank forecasts apartments targeting students may be harder to sell.

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He said that part of the market was being affected by foreign buyers seeking safe havens outside their home country rather than capital growth. Any enforced tightening of lending standards would have no impact on foreign investors because they “often pay cash”, he said.

Even property spruikers are wary of Melbourne apartments

Even property spruikers are wary of Melbourne apartments
Some real estate agents are advising clients not to invest in apartments in Melbourne and Sydney. Photo: Wayne Taylor

The RBA’s warning about credit controls has put banks on notice.
But tighter standards may not affect non-bank lenders, which are outside the control of regulators.
No risks here, leave us alone, say property industry leaders
Banking on good design
Another look in their toolkits
Property spruiker Jamie McIntyre and Reserve Bank of Australia governor Glenn Stevens agree on one thing: Melbourne is building too many apartments.

An acceleration in bank lending to investors in the housing market has prompted the RBA to threaten the use of macroprudential rules to curb house price growth. Part of the problem lies with property spruikers who have returned to the market in droves, promoting spur­ious investments.

Mr McIntyre heads up the 21st Century group of businesses, which promises to make investors $150,000 for investing in blocks of farming land that may be rezoned as residential. He said he was advising clients not to invest in apartments in Melbourne and Sydney as they “have the makings of a property bubble”.

He said that part of the market was being affected by foreign buyers seeking safe havens outside their home country rather than capital growth. Any enforced tightening of lending standards would have no impact on foreign investors because they “often pay cash”, he said.

The RBA’s warning of lending controls may have put banks on notice but it is unlikely to rattle spruikers, many of whom use non-bank lenders outside the control of regulators to source financing.

Mr McIntyre’s company arranges the financing for his own clients. “Making it harder for investors to get loans could make it worse by forcing them to use ­second-tier lenders at higher interest rates,” he said.

But some spruikers agree that their activities are having an effect on the broader market. Property investment promoter Michael Yardney said banks had lowered their standards to compete for business.“There’s no doubt we are having a mini-boom in Melbourne and Sydney,” Mr Yardney said.

Despite the RBA’s warnings, Melbourne spruiker Jon Giaan continues to talk up the market. Mr Giaan said any housing boom was localised to large segments of Sydney and Melbourne. “Just because prices are rising, or out of reach of some segments, doesn’t mean that the market isn’t working,” Mr Giaan said.

Joseph Zaja, founder of Ausin Group, which sells apartments off the plan on behalf of developers such as Mirvac Group, Lend Lease Group and Stockland, said tighter lending standards would hurt local buyers, not the wealthy foreign buyers who make up 95 per cent of Ausin’s client base. “Most of my clients can only borrow up to 80 per cent – some as low as 60 per cent. Most throw in 30 per cent equity,” he said.

Mr Zaja forecast problems in investor-dominated markets, such as central Melbourne apartments, for local mum and dad local investors who borrow at much higher loan-to-value ratios.

“It could hit prices quite a bit in Melbourne. A lot of people could face [financing] issues,” he said.

The Australian Financial Review
High times for Royal Saxon

Nick Lenaghan
549 words
30 Sep 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.

One of the Melbourne central business district's earliest hotels, the Royal Saxon Hotel, will be absorbed into a 49-storey apartment tower as the rush for residential high-rise runs unchecked.

The two Malaysian-born, Melbourne-based property developers behind Goodyear Properties are looking to build a 445-apartment project at the western end of Elizabeth Street in central Melbourne.

The pair, Yew Kiong Ling and See Song Yew, lodged their planning application on the same day the Reserve Bank of Australia drew a line in the sand against an investor-led property market.

Of particular concern to the central bank is the potential for oversupply in the Melbourne market especially.

An estimated 10,950 apartments were completed in Melbourne in 2013-14. Some 10,100 will be ­finished this year and another 10,000 the year after.

The RBA is worried about the risk – "most pronounced in Melbourne" – that new projects with smaller-sized student apartments will be harder to sell in the secondary market.

The proposed Elizabeth Street tower comprises 173 one-bedroom, 260 two-bedroom, and 12 three-bedroom apartments.

Most of the one-bed units range in size between 50.5 square metres and 71 square metres. Only two are less than 50 square metres.

Along with a retail component on the lower levels, the project will ­generate $200 million or more of real estate.

It is the second tilt for the two developers after Planning Minister ­Matthew Guy knocked back a 50-storey proposal on the site late last year.

The minister's refusal came amid criticism that too much of the 1858 bluestone hotel would be demolished as part of the original design, leaving just the front section.

Critics lambasted the "facadism" symptomatic of that design and others, as historic three-dimensional buildings are reduced to mere facades and an ersatz form of heritage.

The second time around, the ­Peddle Thorp design retains the original section the Royal Saxon Hotel, while a rear annexe is demolished. The historic Menzies International building nearby is now included.

The Goodyear proposal includes three properties, two on Elizabeth Street and a third on Franklin Street, the Menzies building.

The developers added the third property to their new proposal since acquiring it in late 2012, after they had lodged the first proposal.

The T-shaped site, running between Elizabeth and Franklin streets, covers 1539 square metres. The Goodyear project joins a growing cluster of high-rise towers, some ­proposed and some already under construction, at the top end of ­Elizabeth Street, near the Queen ­Victorian Market.

Among them is the 72-storey Vision Apartments, by local developer Brady Group. Jeff Xu's Golden Age Group has a 75-storey building on the opposite side of Elizabeth Street to the Goodyear proposal.

Malaysian developers SP Setia and Mammoth are also building ­residential skyscrapers nearby.

The Goodyear application notes at least five towers of 55-levels or more are planned around the top end of Elizabeth Street.

The cluster of skyscrapers prompted a warning in March this year from Town Hall planners that the area could become an oppressive urban canyon.

The Goodyear proposal includes two smaller 13-level towers, with a central 49-level tower rising to 156.5 metres.

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Record car park sale

Nick Lenaghan
243 words
1 Oct 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.

LaSalle Investment Management has sold a 706-bay Melbourne car park for $17.5 million on a record yield as the appetite for parking space in the crowded city ­centre sharpens.

The eight-level, strata-titled property, at 20-28 La Trobe Street, was sold on a 2.78 per cent yield to a local private buyer.

At the north-east end of the city, it is fully leased to Secure Parking, on a term that expires at the end of this year.

"The record low yield of just 2.78 per cent reflects the exceptionally strong buyer demand that exists for CBD car parking assets, plus the potential for strong income and capital growth in this highly lucrative sector of the ­property market," said Savills' Clinton Baxter, who handled the property with colleague Nick Peden.

There have been some bumper deals in the niche market in recent years as parking fees rise and on-street spaces become scarce.

Car parks are tightly held and the supply of new off-street spaces is ­limited.

As well, some car parks have been snapped up by developers keen on their residential redevelopment prospects.

In January, Leigh Seymour, the daughter of ­Brisbane property baron Kevin ­Seymour, sold a car park to a private Chinese investor for a record $40 million.

Ms Seymour acquired the nine-level strata title property at 300 Flinders Street for $28.2 million in 2011.

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Property investing in Australia is quite risky itself. For people who are keen in australian properties, do not have the same mindset as what you have in Singapore.

In Singapore, 3 / 4 bedrooms condominiums will command a higher rental if your tenants are family, friends-sharing, agent who leased to others, etc..However, 1 bedroom apartment are the rage in Australia.

Conflicting reports of Victorian Minister on demand / supply of housing differs from the developers. Now, who is telling the truth?
They are right in their own interests.

If you are a developer, you will need the housing approval from the authorities especially clearance for foreign investors to purchase the apartments. Definitely, you will wish that the authorities will stop the housing approvals after you obtained yours such that the prices of these apartments can be maintained. As Dockland is new housing area outside Melbourne CBD, new housing approvals are rampant.

For the city planners (authorities), the Liberal Party of Tony Abbot has to tackle unemployment issues, economical issues such as finding the next economic mover replacing mining sector slowdown, etc.. History has proven that Liberal Party is more capable in tackling economic issues over the Labour government. Business owners in general favours Liberal as they are business focused. Hence, Liberal ministers will push for more investments into their areas of concerns.

Too many housing approvals...Short of Tenants...Property prices up or down. Well, depending on what is your interests.

If you are an investor, left or right or centre will you believe? Your call..
Little Group spurns Sydney with $1.5bn pipeline

Sarah Danckert

Property Reporter
Property developer Paul Little in his Melbourne office.
Property developer Paul Little. “There’s a bit of criticism out there at the moment about the Docklands.” Source: News Limited
FORMER Toll boss turned property developer Paul Little has ­little interest in Sydney’s red-hot residential market, instead focusing on his group’s Melbourne apartment pipeline, which over the next three years will produce $1.5 billion worth of dwellings.

Mr Little revealed that Little Group has 1500 homes under construction or ready to be rolled out this year, with an end value of $750 million.

Little Group is also completing its project in Yarra Street, South Yarra and is preparing to start construction on 125 apartments in blue-ribbon Malvern and 100 apartments in Richmond.

Add to that the 1000-odd lots at the company’s near-completed housing estates in Gladstone and outside of Perth.

Waiting in the wings is a hulking Docklands project that will carry a further 1500 apartments.

Mr Little, who has spent much of 2014 in the media spotlight as Essendon Football Club president, is cagey about the Docklands project. The group is yet to finalise its plans for the project, but it would get under way in the next three years, he said.

“There’s a bit of criticism out there at the moment about the Docklands. I think it’s a wonderful area with a lot of potential,” Mr Little said.

On Sydney, Mr Little, who sits on BRW’s rich list with a personal fortune nudging $1bn, said there was a burgeoning issue with the huge prices buyers were paying for development sites.

“Why go and compete in a market that has more the look and feel of a very heated market?” he said. “There’s no question that when you’re getting $13,000- $14,000 per square metre — that for a similar apartment in Melbourne is $10,000 — that is certainly a concern.”

He said he would not support the Reserve Bank curbing investment in new real estate except on affordable housing product.

“As a developer, what really concerns me is the high level of competition for development sites,” he said. “That competition seems to be being pushed along more than you would expect from offshore developers. That’s of more concern because that ultimately flows through to the value of the apartments.”

Mr Little has avoided the threat of an oversupply of apartments in some areas of Melbourne by using an integrated business model that includes an enormous rent roll business, ensuring investment stock in his pipeline finds tenants quickly.

This year, Mr Little’s company acquired listed rent roll company Real Estate Corp for $61m. He is scouting for rent roll acquisitions in Perth and Darwin to realise his dream of creating a national property empire. “I’d like to complete a geographic coverage of Australia,” he said. “We aspire to be a national service provider of real estate management.”

In the interim, Mr Little has his hands full as president of Essendon, which has been racked by a supplements scandal.
Small Chinese players take on major players in Melbourne

Greg Brown

Property Reporter
Sheraton Hotel opening.
Young developer Jeff Xu, left, with Golden Age director Ji Dan Tao. Picture: Julie Kiriacoudis Source: News Corp Australia

SMALLER Chinese developers are taking on major players Greenland Holding Group and Starryland in a bid to ­secure a foothold in the hot ­Melbourne apartment market.

The low-profile AZX Pty Ltd has emerged as the buyer of two development lots at the former Carlton & United Breweries site in the inner-Melbourne suburb of Carlton, which Daniel Grollo-owned developer Grocon offloaded for almost $60 million.

The private development company from China now has the task of developing about one-third of the 2ha $1.2 billion urban renewal precinct. CBRE Melbourne City sales agents Mark Wizel, Josh Rutman and Tom Tuxworth brokered the sale.

Greenland Holding Group made a big splash in the Victorian capital with the purchase of a Flemington site from the Victoria Racing Club last year. ­Starryland is moving to offload a site it owns in the city with approval for a 295-unit tower, with smaller Chinese players likely contenders.

Greenland Australia managing director Sherwood Luo said Chinese developers were attracted to Melbourne because it was Australia’s fastest growing city. “Migration, students, education — these are the factors that entice the investors,” Mr Luo said.

Starryland director Hao Liu said that Melbourne provided an easy entry for many international groups as sites were cheaper than in Sydney. “Here in Sydney it can be double the price,” Mr Liu said. He said the group aimed for a major foothold in Melbourne next year.

But the major groups are not outpacing the smaller Chinese players. Lorenz Grollo last month sold a Collins Street site, the Makers Mark building at 466 Collins Street for $25 million, to Jeff Xu’s The Golden Age Group.

Mr Grollo secured permission for a ­slender “pencil tower” to rise 55 levels and the well-regarded Mr Xu now hopes to launch works at ­Makers Mark next year, with a 280-apartment project badged as Collins House.

Mr Wizel has argued that the Chinese push for development sites — a subject of hot debate in Australian real estate circles — has not dissipated. He notes that many of the high-profile development sites are being bought by new Chinese entrants to the ­market.

“Every time our team stops to think about whether the run can continue, another group arrives at our office signalling their ­intention to buy a development site to house a high density project,” he said.

On the firm’s numbers, development sites worth $2.15bn have been sold to mainland Chinese interests in and around the ­Melbourne CBD.
Skyscraper Boom in Second-Largest Australian City Flags Glut

By Nichola Saminather Oct 30, 2014

Australia’s second-largest city is seeing its skyline being transformed at the fastest pace ever by Asian developers building residential towers. Now there are concerns too many are going up. ..............
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
This thread was started as it was and it was for that real reasons. The reported Bloomberg news is nothing new hence only newbies will think that they remain on track as they are building new icons in Melbourne.

Frankly, the road to launching a project Down Under is dotted with obstacles. If everyone tried to use their Asian experience Down Under, they will have plenty of chances to turn Upside Down.

I will stick with the proven players. In Singapore, it will be none other than St******, FCL (via newly acquired Australand), Mirvac, AVJ.

Vested All The Above

(30-10-2014, 05:11 PM)Boon Wrote: Skyscraper Boom in Second-Largest Australian City Flags Glut

By Nichola Saminather Oct 30, 2014

Australia’s second-largest city is seeing its skyline being transformed at the fastest pace ever by Asian developers building residential towers. Now there are concerns too many are going up. ..............

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