Recently approved apartment developments worth approx $1 billion will be postponed.
Owners appear to be waiting for the next property cycle or looking to sell out because of concerns about oversupply, financing, construction costs and government regulation.
The number of apartments approved for construction across the country in April rose to 10,490 – the highest monthly figure since last October’s 10,838. Groups such as BIS Shrapnel expect there will be more than 45,000 new apartments completed this year, rising to over 56,000 next year.
Wealthy Melbourne developer Tim Gurner, who has just received approval for a $140 million apartment project in Brisbane’s Fortitude Valley, says he will wait for the next cycle to develop.
In Melbourne developers have been flipping their apartment sites, with BRW rich lister Paul Little selling an approved 940-apartment project in Melbourne’s Fishermans Bend for $60 million to a Shanghai developer.
“There is no doubt that the Brisbane market has slowed in recent months. Developer funding challenges and increasing construction costs have made the environment increasingly difficult to get new projects off the ground in Brisbane, but we are committed to Fortitude Valley and excited to launch this project in the next market cycle,” Mr Gurner said.
Mr Gurner said that his financing was secure but he had known of several other projects where financing had been knocked back.
It is the escalation of construction prices in Brisbane in the past 12-18 months that will pose more of an issue,” Mr Gurner said. “Projects that weren’t fully pre-sold last year are now not viable given the recent spike in construction costs, which is incredibly shortsighted as this will only hurt builders and trades in the following 12-36 months when there won’t be any new projects to commence construction,” he said.
His development is one of a number of projects that have received approval but will be put on ice in Brisbane.
Brisbane residential property developer ARIA was given approval for a new 82-storey residential tower at 171 Edward Street with 652 apartments which would become one of Brisbane’s tallest buildings worth hundreds of millions of dollars.
However, there is no plan to start construction or marketing. ARIA managing director Tim Forrester declined to comment on the approval.
Elsewhere, Urban Construct’s Woolloongabba development in Brisbane won approval for about 200 apartments but that property is now being offered for sale.
A similar situation is developing in Sydney and Melbourne.
Hong Kong-based Maville Group decided to sell rather than develop a property in Sydney’s CBD, for which it obtained a permit for 24-levels of hotel rooms and apartments.
Maville paid just under $48 million for the property at 333 Kent Street four years ago and is now seeking $90-$100 million.
Selling agent Vince Kernaghan of Colliers International said selling out had become a more attractive option.
“What I am noticing is that a lot of owners, who bought very well in the past, are deciding to take an early profit rather than spend money on development and construction.”
Foreign buyer taxes
While the owners did not give a reason for selling, Mr Kernaghan said the new foreign buyer taxes announced in NSW were a factor in some developers choosing to sell.
“In some NSW metro areas, the [apartment] market has reached its peak. It’s pretty patchy. There are concerns with some markets that are over-supplied. However, the Sydney CBD is still relatively under-supplied and it’s hard to get sites,” he said.
Ami Simon of Gresham Property, which launched a $400 million institutional-backed fund last year to provide debt to property developers, said several developers had decided to delay their projects despite winning approval.
“The availability of development finance for developers has certainly tightened and a lot of the approvals and potential supply will possibly not get developed in this cycle,” Mr Simon said.
In Melbourne last year, BRW rich listers Ashley Williams and Ron Walker, who own developer Evolve, sold a $350 million infill townhouse and apartment project in Melbourne’s Williamstown to listed developer AV Jennings for between $90 million and $100 million.
“The apartment market is pretty heated at the moment with a lot of supply coming on board,” Mr Williams said at the time. “We’ll focus on smaller, city fringe apartment developments.”
A key trend emerging in Melbourne is a preference to develop in the middle suburbs, where buyers are mainly local.
Knight Frank is tracking $175 million of site sales in the inner suburbs and a move by offshore developers into the house and land market, including the likes of Chinese group Dahua, which partnered with local developer Dacland on a $60 million acquisition in Melbourne’s west.
Original article published at www.afr.com.au by Matthew Cranston & Larry Schlesinger, 23/6/16