[+] Embrace the Property Cycle, Fix the Crisis, Governments Told

Local government elections are looming in many Australian states and Queensland has a state election before the end of the year. While that might not be on the top of the list for many in the property industry, it is definitely on the radar of Charter Keck Cramer national executive director Richard Temlett. Because according to Charter Keck Cramer’s latest State of the Apartment Market report: “All levels of government must look beyond the respective election cycles and make decisions through a property lens rather than a political one.” Temlett’s argument is that the property cycles do not match up with political cycles. “Politicans have views that are put in place when they are voted in,” Temlett told The Urban Developer . “That maybe lasts three or four years and then maybe the government changes and those views change. “So it’s very disruptive to the housing market and the housing market doesn’t follow the political cycle.” That means, Temlett says, decisions are made without the long-term consequences for the industry taken into consideration. It also leaves the industry more exposed to the effects of world events such as regional geopolitics, pandemics and conflicts. “It’s a big handbrake,” Temlett says. “They need to take a longer-term view and read the property cycle. “If they did that, I don’t believe we’d be in the position that we’re in now.” According to the report, that position is far from ideal for the housing market in most states. ▲ Melbourne’s first build-to-rent development, a 59-level tower in Southbank. Melbourne: Downsizing stagnates In Melbourne, build-to-sell apartment launches have dropped 60 per cent compared to 2022 with a 6.8 per cent decrease in the number of build-to-sell apartments being completed. The report says that downsizing has stagnated as house prices have increased. “This is because the costs of a new apartment in many sub-markets has increased to the point where the price trade off that made downsizing financially attractive no longer exists,” the report says. “The response by many downsizers has unsurprisingly been to remain in place and find other ways to support their children and their lifestyles.” Temlett says that the Government needs to act. “[We need] to push the Government to incentivise the markets, especially by bringing back off-the-plan stamp-duty exemptions and concessions for investors,” Temlett says. “If you replace stamp duty with an annual land tax, which the NSW Government did for six months last year, and give people the option of either paying upfront stamp duty or an annual land tax, that means then that you will still be economically responsible. “The Government can still reclaim or get money and revenue to pay down the budget deficit, but they must just understand that stamp duty up front is a very, very inefficient tax that is holding back investment.” ▲ The Phoenix Apartments tower on Flinders Street. While Melbourne remains the epicentre of the build-to-rent sector, current market conditions, financial feasibility and construction woes make things tricky. “Charter Keck Cramer observes that several [build-to-rent] developers are struggling to raise capital in current market conditions which means some projects will not proceed in the short-term while others may be recut to [build-to-sell] projects,” the report said. There are now 32 projects approved in Melbourne (11,300 apartments) with another 14 projects in the planning stages. Melbourne has averaged 13,800 apartment completions a year during the past decade and the report predicts an average of 9500 apartments a year from 2024 to 2026. Conservative estimates for demand in Melbourne are from 15,000 to 18,000 apartments a year. “Melbourne is not currently delivering enough build-to-sell or build-to-rent apartments and this will lead to upwards pressure on both prices and rents in the short and medium term,” the report says. ▲ Nightingale’s Coburg project will have 10 per cent of its apartments set aside for social and affordable housing. Sydney: Locals priced out In Sydney, the situation is no better with just 8300 apartment completions, a third of what is required annually. There were only 6300 build-to-sell apartments launched. Local buyers are priced out, according to the report, and overseas and interstate investors are hesitant. Construction costs, interest rates and market price increases are making projects less feasible. Construction began on just 7200 build-to-sell apartments in 2023, 76 per cent below the 2016 peak. Temlett says axing stamp duties will help get overseas investors back. “To get to ... for example, 75,000 apartments across the country, foreign investors have to come in and we have to open up Australia to the entire world,” Temlett says. “We can ’ t just rely on investors already in Australia to be able to buy—there’s just not enough of them.” This is also where the cycle mismatch between the industry and government comes back into play. ▲ UKO’s latest BtR asset on Liverpool Road at Ashfield, Sydney. Sydney ’ s and many other cities ’ build-to-rent sector is still one or two cycles, or 10 to 15 years, away from being able to build at scale. Temlett argues that incentives need to be put in place now to allow the sector to emerge in the same way purpose-built student accommodation was incentivised. “It takes 10 to 15 years and those settings need to be in place so that finance can be made available, those buildings can be built and they can actually be operated through parts of the cycle,” Temlett says. “And then more and more buildings will be built as financiers get more, more comfortable with the risk. “So while we have an under supply now that comes down to the fact that Covid has distorted the markets and there ’ s a lot of students coming in now. “Those policies were very successful and they actually helped student accommodation emerge and get to a critical mass, where people can understand that market.” There are 11 build-to-rent projects under construction (2700 apartments). A total of seven projects (1700 apartments) have been approved with 23 projects (8900 apartments) now in planning stages. ▲ A render of Vicinity Centre’s 600 apartment and 50,000sq m commercial office space project in the Brisbane CBD. Brisbane: Badly starved The report says that the market in Brisbane is “badly starved” for build-to-sell apartments with only 1100 launched in 2023—76 per cent below the average of the past decade. A total of 2200 apartments were completed and construction started on 1600 apartments. The factors holding thing back in Queensland are the same as other states: pricing, a lack of investors and construction costs. There is some good news for the build-to-rent sector—come July 1 the 30 per cent withholding tax wil be halved. Infrastructure projects ahead of the Olympic Games have driven up construction and material costs, affecting project feasibility. The report urges the government to provide subsidies for the 30 per cent of the population who rent. So far 12 projects have been approved (4700 apartments), 12 projects are in planning (4900 apartments) and just one project (77 apartments) was completed in 2023. There are eight build-to-rent projects (more than 1800 apartments) expected to be completed within the next 24 months. ▲ One of the hotels planned for JWLand ’ s Braddon Place project on Canberra ’ s Northbourne Avenue, comprising 600 apartments and a 239-key hotel. And elsewhere... The Gold Coast has fared better than many with 1000 build-to-sell apartments launched, 2100 apartments under construction and 1500 apartments completed in 2023. There are 4100 apartments under construction and expected to be completed in 2025 or 2026. From 2017-2018, 1000 build-to-rent apartments were delivered on the Gold Coast. Since then, just two projects (610 apartments) have been approved. The Gold Coast needs 4010 apartments a year to meet demand , according to the state’s ShapingSEQ plan. Perth had just 400 build-to-sell apartments launched in 2023 with keen investors pricing local buyers out. That drove an 81 per cent drop on 2022’s figure. Work began on 400 apartments and 700 apartments were completed in 2023. There are 2700 apartments scheduled for completion in 2023 and 2500 for 2025 and 2026. Perth is currently the most expensive city to build in. One build-to-rent project (173 apartments) was completed in stages in 2019 and 2022 but seven projects (more than 1100 apartments) have been approved and another three are in planning (650 apartments). In Canberra, 1100 build-to-sell apartments were launched, down 700 on the previous year and 73 per cent below the peak in 2018. Construction started on 2100 apartments, an increase of 350 on 2022 numbers, while completions dropped from 600 to 1700, 26 per cent, the lowest since 2017 and the third contraction since 2020. There are 1800 apartments are under construction with completion scheduled in 2024 and 2025 and another 1300 apartments are scheduled to be completed by the end of 2026. “Unlike other Australian cities, Canberra in fact delivered elevated levels of build-to-sell apartments during the pandemic as a result of elevated commencements prior to the pandemic,” the report said. “Additionally, Canberra was able to stay out of lockdowns and also benefitted from strong transient white-collar occupier (renter) demand coming into Canberra for employment and education.” While there are no approved build-to-rent projects in Canberra, there are 10 projects in planning (3000 apartments). ▲ The former Perth Girls School site has been approved for 742 apartments across four towers, including 242 build-to-sell apartments. South Australia’s government has made a step in the right direction by removing stamp duty for some first home buyers, according to the report, but Adelaide had just 200 build-to-sell apartments launched, a 76 per cent decrease on 2022 and the lowest in more than a decade. Construction began on 600 apartments with 53 per cent of those projects in the heart of Adelaide. Completions numbered 400 apartments, just 24 per cent of 2020 but, the report predicts more completions ahead with 1250 apartments under construction and another 150 earmarked for completion in 2024-25. Adelaide has no approved build-to-rent projects but three projects are in the planning stages representing 670 apartments. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Embrace the Property Cycle, Fix the Crisis, Governments Told

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