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Land values need to find their floor to get residential development back under way to address housing supply and affordability issues.
MaxCap’s chief investment officer Bill McWilliams believes it will be land values that will have to ameliorate in the current market.
Speaking at The Urban Developer and MaxCap Roundtable, McWilliams says “something’s got to give” in the heavily constrained property market of NSW.
“I think on paper, development site land is the only thing that can give (in terms of valuation prices),” McWilliams says.
“And the multiplier effects can be quite high. I think most developers are seeing blue sky in terms of holding out. They’re looking to hold because the revenues have to increase.
“The reality is for some developers that are highly geared, the holding costs have gone up in both funding and land tax, and some will be forced to sell. I don’t think we will see a whole heap of sites that will be sold, but some might not be able to see through the cycle.
“But I think there’s enough developers and capital on the sidelines and enough demand that we won’t see prices fall through the floor.”
NSW’s greenfield market is still firing as pent-up demand and low supply provide steady tailwinds for Legacy Property chief executive Matthew Hyder.
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“It’s a mix between high-rise and mid-rise apartment projects in metro parts of Sydney, and residential communities across north-west, west and south-west Sydney,” Hyder says.
“There aren’t too many developers that deliver apartments and land subdivision. I didn’t realise early on just how beneficial that has been.”
“I’ve looked at Victoria and the Gold Coast, but to me Sydney to date has offered more. We have 10 projects under way with 4000 apartments and lots.”
Hyder says investors are returning to the greenfield market. He says up to 25 per cent of Legacy Property’s lots are being sold to investors.
He says Penrith is a target growth area that is growing 23 per cent faster than Greater Sydney, with a slew of state government infrastructure investment in the area.
Hyder knows a Texas-based multi-family developer keen to take on build-to-rent in Australia.
“But to me the tax structure that is here inhibits it. It makes so much sense, I don’t understand why the government doesn’t allow residential build-to-rent to be more tax effective,” he says.
“Anyone here who has investigated build-to-rent is doing it knowing that right now it does not work.
“They go in thinking ‘we need legislation change, let’s experiment, we know we’re not going to make anything off the building, we experiment, cut our teeth, make mistakes. When legislation changes, bam we’re ready to go’.”
The Urban Developer and MaxCap Group hosted the roundtable in Sydney recently to tackle the issues impacting development in NSW and get a temperature check on the health of the sector.
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