Q1-17 - Development Markets Wrap Up

Development Markets Wrap Up - Q1, 2017

Australian development property remains highly active with a in excess of $1.1 billion of transactions in the first quarter of 2017, in line with the first quarter of last year but down 26% from $1.5 billion last quarter.

The actual number of transactions reached a new high of 34 for the quarter up from 21 last quarter and 30 in the 1st quarter last year. The statistics show the median asset price fell to $28M down from $40 million last quarter and $30 million from the same quarter last year.

VIC accounted for over half of the transactions this quarter, followed by NSW.

What does this mean ?

The majority of Development sales this quarter were for residential development purposes with large scale vacant urban land in Victoria comprising a large proportion of sales.

Amongst the major purchasers this quarter was Acqualand, Growland and PolyGroup (all offshore buyers) as well Stockland, Mirvac and Central Equity.

The consistent acquisition of development projects amidst tightening credit conditions and surging house prices suggests that most residential developers are yet to form a view that there is an over supply of dwellings or that buyer demand is likely to soften.

The largest transaction this quarter was the purchase by Romeciti of a 10,000sqm site from Goodman group in Macquaire Park, NSW for $120.0M. The site opposite Macquarie Centre / University and railway station has a DA for 2 x 20 storey towers containing 357 residential apartments. The acquisition price equates to $336,000 per apartment.

Another large price was paid by Acqualand for a 12.5 hectare site in Baulkham Hills NSW for $90.0M. The development proposal for this site include 71 land lots and 75 medium density lots equating to an average raw cost per lot of $616,000.

A small number of non residential development transactions also slipped through this quarter. GPT moved into Parramatta with the acquisition of 34 Smith Street for $31M with plans to build a 26,000sqm office building and Charter Hall and Logos also acquired sites in Western Sydney for 20,000sqm to 30,000sqm warehouses projects.

The average site value per square metre for transactions this quarter was in line with last quarter at $5,300/sqm.

What Next ?

Australian development markets are driven predominantly by population growth. Australia continues to record strong population growth both from natural increase and migration and this will continue to underpin the need for new housing development in urban areas.

Excaberating the demand is the reducing number of people per household. As baby boomers move into retirement age, most are (unlike previous generations) are being encouraged to hold on to their large house rather than to downsize due to tax policies, ageing in place policies as well as the high transfer costs (ie stamp duty and relocation). This lack of churn is fueling the need for new housing.

Affordibility is however the key issue facing the government who are facing increasing pressure to regin in house price growth. The fiscal and macro prudential controls that will flow will curb housing price growth for a number of years. Unfortunately these same controls will also likely limit development activity and as such we would expect development transaction to soften over the rest of 2017/18.

If the broader economic conditions improve we will likely see more commercial and industrial development activity take the place of residential activity.

Other Wrap Ups

Check our our other 1st Quarter Wrap ups at https://www.cmaust.com/news

About Us

Propel is a property based advice, research and economics group providing support to institutional investors. We provide assessment on direct investment and development transactions, listed real estate, and investment strategy.

We are part of Capital Management Australia, a boutique funds management business.