2020 SYDNEY RESIDENTIAL MARKET OUTLOOK June 2020
PRESENTERS
Guillaume Volz National Director Development Sites Colliers International
Blake Schulze Director Project Marketing Colliers International
Tom Goode Director Ethos Urban
David Scardoni Director Stamford Capital
2
SYDNEY DEVELOPMENT SITES Guillaume Volz
RECENT OBSERVATIONS
Early 2020 - Prior to COVID-19
March 2020 – Into COVID-19 & Beyond
• Strong start to 2020 following recovery in 2019 • Good development site demand • Off the plan sales growing in 2020 to a very strong 2021 • We had been in decline from a market peak in 2017 • 2019 forecast drops were in the range of 20-30%, actual was circa 14% • By December regained almost two-thirds of loss and on track for 10% in 2020 • A lot of momentum…
• But, what changes from Covid-19? • Developers remaining largely optimistic, just lack of clarity on timing • Assumptions holding • Owner builders still in need of stock • Medium term structural supply issues • New supply coming to the market
4
RECENT DEVELOPMENT SITE SALES
Channel 9, Willoughby
107 High St, North Sydney
88 Birriga Rd, Bellevue Hill
Date: Feb 20
Date: Feb 20
Date: Mar 20
Price: $249m (Deferred Terms)
Price: circa $20m (Confidential)
Price: $20m+ (Confidential)
Rate/GFA: $5,011/sqm
Rate/GFA: circa $11,000/sqm
Rate/GFA: circa $10,000/sqm
Vendor: Lotus & Euro Property
Vendor: Strata Group
Vendor: Home Owners Group
Purchaser: Mirvac
Purchaser: Local Builder
Purchaser: Local Developer
NSW GOVERNMENT STIMULUS MEASURES Shovel Ready Projects
Planning Acceleration Program
•
Fast-track assessments of State significant developments, rezonings and development applications (DAs), with more decisions to be made by the Minister if required.
•
Introduce a ‘one stop shop’ for industry to progress projects that may be ‘stuck in the system’.
•
Clear the current backlog of cases stuck in the Land & Environment Court with additional Acting Commissioners.
•
Invest $70 million to co-fund vital new community infrastructure in North West Sydney including roads, drainage and public parks to unlock plans for the construction of thousands of new houses. Tax Reform •
Stamp Duty reform a possibility
•
Build to Rent
Rescue Recovery Response
First 24 have been released, mainly infrastructure: • Ivanhoe State 1 – 3,000-3,400 units, including over 950 social housing units and 128 affordable rental homes. • Doncaster Ave Student Accommodation – 259 beds • 575-583 Pacific Hwy, St Leonards • 100 Christie St, St Leonards • 23-35 Atchison St, St Leonards
Contributions Reform Plan
New Productivity Commissioner Announced Scope: • Caps on council rates and so-called value capture • Extending the 8-year cap on Council Contributions that is up in July 20 • Immediate measures for Councils to publish how much they collect in developer levies and where the money is spent.
FEDERAL STIMULUS HOMEBUILDER $25,000 Cash Grant to New Home Purchasers & Renovators
Impact of HomeBuilder
• You are a natural person (not a company or trust);
• Not as effective as had been anticipated
• You are aged 18 years or older;
• Concentrated in the Greenfield market
• You are an Australian citizen;
• Little impact on Knock Downs
• You meet one of the following two income caps:
• Income thresholds will likely limit larger renovations
• •
$125,000 p.a. for an individual applicant based on your 2018/19 tax return or later; or $200,000 p.a. for a couple based on both 2018/19 tax returns or later;
• You enter into a building contract prior to 31 December 2020 to either: •
•
Build a new home as a principal place of residence, where the property value (house and land) does not exceed $750,000; or Renovate your existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of your existing property (house and land) does not exceed $1.5 million;
• Likely to preclude new apartment projects, particularly the new “Shovel Ready” projects that are unlikely to be started by the end of 2020 • $750,000 price threshold, Sydney will largely miss out
• Construction must commence within three months of the contract date;
• Doesn’t create new demand, rather reduces the potential depth of the downturn
• All dwelling types (house, apartment, house & land, off-the-plan, etc) are eligible.
• More stimulus required at State level to activate “Shovel Ready” Projects
COLLIERS RESEARCH SCENARIO ASSUMPTIONS
Virus Peak
Length of Full Shutdown
Economy Normalises
Migration Normalises
Peak Unemploym ent
Job Losses to Sept 2020
Job Recovery to June 2021
Net Job Change
Base
May
6-8 Weeks
September
2022
10.2% Sept 2020
971,000 (7.5%)
450,000 (3.7%)
521,000 (4.0%)
Best
April
4-6 Weeks
July
2021
9.5% Sept 2020
877,000 (6.7%)
524,000 (4.3%)
353,000 (2.7%)
Worst
July
6-12 Weeks
November
2023
15.0% Sept 2020
1,614,000 (12.4%)
758,000 (6.7%)
856,000 (6.6%)
POPULATION GROWTH – BASE CASE SCENARIO • 6-month economic pain (Sept) • Health system broadly copes • Stimulus measures help maintain employment in tourism / airlines / restaurant / catering / entertainment / sport sectors • Migration takes 1 year to begin recovery • Australia one of the best managed nations in the world • Sydney still creates internal housing demand
MIGRATION RISK •
15 years of strong population growth
•
60% from Net Overseas Migration
•
78% of the 248,000 net migrants in 2018 arrived with temporary status - mostly students, followed by skilled workers and working holiday makers
WHERE TO FOR PRICES? • Secondary market listings are low • Home Builder short term stimulus, however, no impact on improving structural supply • Last time unemployment hit 10%, median prices remained stable • Interest rates in the 1990s peaked at 17.5% • Housing crashes are more often preceded by high interest rates and loose lending practices • Record low interest rates • Current lending practices have been much more responsible 11
SYDNEY DWELLING COMPLETIONS
WHAT ROLES DOES RESIDENTIAL HAVE IN THE RECOVERY PHASE?
2021/22 completions will push out past 2022 and to 60-year lows
Decreased NOM & Low Economic Activity will help ease the undersupply however not stop undersupply
Source: Charter Keck Cramer (Feb 2020)
The NSW Planning Minister said:
“Whatever happens, we need to keep delivering increased supply to meet the targets identified by the GSC.” Source: PCA Advocacy Alert – 21 April 2020
More Housing Stimulus is Needed
SYDNEY DEVELOPMENT MARKET STRENGTHS
WEAKNESSES
•
Ongoing infrastructure spend across Sydney
•
Moderately high vacancy Sydney low of 3.4%
•
Low interest rates
•
Rapid Increased vacancy due to the shutdown
•
Developers in good areas have low levels of inventory at hand
•
Current valuations
•
Downsizer demand
•
Market sentiment
•
Developer interest is, not if, but when to reenter the market
•
Community fear
OPPORTUNITIES
THREATS
•
•
2nd wave of infections
•
Credit tightening affecting construction and developer confidence
•
Bank lending impacting home loan lending
•
Diminishing supply levels Rent market recovery • GFC 1-2% Vacancy Rate • Dec 07 – Dec 08 saw 10% – 15% growth
•
Flight to quality
•
Slower than expected migration
•
Further stimulus for Off the Plan sales may be needed
•
Greater than expected unemployment
•
Local investors have been dormant for over 2yrs
•
•
Counter cyclical offshore buyers
Perception of distressed opportunities, if not Residential sites, other asset classes
NEW DEVELOPMENT SITE SALES Coming Soon…
270 Rapleys Loop Rd, Werombi
262 Castlereagh St, Sydney
Method: EOI campaign
Method: EOI campaign
Land Area: 295ha*
Land Area: 291sqm*
Price: $30,000,000+
Price: $20,000,000+
•
Chatswood
•
Lane Cove West
•
Artarmon
•
Manly
•
Kensington
•
Vaucluse
SYDNEY PROJECT MARKETING Blake Schulze
SYDNEY PROPERTY MARKET OVERVIEW ENQUIRY V SALE – JAN 18' - MAY 20'
• Market downturn commenced mid 2018 • Low point in enquiry and sales January 2019 • Market recovery commenced during the State and Federal elections • September 2019 upturn in market conditions • COVID-19 lockdown commenced late March, which has had impacts on the market
17
SYDNEY PROPERTY MARKET OVERVIEW OFF-THE-PLAN AVERAGE PRICE Colliers International Residential NSW Average Purchase Price $1,200,000
$1,131,015 $1,003,054
$1,000,000 $904,511
$936,265
$957,264
2018
2019
$858,241 $800,000
$749,533
$600,000
$400,000
$200,000
$0 2014
2015
2016
2017
YTD 2020
Source: Colliers International
18
SYDNEY PROPERTY MARKET OVERVIEW THE MARKET - 2020
19
PRE-LOCKDOWN V LOCKDOWN AVERAGE ENQUIRY TYPE • First home buyer activity has reduced due to uncertain times, particularly with high unemployment levels • Consistent uplift of investor and owner occupier interest • Opportunistic investors
20
2020 TIMELINE AVERAGE ENQUIRY BUDGET • Week 16 achieved the highest weekly enquiry budget for 2020 - $1.950M
Colliers International Residential NSW Average Weekly Enquiry Budget $2,500,000 $2,000,000
• Although Week 15 was low, enquiry budgets were consistently higher during COVID lockdown period
$1,500,000 $1,000,000 $500,000 $0 Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Pre-Lockdown Source: Colliers International
COVID 19 Lockdown
• Increased interest from owner occupiers and investors seeking premium off-the-plan apartments 21
RECENT MARKET ACTIVITY
The Landmark
West End
St Leonards
Glebe
Project Sell Outs
UPCOMING PROJECTS TO LAUNCH IN 2020 Milsons Point
St Leonards (Penthouse Release)
Burwood
Lindfield (Townhomes)
Bondi Junction
Alexandria
Parramatta Sydney CBD 23
TOM GOODE – DIRECTOR, PLANNING ETHOS URBAN
SYDNEY METRO HOUSING TARGETS
WHAT’S HAPPENING? Each Council has to prepare a:
• LEP Review and Local Strategic Planning Statement (LSPS) • Local Housing and Employment Strategies • A new Local Environmental Plan
26
WHAT’S HAPPENED •
Councils have prepared their LSPS to meet DPIE timeframes
•
Many Councils had not undertaken the foundation work to inform the LSPS – i.e. housing and employment strategies
•
Most of the LSPSs are now done or almost done
•
To hit DPIE timeframes the draft LEPs are consolidating existing plans and general house keeping – there is little strategic change
•
Real LEP changes are yet to come
LEP UPDATE •
There has been few LEPs progresses substantially
POST EXHIBITION AND AWAITING COUNCIL ADOPTION Council
Likely Council Adoption Date
Hornsby
May / June 2020
Inner West
May / June 2020
THE TARGETS: 0-5 YEARS
THE TARGETS: 0-5 YEARS
WHAT DOES IT MEAN? What opportunities do the reviews create when seeking rezonings? •
DPIE Planning Circular PS 16-004 outlines the consideration of Strategic Merit:
>
Consistent with the ‌ relevant district plan‌ or corridor/precinct plans applying to the site, including any draft regional, district or corridor/precinct plans released for public comment; or
>
Consistent with a relevant local strategy that has been endorsed by the Department; or
>
Responding to a change in circumstances, such as the investment in new infrastructure or changing demographic trends that have not been recognized by existing planning controls.
>
A proposal that seeks to amend controls that are less than 5 years old will only be considered where it clearly meets the Strategic Merit Test
WHAT DOES IT MEAN? What opportunities do the reviews create when seeking rezonings? •
LSPS is not formally endorsed until DPIE review – therefore of less statutory relevance
•
DPIE providing guidance to Councils on achieving their targets
•
Detailed review of assurance of each LGA Housing Strategy and testing against DPIE housing / demographic analysis
•
Feasibility testing to ensure Housing Strategies are 'deliverable' and not just theoretical capacity
SHOVEL READY PROJECTS • Seconded William Power into DPIE (from PCA) – liaison role only (not decision making) • No amendment to statutory processes – speeding up decision-making
• Outsourcing reviews / report writing to (independent) external parties where relevant
SHOVEL READY CRITERIA •
Jobs >
•
Timing > > >
•
Does the project create jobs during construction and ongoing?
Can a decision be made quickly? DA’s: commence in 6 months? Planning Proposals: proceed to DA within 6 months?
Public Benefit > > > >
Infrastructure delivery / leverage Housing Socially responsible Strategic merit
SHOVEL READY PROJECTS • First tranche of 24 fast-tracked projects announced on 28 April 2020 • Second tranche (another 24 projects) was announced on 22 May 2020 • Subsequent tranches to be announced shortly
RECENT LEGISLATIVE CHANGES • Changes to development consent lapsing periods • Longer appeal period window • Abandonment period for businesses that rely on existing use rights extended • Higher bar for physically commencing a development consent
DAVID SCARDONI - DIRECTOR Stamford Capital
DEBT CAPITAL MARKETS SUMMARY • Overriding theme in the Debt Capital Markets is uncertainty • Generally lending parameters have been adjusted for risk - reduced gearing & increased pricing /rates – Bank & Non-Bank • Lenders are very selective on transactions with every risk metric under the microscope • Valuation of assets is increasingly a challenge with pressure from lenders
• Will we see banks & lenders forcing sales and/or appointing receivers to commercial property borrowers once stimulus & relief period ends? 38
LAND BANK / SITE ACQUISITION FUNDING Lender Type
Rates & Terms
No. of Lenders
Leverage
General
Bank
Limited to no appetite.
Limited to no appetite.
Very low leverage if to consider (<3040% LVR).
Banks pulled back since 2017 & Royal Commission.
Down ~10-15%.
Generally only option for Land Bank funding.
Non-Bank
Increased by up to 4% p.a. or more – depending on leverage, location, sponsor, approval status.
Reduction in active lenders by approx. 25%. A few lenders have pulled out of market entirely / funding lines pulled.
Properties need income and / or alternate “in use” value.
Lenders cautious of volatility of land values.
Funding available for transactions with strong deal fundamentals – sponsor, location, project strategy etc. 39 39
CONSTRUCTION FUNDING Lender Type
Rates & Terms
No. of Lenders
Bank
Interbank Base Rate All banks – most (BBSY) at all time low focusing on existing of 0.15%. clients only.
Presales
General
100% of Loan Amount (generally).
Liquidity available pending hurdles.
Average 50% of Loan Amount.
Funding available for transactions with strong deal fundamentals – sponsor, location, project strategy etc.
Increased by 0.25 0.50% (each the upfront fee, line fee & margin) Non-Bank
Fund off various interest rate & fee structures. Increase by 0.50%++ (each the upfront fee, line fee & margin).
Reduction in active lenders by approx. 25%.
Credit focusing on every risk factor: - Program - Presale settlement risk - Valuation - Builder - Sponsor
Some no presale funding available – expensive. 40 40
RESIDUAL STOCK FUNDING (COMPLETED DEVELOPER STOCK TO BE SOLD) Lender Type
Rates & Terms
No. of Lenders
Leverage
General
Bank
Limited to no appetite unless stock is rented.
Limited to no appetite.
Very low leverage if any appetite (<30% LVR).
No appetite unless stock is rented â&#x20AC;&#x201C; commercial term loan.
Non-Bank
Increased between 13% on pre-COVID pricing.
Most remain in market given perceived risk profile of completed stock.
LVRs reduced by Strong liquidity â&#x20AC;&#x201C; perceived relatively 5-10%. low level of risk for the price, being completed residential stock.
41
ABOUT STAMFORD CAPITAL Who We Are
Leading intermediary, broker and capital advisor for Australian property developers and commercial property owners. Officers in Sydney, Melbourne, Brisbane and Adelaide.
What We Do
Provide certainty to our clients for their commercial real estate capital requirements â&#x20AC;&#x201C; development or investment.
Our Clients
Commercial property investors and developers ranging from privates, companies, fund managers to ASX-listed companies.
What Have We Done
Raised and advised on over $4.8 billion (FY19 $1.1B) in real estate funding, driving projects and properties with an end value in excess of $8B.
42
Q&A