Projects Review EDITION 24, 2021
Cover Photo One Lakeview – 1 Lakeview Avenue, Williamstown
14 − 23 NAB RESIDENTAL PROPERTY SURVEY Q2 2021
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A Word from Our Directors 2
Spotlight
Written by NAB Group Economics www.business.nab.com.au
6−7 VICTORIAN PROPERTY DEVELOPERS: THINK TWICE BEFORE NOMINATING Written by Josh Chye, Partner, HLB, 03 9606 3888 www.hlb.com.au
24 − 25 WHY PROJECT DELIVERY AGREEMENTS ARE ON THE RISE Written by Alexandra Cain, The Urban Developer, 1300 601 099, www.theurbandeveloper.com
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Current Projects ONE LAKEVIEW
HERRON TODD WHITE: PROPERTY CLOCK SHOWS ALMOST ALL MARKETS IN POSITIVE POSITION Written by Jessamy Tredinnick, Journalist, Elite Agent 1300 601 099 www.eliteagent.com
88 Leveson Street, North Melbourne
ARCADE 393 Burwood Road, Hawthorn
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835 High Street, Armadale
COVID-19 CLAUSES IN CONTRACTS OF SALE
DARACOMBE 7 Daracombe Avenue, Kew
Written by Nafsika Palbas, Senior Associate, Tisher Liner FC Law 03 8600 9333 www.tlfc.com.au
12 − 13 BOSTON 16 Boston Road, Balwyn
Q2 2021 – MELBOURNE APARTMENT MARKET
HURSTMON
Written by Urban Property Australia, 1300 870 064 www.upaustralia.com.au
3 Hurstmon Street, Malvern East
Past Projects 835 HIGH
1 Lakeview Avenue, Williamstown
88 LEVESON
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IRAMOO 7 Iramoo Avenue, Balwyn
ASCOT PLACE 9 Newsom Street, Ascot Vale
THE AVENUE 15 Landale Avenue, Croydon
TIMELESS 555 Burke Road, Camberwell
GLENARM SQ 5 Glenarm Road, Glen Iris
+ 61 3 9822 9999 1111 High Street, Armadale VIC 3143
A Word From Our Directors Put your hand up if you’re sick and tired of doing an abridged version of your current role, stuck at home and getting little reward for effort . Put your hand down if you live on your own – no one can see it. At the time of writing the construction sector had just been sent to the naughty corner for two weeks, after mass uprisings throughout the CBD Construction has been one of main constants that had carried all of us through previous lockdowns (In Melbourne anyway) giving us hope that our collective endeavors have not been without purpose . Without the continuation of construction, we’re really just spinning our wheels waiting for the machine to start up again. Within project sales, one of the greatest calls to action for any proposed buyer is “Builder appointed – Construction Starting” (BTY No one believes anymore in “Developers Final Release” ). When it’s stop – start – wheneverwhatever, buyer confidence starts to erode providing yet another reason for an off the plan buyer to not proceed. During lockdown off the plan sales will slow, marketing investment’s are reduced and limited leads are only kept warm until face to face appointments resume – we’ve learnt by now that buyers rarely go ahead for an off the plan sale ‘sight unseen’. Its not all doom and gloom however , upon our return to selling at the start of this year, pent up demand from late 2020 allowed up to then help two people a day to own an off the plan property. We expect to again return to these numbers when we’re allowed to meet (and close) in person. Not surprisingly the ”top end” is alive and well. During September we placed the Penthouse at 835 High St Armadale for $15 Million.
thirteen, three bedrooms at an average of $2.29 million ($14,741 psqm) specifically tailored to the downsizer . Our residential sales team are now frantically attempting to piece together some semblance of a spring selling season. Marshall White have transacted over 50 established homes ‘sight unseen’ during lockdown, however we’re pleased to report this alternative to the more traditional methods of selling hasn't caught on post lockdown. (otherwise who needs an agent, right?). With residential volume down throughout the remainder of 2021, the 80 % of off the plan buyers who will also consider established offerings, are returning to the fold. This has already been demonstrated within our two townhouse launches in diverse locations such as Williamstown and Mont Albert North, where aspirational young couples who can’t reach the median house price for these suburbs, are lining up for the next best thing. So, who ever though we’d all crave normalcy – we need to remain confident it will return to us in 2022. The underlying fundamentals of the need for shelter, low interest rates, cheap money and the nirvana of herd immunity will keep us going . And so , on we go together – reach out please if we can help. Mark and Leonard.
Mark Dayman - Director T 03 9832 1193 M 0409 342 462 mark.dayman@marshallwhite.com.au
Leonard Teplin - Director T 03 9832 1191 M 0402 431 657 leonard.teplin@marshallwhite.com.au
A penthouse filling almost 1000 sqm of the sky in Armadale, has now become the priciest apartment ever sold in the suburb, and the third highest residential sale ever recorded . From the start of the financial year till now, the percentage of ‘empty nester’ leads we’ve received had increased by 35%. Projects like Ralston’s ‘Gladstone’ in Armadale, receive the benefit of this increase by offering a boutique building of 21 apartments , comprising eight two bedrooms at an average $1.33 million ($12,798 psqm) and
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Spotlight
Larissa Rael
Katie Benson
Georgie Lupson
Executive Assistant
Sales Administration
Business Manager
Larissa’s passion for property was sparked at a young age and she is armed with an extensive knowledge of the real estate industry. Larissa began her career in property management in London before returning to Melbourne where she was one of the original Marshall White team members. Larissa’s adventurous and inquisitive nature has also taken her abroad to Boston, where she lived for over a decade.
Whilst relatively new to real estate Katie has brought to her role in sales administration for Marshall White Projects a wealth of valuable experience from her previous positions.
A stellar work ethic and determination has seen Georgie flourish in her role in the Marshall White Projects team. Approachable and genuine, Georgie is a sales administration specialist whose professionalism and positive outlook make her a delight to engage with.
Known for her personalised and professional approach coupled with compassionate guidance for her clients, Larissa plays an integral role in ensuring the smooth and efficient operation of our Projects division. Combining exceptional management skills and a keen eye for detail, Larissa’s positive and optimistic outlook make her a highly revered team member. Larissa grew up in Stonnington and was educated at St Michael’s Grammar School. She has two children and is immersed in their schooling and extra curricular activities. Larissa enjoys doing Pilates and yoga in her downtime as well as exploring Melbourne, travelling and catching up with friends and family.
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Upon completion of school, Katie worked in retail for many years and also gained a diploma in Human Resource Management. This led to employment in administration at a boutique accounting firm and then a prestigious position as head of customer service at Melbourne and Olympic Park. There she managed a team that looked after the Australian Open, AAMI Park and Rod Laver Arena. Katie has applied this knowledge in contract and sales to her work with five of our agents and can be depended upon to approach every task with enthusiasm, efficiency and determination. Her communication style is assertive and honest, yet friendly and compassionate. In her spare time Katie enjoys cooking and travelling. She also used to play lacrosse for many years and her interest in the sport continues.
Georgie possesses superb attention to detail and exceptional management skills, ensuring she is impeccably organised and well prepared at all times. With broad experience across a range of departments, Georgie is a valuable team member who understands clients’ needs. Educated at Loreto Mandeville Hall in Toorak, Georgie is highly knowledgeable of the Stonnington area and loves sharing her recommendations with clients. Outside of work, Georgie is involved in local sports and is an avid golfer and AFL footballer in the VAFA league. A fervent supporter of the Melbourne Football Club, Georgie also enjoys travelling and exploring Melbourne’s great beaches.
CURRENT PROJECTS
Project
One Lakeview 1 Lakeview Avenue, Williamstown
Project
88 Leveson 88 Leveson Street, North Melbourne
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Project
Project
393 Burwood Road, Hawthorn
16 Boston Road, Balwyn
Arcade
Project
Hurstmon 3 Hurstmon Street, Malvern East
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Boston
CURRENT PROJECTS
Project
Project
15 Landale Avenue, Croydon
555 Burke Road, Camberwell
The Avenue
Timeless
Project
Glenarm Sq 5 Glenarm Road, Glen Iris
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Victorian Property Developers: Think Twice Before Nominating. Written by Josh Chye, Partner, HLB, 03 9606 3888, www.hlb.com.au
PROPERTY DEVELOPERS RISK EXPOSURE TO DOUBLE DUTY. It is not uncommon for property developers to secure a parcel of land for development and enter into the contract using a Director’s name or a shell company. This is so that the parcel of land can be secured quickly especially in a competitive situation. The intention may be then to source legal and tax advice on the preferred structure and then “nominate” in the preferred final land ownership entity. However, a property developer may be exposed to double land transfer (stamp) duty when they nominate the new final land-owning entity and the developer has undertaken any action(s) amounting to “land development.” The broad intention of this tax law is that if the developer has done certain actions to enhance the value of the land between contract date and nomination of a new entity, then this is an additional dutiable event under the “subsale” provisions. This potential for double duty means the developer could be paying up to 14.5% land transfer duty twice if they are a foreign 6
purchaser of residential development or up to 6.5% land transfer duty twice for local developers. THE COMMISSIONER’S VIEW ON LAND DEVELOPMENT The State Revenue Office has recently finalised its views on what constitutes “land development” in Ruling DA-064. Concerningly, the Commissioner takes an extremely wide view on what may constitute “land development”, which may mean one or more of any of the following: Preparing a plan of subdivision of the land or taking any steps to have a plan registered. Applying for or obtaining a planning permit in relation to the use or development of the land. Requesting a planning authority to prepare an amendment to a planning scheme that would affect the land. Applying for or obtaining a building permit or approval in relation to the land. Doing anything in relation to the land for which a permit or approval referred to in
FROM OUR CONTRIBUTORS
item (4) would be required. Developing or changing the land in any other way that would lead to the enhancement of its value. The scope of the Ruling requires developers to take significant caution if they are to consider nominating a new entity for the following reasons: •
The Ruling provides examples where the Commissioner considers that certain actions may constitute land development, even if arguably these are more routine commercial and non-value enhancing activities. Examples include simply engaging a professional surveyor or commissioning a review of a plan for subdivision;
•
The broad “catch all” limb of (6) above provides the Commissioner far reaching scope to make his own assessment of any activities undertaken by the developer that may enhance the value of the land. These include activities that do not alter the physical characteristics of the land (e.g. removal of single dwelling covenant or a removal of land from the Victorian Heritage Register);
•
The Commissioner also takes the view that even if there is an overall set of activities that decreases the value of the land, if a single activity of the developer could increase the value of the land, then this can cause land development and double duty to occur structure.
KEY TAKEAWAYS Given the significant risks of inadvertent double duty for property developers if looking to nominate a new entity, it may be prudent in parallel when doing due diligence on acquiring a development site to consider the setup of the preferred final acquisition structure. By having the preferred structure in place early, it may also identify any other legal or commercial tax planning opportunities before acquisition, as well as the give the developer confidence to start any necessary development activities once the contract is signed. If this is not commercially possible, it will be important for developers to be aware and likely take a conservative approach on any activities relating to the land before nomination of the final preferred structure is undertaken. 7
Herron Todd White: Property clock shows almost all markets in positive position. Written by Jessamy Tredinnick, Journalist, Elite Agent, 1300 601 099, www.eliteagent.com
Broome saw positive movement, changing from ‘start of recovery’ to the ‘rising market’ sector. Similarly, the Central Coast, Mildura and South West WA moved from ‘rising market’ to ‘approaching peak of market’ for houses. However, Albany moved back from ‘rising market’ to ‘start of recovery’. TOP OF THE CLOCK Houses – There were no new additions to the top of the clock, with Bathurst, Dubbo, Launceston, Tamworth, Canberra and Burnie/Devonport all remaining firmly in place. However, Albury has scooted back to ‘approaching peak of market’, having been in the ‘peak of market’ for houses last month. Project: Timeless, Hawthorn East
Nearly all Australian residential property markets are either rising or approaching their peak, according to Herron Todd White’s national property report for July.
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Units – There was no change when it came to units either. Bathurst, Burnie/Devonport, Launceston and Tamworth remain at the peak of the market. STARTING TO DECLINE No regions are starting to decline in terms of houses or units.
Herron Todd White’s (HTW) July property clock has remained mostly the same as last month, with only six markets showing positional changes for houses and seven changes for units in the residential sector.
DECLINING MARKET
RESIDENTIAL
APPROACHING BOTTOM OF THE MARKET
There was only one single market across units and houses in a negative category. The rest of the clock has remained significantly unbalanced, in the best way possible. In fact, there were 28 regions in the ‘rising market’ category alone.
No regions are approaching the bottom of the market for units or houses.
Western Australia saw a considerable amount of the recorded movement, with Broome, South West WA and Albany all showing movement on the national property clock for housing.
START OF RECOVERY
Meanwhile, the unit national property clock showed positional changes for South West WA, Perth, Geraldton and Kalgoorlie.
Units – There are no new entrants to this category for units. Albany, Alice Springs, Brisbane, Bundaberg, Cairns, Darwin, Emerald, Ipswich, Melbourne, Toowoomba,
Houses – No regions are in decline. Units – Canberra remained the only declining market when it comes to units.
BOTTOM OF THE MARKET No regions are at the bottom of the market in terms of houses or units.
Houses – Albany moved backwards to ‘start of recovery’ this month, while Alice Springs and Bundaberg remain in this position.
FROM OUR CONTRIBUTORS
Townsville, Whitsundays and Sydney remained in place. It should be noted more than 61 per cent of these regions were in Queensland (eight out of 13).
surprisingly resilient over the past month, despite lockdowns in different states.
RISING MARKET
“Things certainly improved this year compared to last year,” she said.
Houses – The list of regions in a rising market is remarkably lengthy, but notably Broome has now moved up to this category. Meanwhile, regions remaining here are: Adelaide, Adelaide Hills, Ballina/Byron Bay, Barossa Valley, Brisbane, Cairns, Coffs Harbour, Darwin, Emerald, Geraldton, Gladstone, Gold Coast, Hervey Bay, Hobart, Illawarra, Ipswich, Kalgoorlie, Karratha, Lismore, Mackay, Melbourne, Mount Gambier, Newcastle, Perth, Port Hedland, Rockhampton, Shepparton, Southern Highlands, Sunshine Coast, Sydney, Toowoomba, Townsville and Whitsundays. Units – Perth, Wodonga, Kalgoorlie and Geraldton all moved to rising market this month. Like houses, the list of areas where unit values are rising is lengthy: Adelaide, Adelaide Hills, Albury, Ballina/Byron Bay, Barossa Valley, Broome, Coffs Harbour, Dubbo, Gladstone, Gold Coast, Hervey Bay, Hobart, Illawarra, Karratha, Lismore, Mackay, Mount Gambier, Newcastle, Port Hedland, Rockhampton, Shepparton, Southern Highlands and the Sunshine Coast. APPROACHING PEAK OF THE MARKET Houses – As previously noted, Albury, the Central Coast, Mildura and South West WA all moved into the ‘approaching peak of the market’ segment this month. Geelong and Wodonga remained in the same position. Units – Most notably, the Central Coast shot up from ‘approaching the bottom of the market’ to ‘approaching peak of the market’ within one month. HTW valuers Todd Beckman, Julia Miller and Jemma Brisco pointed out that while a $700,000 price point in the region used to be considered as the ‘upgrader market’, it is now the entry level to many suburbs in the Central Coast. South West WA and Mildura also moved to this category, while Geelong remained. COMMERCIAL HTW Commercial Director Angeline Mann and retail specialist valuer Vanessa Hoey revealed the retail sector remained
Ms Mann suggested Sydney’s market will rebound as soon as lockdown finishes.
“Just before this current lockdown, you couldn’t get a restaurant reservation in Sydney. Of course, it’s a very industry specific resilience. “Cafés and restaurants bounced back well, but businesses such as travel agents continue to struggle.” Ms Mann said many operators learned valuable lessons in 2020 that are helping them weather this 2021 lockdown. She explained that the way certain properties can adapt is having an impact on values and rents too. “So if you own a retail property which can utilise additional space when needed, it becomes even more attractive to tenants and investors,” Ms Mann said. “There’s still an element of caution in the market. Whilst the existing traders might be doing well, it doesn’t mean there’s this rush of people wanting to expand or to open a new business. So, we’re still seeing vacancy high across most of the retail areas.” Sydney was listed as a declining market on the national property clock for retail, alongside Cairns, Darwin, Echuca, Geraldton, Melbourne, Newcastle and Toowoomba. There were no changes in position across any category. The Central Coast and South East NSW remained at the peak of the market, while the Sunshine Coast was approaching the peak of the market. Canberra, Geelong, Gippsland, the Gold Coast and the Mid North Coast were starting to decline, while Hobart, Illawarra and South West WA were approaching the bottom of the market. Alice Springs, Emerald, Gladstone, Perth and Rockhampton remained trapped at the bottom of the market. However, Adelaide, Adelaide Hills, the Barossa Valley, Bundaberg, Coffs Harbour, Hervey Bay, Ipswich, Lismore, Mackay, Mildura, and Townsville remained hopeful in the ‘state of recovery’ category.
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COVID-19 Clauses in Contracts of Sale . Written by Nafsika Palbas, Senior Associate, Tisher Liner FC Law, 03 8600 9333, www.tlfc.com.au
The uncertainty and instability of the COVID-19 pandemic continues, as Melbourne endures lockdown 6.0 and other parts of Australia are in various stages of lockdowns and/or restrictions being reimposed in response to spread of the Delta variant of COVID-19. Over the past 18 months this uncertainty and instability has naturally disrupted and created uncertainties and risks in Contracts for the sale and purchase of properties of all asset classes. This has been made more difficult by stay-at-home orders, bans on in-person inspections and auctions and most recently, the reintroduction of the Commercial Tenancy Relief Scheme (CTRS) (of which you can read more about by clicking here). COVID-19 is ever-evolving and so too are the far-reaching implications it has on existing and future contractual obligations of sellers and purchasers. The additional risks created by COVID-19 are unique to each property and unique to each seller and purchaser. Each situation requires careful review on a case-by-case basis.
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Having said this, the below are some general points that may need to be considered in a Contract of Sale. This blog will not examine force majeure clauses or the doctrine of frustration in any detail, other than to note that these are separate concepts which, depending on the circumstances, may also have some application to COVID-19 affected contractual obligations: 1.
What specific contractual obligation(s) could a party need to be excused from complying with if COVID-19 precludes their compliance? For example, if the seller is required to carry out works presettlement.
2.
What happens if COVID-19 delays settlement or precludes settlement from occurring, and what are the resulting consequences (i.e. time extension)?
3.
For residential properties purchased sight unseen or with the benefit of virtual inspections only, will the purchaser have a later right to inspect and what rights (if any) flow from that later inspection if the purchaser is unhappy.
FROM OUR CONTRIBUTORS
4.
For residential properties sold subject to a residential rental agreement, has the seller granted any COVID-19 rent relief (that is required by law, or which the seller has decided to grant voluntarily)?
7.
5.
For commercial properties sold subject to leases:
The above is not intended to be exhaustive or complete, but rather some general examples of issues that may require consideration and inclusion in a Contract of Sale. Ultimately, in preparing a Contract of Sale during these uncertain times, it is important to first and foremost bear in mind the risk that the seller and/or purchaser is seeking to deal with. This will inform how the Contract of Sale clauses are drafted and to whom and under what circumstances flexibility is given. A well thought out and drafted Contract of Sale can help provide some assurance and guidance to the parties on dealing with the ever-evolving COVID-19 uncertainties.
- how will any COVID-19 rent referrals from CTRS 1.0 and/or 2.0 be dealt with between the seller and purchaser at settlement? - has the seller granted any further COVID-19 rent relief as required by CTRS 2.0, or which the seller has decided to grant voluntarily? If so, does this result in any extension to the duration of the lease term? 6.
For residential or commercial properties where COVID-19 relief has been provided as required by law or granted voluntarily, what power will the seller have to enter into further COVID-19 arrangements after the day of sale up until and including settlement? A purchaser is likely to want oversight and visibility on this after the day of sale, particularly on any voluntary arrangements intending to continue post-settlement.
For Contracts of Sale that are subject to a due diligence period, what happens if COVID-19 precludes a purchaser and its consultants from completing its due diligence enquiries?
If you have any questions in relation to the a contract of sale, please contact Nafsika Palbas or a member of our Property Law Team.
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Q2 2021 – Melbourne Apartment Market. Written by Urban Property Australia, 1300 870 064, www.upaustralia.com.au
INNER-CITY MELBOURNE APARTMENT SUMMARY Despite the elevated vacancy levels of the Inner-City Melbourne precinct, values for Inner-City Melbourne apartments have increased solidly over the year to reach an all-time high. Having traversed the worst of the pandemic, Urban Property expects that the declining apartment pipeline will shelter any significant falls of Inner-City Melbourne apartment values in the medium term. This figure took into account houses sold from January 1 to March 31.
PRICES
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•
Values for Inner-City Melbourne apartments have increased solidly over the year, reaching an all-time high despite the lack of international students and subdued investor demand
•
The vacancy rate for Inner-City precinct is projected to have peaked with the total vacancy rate falling in recent months
•
Of the 60 new developments currently under construction, 58% of the apartments are located in the CBD Core, followed by 23% in Southbank and 7% are located in Docklands
Despite the elevated vacancy levels of the Inner-City Melbourne precinct, values for Inner-City Melbourne apartments have increased solidly over the year. According to the REIV, median apartment prices increased to $655,000, up 8.4% over the year, to an all-time high. Interestingly, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth, increasing by 5.1% to $1,077,500 – a record high level. While the lack of international students have had a significant impact on the rents and vacancy rates, 1-bedroom apartment values have recorded another year of solid growth, having risen by 4.2% over the year to June 2021 to $408,000. Similar to the trend of other Inner-City Melbourne apartments, values of 2-bedroom apartments also increased over the year, rising to $641,000, an annual increase of 0.5%. Having traversed the worst of the pandemic, Urban Property expects that the declining apartment pipeline will shelter any significant falls of Inner-City Melbourne apartment values.
FROM OUR CONTRIBUTORS
SUPPLY
DEMAND
Currently there are 8,300 apartments under construction within the Inner-City Melbourne region. With 3,630 apartments already completed in 2021, Urban Property Australia research forecasts that 5,600 apartments will be completed this year. Of the 60 new developments currently under construction, 58% of the apartments are located in the CBD Core, followed by 23% in Southbank and 7% are located in Docklands. Looking ahead, while there are a further 35,000 apartments with plans approved in the Inner-City Melbourne region, Urban Property Australia’s research forecasts that the supply pipeline has peaked in the short term. Supply levels are projected to fall below the long-term average in 2022 for the first time since 2018.
According to the City of Melbourne, the Inner-City precinct employment has fallen from 350,000 to 167,000 as a result of the pandemic. Looking ahead, employment is projected to near pre-COVID levels in 2025 as workers start to return in the CBD in a more frequent fashion. Despite the substantial decline in occupancy, employment and international student levels in the Inner-City precinct, transaction activity for apartments in the region remains resilient. Transactional volumes for apartments in the Inner-City Melbourne precinct has totalled 2,300 in 2021 to date and is on track to surpass levels recorded last year. Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will remain below the average level for the medium term with investor demand softened coupled with a lack of new supply. Having once accounted for 45% of all housing finance in early 2015, investor lending in Victoria now accounts for 27% of all loans.
VACANCY According to the REIV, as at June 2021, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) has eased to 8.0% having peaked at 9.0% in March (an all-time high). While the vacancy rate has declined since March, the current level remains significantly above the 10-year average of 3.2% and levels of 3.4% as at June 2020. Looking ahead, Urban Property RENTS While Inner Melbourne apartment rents have fallen to their lowest levels in 10 years, Inner-City apartment rents have shown signs of plateauing with levels relatively stable since mid-2020. Having peaked at $460/ week as at February 2020, Inner Melbourne apartment rents now average $400/week as at June 2021 according to the REIV. Urban Property Australia forecasts that although Inner Melbourne rents seem to have stabilised, demand would have to markedly lift to underpin rental growth and pre-COVID highs unlikely to be surpassed until 2023. forecasts that the vacancy rates for the Inner Melbourne precinct will continue to trend down as employment in the CBD picks up, however the Inner-City residential vacancy rate is likely to remain above the long-term average for the next two years impacted by the lack of international students. 13
NAB Property Survey ABOUT THEResidential SURVEY Q2 2021. Written by NAB, www.nab.com.au
CONTACT THE AUTHORS
ABOUT THE SURVEY
ABOUT THE SURVEY CONTACT THE AUTHORS
CONTACT THE AUTHORS
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FROM OUR CONTRIBUTORS
NAB RESIDENTIAL PROPERTY SURVEY Q2-2021 HOUSING MARKET SENTIMENT LIFTS TO A NEW HIGH AS HOUSE PRICES AND RENTS CONTINUE TO GROW ACROSS THE COUNTRY. BUT THE SURVEY IS TIPPING SLOWER GROWTH IN PRICES OVER THE NEXT 1-2 YEARS, WITH RENTS REMAINING STABLE. NAB HAS ALSO UPGRADED ITS FORECASTS FOR DWELLING PRICES - NOW EXPECTED TO GROW AROUND 19% IN 2021 AND 4% IN 2022. LOW RATES AND STRONG INCOME SUPPORT HAVE SEEN STRONG PRICE GROWTH IN 2021, BUT THIS IMPACT WILL BEGIN TO FADE.
VIEW FROM PROPERTY EXPERTS NAB RESIDENTIAL PROPERTY INDEX
RESIDENTIAL PROPERTY INDEX BY STATE
VIEW FROM NAB ECONOMICS NAB HEDONIC DWELLING PRICE FORECASTS (%)*
NAB RESIDENTIAL PROPERTY INDEX: NEXT 1-2 YRS
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SENTIMENT IMPROVES FURTHER
NAB RESIDENTIAL PROPERTY INDEX BY STATE
NAB RESIDENTIAL PROPERTY INDEX
NAB RESIDENTIAL PROPERTY INDEX: NEXT 1-2 YRS
RESIDENTIAL PROPERTY INDEX BY STATE
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FROM OUR CONTRIBUTORS
NAB RESIDENTIAL PROPERTY INDEX: NEXT 1-2 YRS
HOUSE PRICE EXPECTATIONS: NEXT 1 YEAR (%)
SURVEY HOUSE PRICE EXPECTATIONS
HOUSE PRICE EXPECTATIONS: IN 2 YEARS (%)
AVG SURVEY EXPECTATIONS: HOUSE PRICES (%)
SURVEY RENTAL EXPECTATIONS
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AVG SURVEY EXPECTATIONS: RENTS (%)
NEW DEVELOPMENTS
RENTAL EXPECTATIONS: NEXT 1 YEAR (%)
BUYERS - NEW DEVELOPMENTS (% SHARE)
RENTAL EXPECTATIONS: IN 2 YEARS (%)
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FROM OUR CONTRIBUTORS
EXTENT GOVERNMENT INCENTIVES ARE HELPING FHBs INTO THE MARKET EARLIER
EXTENT RISING HOUSE PRICES ARE STARTING TO IMPACT FHB ACTIVITY
EXTENT FHBs ARE MORE OR LESS WILLING TO BUILD/BUY NEW BUILDS COMPARED TO 2 YRS AGO
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CONSTRAINTS ON NEW HOUSING DEVELOPMENTS - STATES
EXPECTED CHANGE IN SHARE OF NEW PROPERTY BUYERS (NET BALANCE)
NEW HOUSING MARKET CONSTRAINTS
CONSTRAINTS ON NEW HOUSING DEVELOPMENTS
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ESTABLISHED PROPERTY
BUYERS - ESTABLISHED PROPERTY (% SHARE)
FROM OUR CONTRIBUTORS
ESTABLISHED HOUSING MARKET CONSTRAINTS
CONSTRAINTS ON ESTABLISHED PROPERTY
EXPECTED CHANGE IN SHARE OF ESTABLISHED PROPERTY BUYERS (NET BALANCE)
CONSTRAINTS ON ESTABLISHED PROPERTY - STATES
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SHARE OF DEMAND FOR NEW PROPERTY: FOREIGN BUYERS (%)
FOREIGN BUYERS SHARE OF DEMAND FOR ESTABLISHED PROPERTY: FOREIGN BUYERS (%)
SHARE OF TOTAL DEMAND FOR NEW & ESTABLISHED PROPERTY - FOREIGN BUYERS (%)
NAB’S VIEW ON DWELLING PRICES
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FROM OUR CONTRIBUTORS
DWELLING PRICE GROWTH (6-MONTH ENDED ANNUALISED, %)
NAB HEDONIC DWELLING PRICE FORECASTS (%)*
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Why Project Delivery Agreements Are on the Rise. Written by Alexandra Cain, The Urban Developer, 1300 601 099, www.theurbandeveloper.com
Once the province of the big end of town, mechanisms that allow property developers to achieve more efficient commercial outcomes and avoid double tax are becoming more popular across the property sector. Structured land purchase terms that defer income tax for landowners and allow developers to stage and sequence projects according to variable market demand are attracting attention in an uncertain market. “Project delivery agreements were normally only used for large-scale institutional projects, but we’re now seeing a range of developers consider these agreements as a way to get into a project and create commercial outcomes without necessarily purchasing the real asset for the purpose of redevelopment,” says Pierre Wakim, partner with big four accounting firm KPMG.
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STRUCTURING PROJECT DELIVERY AGREEMENTS A common example is where a landowner has land without a development permit. The developer provides a land loan to the land owner to secure the development under the project delivery agreement, with the developer staging payments of the development rights fee or land loan to the land owner at different milestones. One payment may be made on execution of the project delivery agreement. Another payment may be made when the development application is approved. Another payment could be made on financial close, which is when construction begins. The balance may be made at the waterfall, which is when the properties being developed are settled. A project delivery agreement is at the core of the Yeerongpilly Green Riverside development on the Brisbane River, being developed by Consolidated Properties Group alongside the Queensland state government, which owns the land.
FROM OUR CONTRIBUTORS
“Ownership of the land stays in government control under the project agreement. As the development partner, it’s our role to develop the land for the government over the best part of a decade,” explains James MacGinley, Consolidated Properties Group’s chief operating officer and head of residential. The large size and premium position of the land parcel, 14-hectares on the Brisbane River, means the price to buy the land outright would have involved a very large capital commitment upfront. Instead, under the agreement, Consolidated Properties Group makes a payment to the government at various milestones. This makes sense from a commercial perspective because it means there’s a substantial financial incentive for the developer to develop the land as quickly as possible. The first stage of the residential development begins in October this year. “It feels like the project is really starting to accelerate and sales are going well,” says MacGinley. He says a close partnership between the parties to the agreement is essential to ensure the technical and practical sides of the project work seamlessly. Sydney’s Barangaroo development is another example of a project that was developed under a project delivery agreement. Depending on how the commercial agreement is constructed, projects could be made more attractive under a project delivery agreement because they don’t attract stamp duty in some states, including NSW. “With the right advice, a developer can enter into a project delivery agreement with a landowner in NSW more confident that they’re not going to attract adverse stamp duty concerns,” Wakim says. “For example, they can develop land with the owner’s agreement, who then retains the title for the commercial retail premises to rent, while the developer builds the residential component and sells it for profit. “This can achieve more opportunistic commercial and tax outcomes. The landowner can retain the newly-developed commercial retail premises—funded out of developer profits—without having to sell the property that triggers stamp duty and income tax events.
build 200 residential apartments on the land. Under a more traditional structure, the developer will buy the land, the landowner will pay income tax on the sale and the developer will pay stamp duty. After completing the project, the developer takes its share of profit and sells the retail component back to the landowner. This means stamp duty and capital gains tax is paid twice. “It’s essential for the financiers backing the project to understand how this arrangement works and for the landowners to understand they are participating in some level of development risk,” Wakim says. “This additional risk needs to be weighed up against the additional potential reward. For example, if a landowner entered into a straight sale agreement with a developer, they might only get $10 million for the property. “But by contributing the property to the development, under a project delivery agreement, the developer might agree to pay the landowner $12 million.” Peter Bardos, tax director at HLB Mann Judd Sydney, says there are a range of factors to consider when tax planning a development. “It’s important to understand the huge range of variables which influence tax considerations,” he says. “These include the intention of the parties involved—for example whether they develop to sell or hold long-term. “How many parties are involved and their profile, for example their tax residence, are also important. “You also need to think through the timeframe of the project. Chasing tax minimisation or concessions without considering these factors may result in impractical or uncommercial outcomes.” Other variables that need to be considered include project finance, the project’s lifetime, whether it’s a commercial or residential development, the number of storeys and whether there are one or multiple parties engaging in the development are also important to take into account.
Alternatively, a landowner who owns the land wants to retain the retail portion of the development, while the developer wants to 25
835 High 835 High Street, Armadale
Price Range $930,000 - $15,000,000
26
Target
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 2 Bath
11
44
95.2
$11,496
$1,099,000
2 Bed, 2 Bath + PR
1
4
145.0
$13,103
$1,900,000
2 Bed, 2 Bath + Study + PR
2
8
175.0
$11,986
$2,096,400
3 Bed, 2 Bath
4
16
140.3
$13,095
$1,835,000
3 Bed, 2 Bath + Study
1
4
169.0
$18,639
$3,150,000
3 Bed, 3 Bath + Study
2
8
180.5
$13,181
$2,372,500
3 Bed, 3 Bath + Study + PR
2
8
248.0
$16,733
$4,175,000
3 Bed, 3 Bath + 2 Study + PR
1
4
303.0
$15,841
$4,800,000
4 Bed, 4 Bath + PR
1
4
630.0
$23,809
$15,000,000
PAST PROJECTS
Daracombe 7 Daracombe Avenue, Kew
Target
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 2 Bath
4
22
90.0
$11,383
$1,025,000
3 Bed, 2 Bath
9
50
127.6
$12,961
$1,655,000
3 Bed, 2 Bath + PR
5
28
135.4
$13,479
$1,827,500
Price Range $975,000 - $1,935,000
27
Iramoo 7 Iramoo Avenue, Balwyn
Price Range $1,895,000 - $2,300,000
28
Target
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
3 Bed, 2 Bath
4
67
239.3
$8,357
$1,998,750
3 Bed, 3 Bath
2
33
266.5
$8,327
$2,200,000
PAST PROJECTS
Ascot Place 9 Newsom Street, Ascot Vale
Price Range $699,000 - $1,180,000
Target
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 2 Bath
11
29
140.7
$5,933
$832,818
2 Bed, 2 Bath + PR
12
32
153.9
$6,088
$937,000
2 Bed, 2 Bath + 2 PR
3
8
171.4
$5,824
$998,500
3 Bed, 2 Bath + PR
7
18
182.4
$5,877
$1,062,000
3 Bed, 3 Bath
4
11
180.5
$5,709
$1,030,625
4 Bed, 2 Bath + PR
1
3
178.8
$6,600
$1,180,000
29
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