Matthew Guy’s high-rise vision for Melbourne could be a pipe dream

Everyone knows who “High-rise Harry” is, but have you heard of “Manhattan skyline Matthew”?

Victoria’s youthful planning minister Matthew Guy is looking to leave a permanent reminder of his time in office with a vision for a Manhattan-like skyline dominated by high-rise apartment projects.

Matthew Guy has approved three major skyscrapers to be built in and around the Melbourne CBD – Tower Melbourne, Australia 108 and Vision – and has a vision for the Melbourne skyline that “turns dramatically upwards”.

A press release issued by Guy in March to announce his approval of Australia 108, which will rise 108 storeys (388 metres) and become the world’s 19th tallest building on completion, reinforced his vision with title “Melbourne, moving upward”.

Two things are clear: more people are expected to reside in apartments in and around the Melbourne CBD in the coming years and offshore players are a growing force in new developments.

Property consultants Charter Keck Cramer (CKC) anticipate a 30% rise in new apartments to be completed over the next three years taking total inner city apartment numbers from around 30,500 currently to over 42,000 by 2015.

They estimate that offshore developers will account for around 39% (4,700 apartments) of new apartments being developed in Melbourne’s central City region over the next three years.

This compares with offshore developers accounting for just 8% of new apartments between 2000 and 2012.

The most high-profile Asian-backed project is Tower Melbourne, being developed by CEL Australia, a subsidiary of Singapore-based listed developer Chip Eng Seng Corporation.

The two other projects - Australia 108 (developed by architects Fender Katsalidis) and Vision (developed by the Brady Group) - are Australian-based projects but will attract Asian investors in their development and cashed-up private Asian buyers to off-the-plan apartment sales.

However, this shift towards high-rise project development spurred on by Matthew Guy's willingness to approve such projects, will require a major shift in Melburnians' affinity for living up in the clouds supported by continued investment from Asian buyers.

As one industry insider tells me, the densification of Melbourne around the CBD may be happening at a rate “beyond the community’s preference”.

In essence, what is required is a fundamental shift in patterns in household consumption of housing.

It requires that people move out of the established parts of Melbourne and into new apartments in and around the city.

And the granting of development approvals does not in the first instance guarantee a project will eventuate (the decision by ISPT to sell its Spencer Street site with approval for six residential towers a recent example of uncertainty about approved projects) nor does it guarantee a supply of tenants, even if off-the-plan sales are strong.

 

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Projects need to be appropriate to meet the market conditions and some may have to wait a very long time to see the light of day.

An example of this is Prima Pearl project, which is finally under construction and rising behind Crown Casino on Southbank.

The 72 story project, being developed by the PDG Group and being built by Brookfield Multiplex, received approval nearly 10 years ago.

Apart from the demographic shift required, the changing nature of commercial zones into residential ones will require an investment in community facilities such as libraries, child-care centres and supermarkets.

In some instances, the rise of residential developments has come before community investment, the most glaring example being Docklands.

RotheLowman architect and principle Chris Hayton designed the Abbotsford riverfront project on the banks of the Yarra River with a community feel and access and says Melbourne apartment buyers are looking for a place where “people will want to go and live, where they are able to walk downstairs to get their milk and where they don’t have to get into their car to kick the footy around.”

He calls it the “milk bar resurgence” and adds that the lessons can be learnt from some of the well-known failings of mixed-use developments at Docklands.

Industry players say there are broadly two apartment development markets in Melbourne.

The first of these is centred around the inner city markets – CBD, Docklands, Southbank and City Road - and dominated by offshore players who don’t have the pre-sales constraints of local developers and who can contribute greater equity to the project.

One example is the Tower Melbourne project.

With the backing of a listed Asian developer, it is certain to be built.

Offshore players play by different rules. They put more equity into their projects and require less financing, which influences what they can do.

In addition there are push factors from offshore markets like China, Singapore and Hong Kong where the rate of return on equity is much lower than it is here.

Earlier this year, Beijing banned single-person households from buying more than one residence. The government also increased the minimum deposit for all buyers of second homes and has increased the capital gains tax on property to 20%.

This means there is a lot of money floating about and looking for home and finding its way into the Melbourne apartment market.

But other projects backed by private funds – local or offshore - may take longer to come to market – or may not happen at all.

Plus Melbourne, which has had the offshore buyers’ market largely to itself up until recently, now faces more competition from Sydney, Brisbane and Perth.

Even Adelaide is attracting offshore interest with Chinese developer Datong buying four sites and commencing construction this week of $36 million project comprising 69 apartments.

The other new Melbourne apartment market is the one happening out in the suburbs, where local developers are building more modest or appropriate projects, provided they secure the necessary pre-sales.

And there remains another potential spoke in the wheel - the declining Australian dollar.

While a weaker dollar makes it cheaper for offshore investors to buy apartments off-the-plan, it could according to property consultants MacroPlan Dimasi discourage Asian developers from buying up development sites and undertaking new apartment projects because they will face the prospect of owning an asset that is declining in US dollar value terms.

And it appears perhaps that Matthew Guy himself is not entirely one-dimensional when it comes to the development of Melbourne’s urban areas.

He recently announced that he would save 87 heritage buildings in and around Melbourne including Norman’s Corner Stores at 180-182 Bourke Street and the former Argus building in La Trobe Street.