Many shelved Melbourne apartment projects only at planning stage: Charter Keck Cramer

Many shelved Melbourne apartment projects only at planning stage: Charter Keck Cramer
Many shelved Melbourne apartment projects only at planning stage: Charter Keck Cramer

Headlines suggesting large numbers of Melbourne apartment projects have stalled or been abandoned over the last 18 months create a misleading picture, says property consulting group Charter Keck Cramer, as most of these projects had not even gotten off the planning drawing board, let alone to the off-the-plan marketing sales stage.

According to Charter Keck Cramer, the headlines miss the point because many of the projects that are said to have been abandoned or shelved were projects only on paper, which may have had planning approval but had not been exposed to the market via an off-the-plan sales process.

The Australian Financial Review quoted figures which claimed an average of 11 Melbourne apartment projects a month had stalled or been abandoned since the start of 2011 resulting in 213 failed projects worth a total of $1.2 billion.

Property Observer requested to see the published research but the was told it was not available "at this stage" by the real estate agency, which offers project marketing services to clients.

In the recent past, Melbourne has typically had around 300 medium and high-density projects either planned, under construction or completed, according to the research report metropolitan Melbourne Apartment Market by Oliver Hume.

The report does not discuss abandoned or stalled projects, but has previously noted that around half were at the construction stage.

"When fully developed, they will deliver about 40,600 apartments. Of these 40,600 apartments, around 22,000 are in buildings already under construction or completed," Oliver Hume's June report says.

The report noted that a total of 27 new metropolitan Melbourne projects were released during the June quarter, containing around 2,150 units – "the lowest number of projects since records commenced".

In the corresponding quarter last year there were 38 projects released comprising 3,800 units.


According to research by Charter Keck Cramer less than one in 10 Melbourne apartment projects have been withdrawn from the market since 2008, with the vast majority of projects now either completed, under construction or committed to be built.

Charter Keck Cramer calculates that of the 48,400 apartment releases since 2008 nearly two-thirds are either completed or under construction, with a further 6% committed and about to commence construction.

“Only 7% have been withdrawn – with a large proportion of these re-released and now proceeding to construction – with a further  14% less likely to proceed,” Charter Keck Cramer director Robert Papaleo tells Property Observer.

Click to enlarge

Source: Charter Keck Cramer

“This analysis only considers projects that have been exposed to prospective purchasers via an off-the-plan marketing phase for  individual apartments and does not include projects simply with an approved permit for apartments that have not been subject to a marketing campaign,” he adds.

The Oliver Hume research quoted by the AFR says the average size of an unsuccessful project is $5.6 million, “reflecting a large proportion of small to mid-density projects in the middle and outer suburbs which failed”.

Oliver Hume reported the highest proportion of abandoned projects in Moreland, Boroondara, Darebin, Greater Dandenong and Glen Eira.

“I suspect, as has been the case in the past, that these 'abandoned' projects include a large number of sites with historic planning approval that have not proceeded to development notwithstanding if they have been offered to the market or not.  Whilst withdrawal of projects at the planning stage is an indicator of market conditions, its importance is too often misunderstood and overstated” says Papaleo.

“The act of getting a permit is not ,of itself, a true indicator of developer intent.

“In many instances permits are sought to add value to sites, where there is no intention of them being developed.”

He added that there was also the issue around the suitability of some previous development approvals for some of sites “with respect to prevailing market conditions”

“A permit in 2010 for an ambitious scheme may have worked at that time, but if it’s put up for sale now, buyers may not wish to commit to the scheme, so it might have to be revised."

 


 

He says there have been some projects that have been marketed off the plan and shelved, but most of these have been re-marketed and developed after changes have been made to the design and have ended up in the hands of a more experienced developer.

Papaleo says he is aware of several projects that were first marketed in 2007 to 2009, then pulled from the market, redesigned and relaunched and have now commenced construction following “fresh injection of equity”.

Current development sites up for sale with apartment development approval include a 5,400 square metre site at 1 Grosvenor Street, in Doncaster, with approval for 185 apartments; a 3,300-square-metre site on Albert Street in Hawthorn East with a permit for 116 apartments over seven levels and a 1,200-square-metre site on High Street Preston with approval for 85 apartments plus ground floor retail.

Recent development site sales include a $20 million purchase of a South Yarra site with a permit for 236 apartments, bought by a Shanghai-based investor, and a 197-apartment project in the CBD that sold to a Chinese developer.

Both were sold by CBRE’s Mark Wizel, who told the Australian Financial Review Asian developers were recognising that projects that did not get off the ground the first time could be bought at a discount.

Looking at the question of whether Melbourne is building too many new apartments, Papaleo says the rental market will be the key determinant with most apartments sold to investors.

He says it’s important to differentiate between purchaser-demand (mostly from investors) for off-the-plan projects versus occupancy-demand when they are completed.

“We’re in process of historical high level of supply, but have come off peak market conditions – there appears to be a looming has mistiming with respect to occupancy demand from renters .

“Where supply has been made to the market by an off-the-plan sales process it has by and largely been met by purchasers although sales activity has been deteriorating significant since early 2011.

“The bigger issue the one of occupancy demand when the current supply cycle is completed.”

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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