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Bilby's picture
#52

Michael, that's a weak point. If developers are forced to reduce their profits through legislation that requires higher quality entry level apartments, then the residents and purchasers will be better off, while the developers will be worse off (financially speaking). The only question worth asking is whether they will be so much worse off as to be priced out of developing altogether? If not, then apartment dwellers win and developers make a reasonable, but not extravagant profit at their expense. If prices rise, then the same applies - many developers will not find buyers for their entry level apartments, since the market ultimately drives these transactions.

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Primal Beauty's picture
#53

Standards are raised continuously with more intense competition but one cannot expect the cheaper apartments to have the same quality finishes and expensive materials applied externally or internally like more expensive developments; with more intense competition one thing becomes obvious that cheaper apartment developments become more ingenious in providing a better design solutions for the same price which is what happened in Melbourne over the last decade or so...and with proliferation of the industry materials become more accessible and therefore more cheap and you would hope that developers would operate on getting less profit margins in order to stay in the game but in return offer a better design; which is all happening I gether, unless I am wrong...plus you do need governments to regulate and set standards so everyone lifts their game and buyers are not ripped off by dodgy workmanship and providing the inferior products or non complying products, which happend earlier on and still happens to a degree but not as bad as it used to...so folks have some faith and support the diversify of architecure including the affordability factor!
I personally see a lots of creativity in design in Melbourne providing some great living and urban solutions for this fine city, being comparable to anything out there in the rest of the world...I actually see Melbourne as a very aesthetically minded city with astute sense of fine design and always striving to better itself and the comunity that lives in it!

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theboynoodle's picture
#54

Argh!!

House/apartment prices have nothing to do with build costs. They are a function of location scarcity and the availability of funds to buy them.

People will pay as much as they can afford for the property they want. Or, more accurately, they will pay a dollar more than the second highest bidder. Construction costs are falling all the time, yet property costs are rising. Most of the cost of property is the land, which, itself, cost nothing to create.

Developers start with the project sale value and work backwards by deducting construction costs and their margin, and the balance is what they pay for the land. If construction costs rise or fall then the vendor of the land gains or loses accordingly. If all construction becomes more expensive (apartment standards) then landowners have to accept lower gains or no gains at all.

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Primal Beauty's picture
#55

Nicely explained but what I have observed that most buyers are astute and regardless of what they can afford to buy, everyone is expecting certain standards when buying apartments so in general all the developers had to lift up their game in regards to apartment design and minimum standards and that comes with competition and government regulations and land availability.
I do not claim to know too much about it but have observed those things over the years...and what is really lifting the game at the moment is foreign developers penetration into Australian market...no one can expect to be complacent anymore unless there is recession or a property bubble which would be mutually interconnected anyway!

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Alastair Taylor's picture
#56

Nicely explained but what I have observed that most buyers are astute and regardless of what they can afford to buy, everyone is expecting certain standards when buying apartments

+1

The initial conversation: 'I'm 28 and am a first home buyer and I ---need--- a 3 bedroom apartment in the inner-city'

That would work out on the sprawl-belt, but it doesn't with apartments. The concept of the property ladder - start small and expand as your needs change - most definitely applies to apartments but the property buying culture is/has been slow to respond.

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Michael Berquez's picture
#57

Ok, so my response was simplified....I suppose in a nutshell, i'm just trying to say that there will always be aprtment stock ranging from lower quality to higher quality...from lower cost to higher cost.....I don't believe that saying "If we only offer seaweed stew" is true. I think there is quite a bit of variety for purchases when it comes to buying an apartment.

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theboynoodle's picture
#58

Really? I went through the exact process 18 months ago and found limited variety. The 'floor' price of units is high and there was a glut of supply at that 'bottom' price point which was poor quality.. quite obviously designed to sell to investors and not to occupiers.

When I looked at off-plan options it looked like better buildings were on the way, but the (theoretically) decent units were always long gone and I had a couple of deeply worrying experiences of selling agents/developers (including one who supplied me with a plan that had the building the wrong way around.. thus turning my 'never to be built out city and river view' into an 'arse end of a car-park view'.)

The two main drivers of price in new developments are location and size. You won't see much difference in price between two 65sqm units in the same suburb, irrespective of their architectural/design merits.

Of course buyers with spare cash will have some variety to go at - because they're not having to stretch themselves just to get onto the bottom rung of the ladder. Everyone else gets seaweed stew. If average buyers could afford to choose between a CE-style shitbox and spending a bit extra for something bigger/better/prettier then that would be fine. But when so many people are up to the limit just to afford a shitbox it's nonsense to suggest that proper market forces are in operation.

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pdoff's picture
#59

I think the missing point here is to address to what extent developers are profiting from these shitboxes. To quote Bilby above “the only question worth asking is whether they [developers] will be so much worse off as to be priced out of developing altogether?”. I don’t know your background but, in my experience, property development is a high risk game. Project target margins for developers are high, but that’s to offset the significant risk which is very real. I’ve come across many failed developers in my time.

The margins in these shitboxes gave developers the confidence to pay higher prices for land. It’s the demand from investors for investor grade apartments that sparked this boom to begin with and if they are a bad investment then the market will reset the price eventually and the investors will lose money. These shitboxes won’t seem like such poor value to a secondary market purchaser with less money and prepared to accept lower living standards and that’s the essence of Michael’s point.. one man’s trash is another man’s treasure. Meanwhile politics have intervened with new regulations and, suddenly, we’re seeing better developments ala Queens Place, 383 LaTrobe, 93 Kavanagh, etc with better apartment standards among other benefits.

The earlier shitboxes together with the more recent improved apartments equals apartment diversity and I for one think we can be thankful that the dysfunctional market that got us here has worked out ok (except maybe for some early investors).

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Bilby's picture
#60

Development, like any business, is only really risky if you are lacking in the necessary skills, talent and experience. Introducing basic standards for apartments will not increase risk, but it may reduce profits. So what? Good developers will still develop, and poor developers will still fail. The winner in this scenario is our city and the people who live within it.

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Michael Berquez's picture
#61

Ahhh forget it

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pdoff's picture
#62

I'll bite.

Bilby, to an extent I'm not arguing with you because (I don't know this for sure but I suspect that) the margin-per-apartment is lower for a lower plot ratio, higher standard development like Queens Place than they are for a built to the boundary, small set-back, apartment crammed development like Vision. We seem to be getting more Queens Place type developments proposed now than we are Visions which yes, is good for the city.

Where we differ is that I believe that having these smaller likely-to-become-cheaper apartments that came first is also a good thing, which is where I agree with Michael.

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theboynoodle's picture
#63

Developer margins are a red herring here. They are not the issue. Absent political favours/protections it's a reasonably competitive marketplace and they're not making silly profits on delivery of units.

Some could certainly accept lower profits and deliver better units, but that would be altruistic on their part.

Where we differ is that I believe that having these smaller likely-to-become-cheaper apartments that came first is also a good thing,

Whereas I think that a badly designed and constructed apartment will always be that, and if there are too many of those in a place then that place becomes stigmatized and that stigma deters others from going there. If you take the view (as I do) that it would be good for Melbourne if more people lived in higher-density homes.. then you should be concerned. It's not just that lots of people don't want to live in crappy little apartments, it's also that they don't want to live somewhere where 75% of the neighbours are people who live in crappy little apartments. However unreasonably you might think that position is.

And, once again, the fact that they are 'cheap' has nothing to do with anything. If every one of these units was 10% bigger (for example) they would still cost the same. Having value-for-money, no-frills options is generally a good thing. I'd agree with you that having these units was a good thing if they were, or were likely to become, *actually* cheap.. as in, something that most people could choose alternatives to. That's not the case.

You've got the government limiting supply via the planning system, and also distorting the buying marketplace with taxation policies. Developers know that this all means that projects can be financially viable by delivering crappy outcomes - indeed, that's often the only way projects are financially viable.

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pdoff's picture
#64

But if the unit is 10% bigger, why wouldn't it cost more to build? You have less apartments in the same space without increasing the sale price per apartment then the yield drops and that 10% will come out of the margin. The consequence of that is the unit may not be built at all, or fewer would be built meaning less supply leading to ... I'm sure you know how a free market works.

On whether poor apartments are a good thing Boynoodle, I don't really have a problem with what you're saying and I'm not seeing that you're point opposes Michael's either. It seems that we're glass half full people and you're glass half empty. I see your point about communities of crappy apartments being undesirable, but I'm not sure of any means available to achieve alternatives, save maybe for government intervention through affordable housing policies. Regulations have been introduced to improve crappy outcomes in the first place and it was foreseeable that this would restrict supply... of further crappy apartments.

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Michael Berquez's picture
#65

/\/\ YES!!!!!

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Bilby's picture
#66

Absolutely the cost of larger, better quality apartments will come out of the developer's margin - just like the cost of building regs come out of the developer's margin now. As I said earlier, until we are in a situation where we have a severe shortage of supply in this particular typology (high-rise apartments), it's hard to see any disadvantage of this impost on the developer to anyone but the developer.

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Michael Berquez's picture
#67

So the developer has no right at all to make money?????

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3000's picture
#68

No one is saying that. But the developer should have something in the way of a duty to produce quality. We all know what good and bad quality looks like.

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theboynoodle's picture
#69

But if the unit is 10% bigger, why wouldn't it cost more to build?

It would. My point is that it wouldn't cross more to buy.

Whilst property prices are completely divorced from constructions costs there's plenty of room to shift the balance between what the buyer pays for the property itself and what the buyer pays for the land it sits on.. without preventing everyone involved making decent money.

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theboynoodle's picture
#70

Absolutely the cost of larger, better quality apartments will come out of the developer's margin - just like the cost of building regs come out of the developer's margin now.

It won't. It will come out of the site value. That's why it's such a win. The only people to lose out are the people who got a massive unearned profit in the first place.. and they still get one, it's just a bit smaller.

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Chris Seals's picture
#71

"But the developer should have something in the way of a duty to produce quality" could not agree more with THEBOYNOODLE, not only produce quality, but create an environment that also considers the inhabitants, if the developers were left alone to their own devices we would have a status quo, those at the other end of the socioeconomic spectrum, being coerced to living in shoe boxes and paying top dollar. It's a blight on our city, and it lacks all the virtues to which a society must uphold, Honk kong is one place that comes to mind with the chicken pens and cages full to the brim with humanity. I want more for all Melbournians and we can still have our towers that make statements to the world.

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tiankd74's picture
#72

Hopefully this type of proposal would never be approval!

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Danny Boy's picture
#73
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3000's picture
#74

I'm not surprised. Why was it rejected?

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Mark Baljak's picture
#75

hrrm - I guess it still lives?

TO BE SOLD SUBJECT TO CURRENT PLANNING APPLICATION FOR 68 LEVEL TOWER
Offered subject to permit approval via International Expressions of Interest closing Wednesday 26th May 2017

CBD | 478-488 Elizabeth Street Street | 52L | 161m | Mixed Use

http://www.realcommercial.com.au/property-land+development-vic-melbourne...

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3000's picture
#76

I understand why they are selling but I wonder who wants to go through the planning process all over again. I would just leave this one be.

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