Developers urged to resist putting up prices: UDIA

Affordability and the outlook for commercial properties in 2014 were discussed at a panel at the Urban Development Institute of Australia (NSW)’s annual Christmas lunch this year.

The event followed proposed changes to the NSW Planning Bill. Industry leaders Tony Perich AM, managing director of Greenfields Development Company, Garry Rothwell, founder and principal of Winten Property Group as well as Lang Walker, executive chairman of Walker Corporation shared their insight and commentary on the effect the changes will have on the industry and the future of New South Wales.

Perich started the panel discussion by saying developers should resist putting prices up in order to maintain a stable market.

“We need to maintain a price everyone can afford – if you don’t do that, the market will crash again,” he said.

Walker agrees that affordability is one of the “big questions” that needs to be tackled. He believes Sydney has been “understocked for the last ten years”, and is of the view that the injection of overseas investors are making it “impossible” for first home buyers to enter the medium density market, though he acknowledges that this is not necessarily the case for the suburban areas.

Rothwell notes that apartment prices have gone up “dramatically”, and cited demand in North Sydney as an example.

“We built in North Sydney, off-the-plan apartments were $500,000 18 months ago, they’re now close to $600,000. That’s a major increase,” he said.

He attributes this increase to an influx of investors, where previously the industry relied on homebuyers or first home buyers. He also noted that the demand from Asia is now greater than the supply available.

Rothwell added that Sydney is now one of the world’s major cities, such as London, where young people cannot afford to purchase their own homes. As a result, affordability is now a “critical” issue.

A key issue for affordability is infrastructure and government costs that developers have to fork out. When government costs remain high, infrastructure is not present, and approvals take a long time, there is little competition in the property development industry, which will worsen the issue of affordability.

Rothwell noted that the issue with competition is urban planning in New South Wales, and the government needs to release more land in order to create competition. This has worked in Victoria and Western Australia.

Infrastructure is also a key concern for Perich.

“In the growth centres, you’re looking at about 300,000 going to be there. Even if you’ve released enormous amounts of land, we can only service so much. You’ve got to get services, infrastructure, roads and electricity in. It’s very hard to release more land if the government isn’t putting in infrastructure,” he said.

The panel discussion included a call for solutions to these issues that were raised.

The panel agreed that the main solution would be planning – including employment plans, and planning the infrastructure to encourage employment in growth centres such as Wilton.

Infrastructure costs were also raised. According to the panel, developers currently need to pay an infrastructure levy of $10,000 per block of land.

Rothwell also noted that a very small percentage of first homebuyers make up the buyer’s market at the moment. Investors make up the bulk of buyers, and within these, half are local investors while the other half are offshore investors.

“Again, this raises the question: Are we seeing the end of the first homebuyer?” he asked.

He added that first homebuyers are likely to move to outer west areas as a result of affordability, especially as first homebuyers tend to be families who want a bigger house.

Another solution to affordability that was raised was house size. Where two-bedroom, one-bathroom brick houses were popular in the past, the panel noted that large houses with extra fixtures such as cinemas were gaining popularity of late – adding to the problem of unaffordability.

The panel then moved to discuss the future of commercial property for 2014 and 2015.

Walker brought up the popularity of activity-based work models with large companies, and its effect on commercial properties.

“For a big user, they will need a 2000 square metre floor plate,” he said.

He added that he is claims of soaring vacancy rates as there are certain older buildings that should not have been included.

“By the time their time as a commercial building is finished, they will either be torn down for a development or (used for) a residential conversion. To compare vacancy rates with these buildings that are completely redundant is a complete misnomer,” Walker said.

In Sydney, Rothwell noted that the recovery in the commercial market has fallen short of expectations.

“Tenants are far and few between, they are all cautious about committing. There is still a shortage of space in Sydney long-term. It will recover, yields are coming down, and that’s a positive,” he said.

He reiterated the importance of getting good tenants and added that they are “not easy to get” in Sydney.

Overseas developers are competing for sites in Sydney, according to Perich.

“The medium density side in Sydney is going nuts. The market is generally very brittle,” he said.