Chinese-led Australian residential development price surge is "scary": Lang Walker

Chinese-led Australian residential development price surge is "scary": Lang Walker
Jonathan ChancellorDecember 7, 2020

The billionaire Lang Walker isn't the only local property developer questioning the prices being paid by Asian developers for residential sites around the country.

Given the lower cost of Asian capital and a bigger pool of willing customers, the local developers are typically being trounced every time there is an opportunity on the east coast of Australia. 

Only last week the CWA headquarters at Potts Point was snapped up by outbidding Chinese developers, leaving the locals behind in the dust along Greenknowe Avenue.

The Hong Kong-listed, Guangzhou-based R&F is considering paying $46 million, more than twice the $22 million Metro paid last December, for the former TAFE college in South Brisbane.

A Chinese developer bought a Rosebery development site with the price reflecting more than $257,000 a unit site earlier this year.

The Hong Kong-listed and Guangzhou-based R&F paid more than $60 million for an inner Melbourne site with planning approval for 1500 homes. The seller, Richard Gu’s AXF Group, had paid $17 million for the property in 2007.

When the Chinese-backed group, Bridgehill, bought the old council depot site in Zetland, in inner Sydney, for $82.5 million, The Australian reported the purchase had "angered" local developers who suggested the site was not worth more than $70 million.

“It is a little scary,” Lang Walker told The Australian Financial Review today, “but at the end of the day I think it is just them getting money out of Asia as opposed to the fundamentals."

“I do agree with the pundits that they are paying some big prices for sites but I think maybe their drivers are different to ours.”

The national average price being paid for a site by an offshore investor has increased from $4000 per square metre in 2009 to about $18,000 per square metre in 2014, according to the property consultancy firm, Deep End Services, much of it attributable to the competition between Asian developers seeking sites in Australia.

The Reserve Bank has been monitoring the impacts that offshore capital could have on the competitiveness of Australian banks looking to lend to local developers.

Local developers have restrictions on how much they can borrow and how many apartments they can sell to overseas buyers, whereas the offshore-backed developers do not.

Walker's comments follow those of the ANZ’s head of commercial property, Eddie Law, who recently suggested banks ought carefully monitor the “logic” of new ­offshore-backed site purchases and developments.

“Chinese equity competes in its own framework against local equity. It has a propensity to pay a higher price, particularly for development sites, and the jury is out as to the logic attached to that at the moment,” Mr Law said.

The development pipeline for offshore-backed developers has risen 37% in the last 12 months according to Deep End Services.

CBRE’s global president of ­capital markets, Chris Ludeman told the AFR that Chinese investors were outpacing local developers in markets around the world, not just Australia.

“We fail to recognise that their customers are not the traditional, local buyers. They are catering to their customers in China. On relative value it may feel cheap.”

Charter Keck Cramer research director Robert Papaleo agrees that the Chinese motives are different as they have lower return expectations because of the difficulty in securing opportunities in their own home market.

Analysts at Deep End Services estimates that offshore developers have a 22% market share in the Sydney metropolitan apartment market, 33% share in Melbourne and an average 17% share nationally.

Chinese developers represent 48% of the offshore developers by apartment construction numbers in Australia.

Deep End Services principal Kevin Stanley said that offshore developers paying higher prices would have consequences.

Stanley said local developers had already reacted by moving to other areas of the market including city fringe which puts them at risk, possible being less attractive locations for people to want to buy and live in.

Urban Taskforce chief executive Chris Johnson, who represents the nation's largest developer groups, says he does not believe Chinese developers were driving prices up.

"They are encouraging supply to occur and the market to be quite buoyant. We have interest rates at a low level, there is not enough supply in the Sydney market, and there is money coming in from China, which I think is a good thing," Chris Johnson told News Ltd papers.

 

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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