There’s been comprehensive media coverage and informed comment regarding the Government’s imposed changes to the off the plan market, looming as of July 1st this year, but what does this really mean for the industry?
From this date and beyond there will be a significant impost on investors no longer being able to claim the off the plan stamp duty benefits, as well as first home buyers receiving a substantial stamp duty benefit for off the plan purchases up to $750,000. This will have (if it hasn’t already) a dramatic impact on certain areas within Melbourne and certain product types in the high density development arena.
With project marketers who currently focus on the CBD already swinging their developer clients away from investor towers by recutting and redesigning buildings to appeal to a veracious empty nester or downsizer, it’s become a matter of “adapt or die” for a number of experienced property developers.
Another truism within our business is that “boutique is best”. The planning laws applicable throughout the wealth belt of Melbourne, namely Boorondara, Stonnington and Bayside, were predicated to cater to a young couple and empty nester who typically want a quality building of fifty apartments or less.
As a reflection of the stability within the residential market and the substantial increase in the median house price shown within those three zones, the local empty nester is taking the opportunity “en masse” to translate their tax free capital growth from their principal place of residence into a substantial off the plan purchase.
This was recently demonstrated in a development named “McKinley” at 171 Wattletree Road, Malvern, which upon launching, saw over 300 people register, which then translated into 61 appointments. The project of only eighteen apartments, proceeded to sell out in just 48 hours over the course of a single launch weekend, at on average price recorded in excess of $11,000 per square meter.
During the 2015-2016 financial year, 17% of the off the plan purchasers transacted by Marshall White Projects recorded were for purchases in excess of $1.25 million. For the 2016-2017 financial year, that number will close out at more than double (38% to be precise).
Developers have and will always need to cater to emerging markets. The underlying depth of demand for “McKinley” style projects, however, will depend on the strength of the residential market. Whilst demand continues to exceed supply on quality established family homes within these coveted locations, the empty nester will continue to either sell and scale down or alternatively buy first and then sell during the construction period, with a significant degree of certainty.
We regularly meet with large CBD developers whom see the writing on the wall. They are now keenly looking to diversify from their decades of developing within the inner city by shifting their focus and resources out to areas where returns have greater certainty, reduced risk, and less days on market and cost per sale.
The pending government changes will only assist in these trends continuing.
Leonard Teplin is Director at Marshall White Projects.