The Sydney residential projects market is well and truly cooking with gas; interest rates are low, demand for off the plan residential apartment stock is high, not only from local purchasers but also from offshore cash buyers, looking to either park capital or send their children to Australian schools. Given the demand for residential development sites with close proximity to the city, transport and amenity its becoming the norm for developers to land bank sites in favourable locations, playing the waiting game for rezoning and new LEP gazettal to occur to unlock the residential development value. Stuart Cox, Divisional Director of Savills Residential Site Sales talks about the transactions Savills have completed in 2013, which total an excess of AUD$300million, and why the supply/demand dynamics are driving a site buying frenzy.
MP: What do you see as the major driver that has placed upward pressure on the residential sites market?
Stuart: There is a huge demand for medium to large-scale residential and mixed-use sites from both local and offshore developers looking to develop residential apartment stock. Interest rates are the lowest they have been in 60 years and the demand for off the plan apartment stock is at a level we have never seen before.
Evidencing demand, 2013 has seen total new apartment developments, often in excess of 200 units per project sell out on launch date. Examples of this amazing sales result have occurred with projects like Lend Lease’s Barangaroo in the CBD of Sydney, Legacy’s Capitol in Bondi Junction, Toga’s Central Square in West Ryde, Stamford’s $420million Macquarie Park Village on the corner of Herring and Epping Road, Greenlands $300m project in Pitt street and Fife Capital’s 38 storey York&George development, on the corner of York and George Street in the CBD.
Adding to the supply/demand metric, appropriately priced, quality sites are difficult to find. I have a valuation background, which means I have an understanding of how the banks will view a site based on development yield. To add value to the transaction for both the vendor and developer we will work with a team of architects to assist landowners to crystallise the site yield and value of their site.
Planning delays with various councils and state bodies compound the issue adding to the lack of immediate supply, as a number of major land holdings are sitting waiting for new LEPs to be gazetted so that the residential development value can be realised. Its not unusual for the larger developers such a Meriton, who this year have spent over $400million, to buy up and land bank industrial sites which have a higher and better use as residential.
MP: There seems to be an increasing Asian interest in Australian development sites, what are your thoughts on this?
Stuart: The influx of Chinese, Singaporean and other Asian development groups into the market, who more often than not buy sites with cash mean that the cost of debt is not factored into their feasibility, so they can afford to pay more for a site. This coupled with the motivation by Asian development groups to park capital in Australia means the landscape is getting increasingly competitive.
Asian development groups have been the predominant buyer of Sydney- based development sites throughout 2013, and demand from this sector will grow in 2014. An offshore group recently purchased the former channel 10 site in North Ryde for $73million, which will yield 820 apartments and 64,000sqm of GFA.
In terms of off the plan sales, the Asian demand is extremely strong, Asian developers will often take whole developments back to China to sell out the apartment stock in a day to locals looking for apartments in Sydney. Again, the majority of these off- the plan apartment purchasers in Asia will be cash buyers.
Savills currently employ over 25,000 people across 500 global offices, 38 of which are in Asia. This enables us to effectively capture a greater Asian audience for sites in Sydney. In addition to site sales, we offer in house project management, residential project marketing and property management to enable a seamless service and value add to both off shore and local developers acquiring residential development sites.
MP: Is on or off market the preferred methodology of sale for a site?
Stuart: It really depends on the site, and the vendor. Often if the vendor is an institution or a fund a public campaign must occur as part of the corporate process for divestment of the site.
A large number of residential site opportunities are held by institutions like Goodman, AMP, Dexus and Centuria as redundant industrial sites, generally the timing for these to come to market will be governed on the timing of the close of the fund in which the asset is held.
In other circumstances vendors may wish to remain anonymous for various reasons, in which case we run off- market private tender process with strict confidentiality procedures.
Always its best to contact us directly so we have an understanding of site acquisition requirements, that way we can give an early heads up on any on market opportunities in the pipeline as well as feed through off market sites which suit a specific requirement.
MP: Can you give the details of the sites you have sold this year?
Stuart: This year we have sold residential development sites that total 2,651 units plus an additional 24,950sqm of retail space, these include;
301-303 Botany Road, Alexandria; sale price $42,500,000; 350 units plus 5,000sqm retail; sold via way of off market select tender.
- 253-255 Oxford Street Bondi Junction; sale price $19,100,000; 90 units plus 350 sqm retail; sold via way of off market select tender.
- 100 Bennelong Parkway, Sydney Olympic Park; sale price $24,500,000; 300 units; sold via way of on market campaign. Click here for property information memorandum
- 30 Alfred Street, Milsons Point; sale price $25,625,000; 80 units plus 600sqm retail; sold via way of on market campaign. Click here for property information memorandum
- 31-33 Millewa Avenue, Wahroonga; sale price $7,300,000; 62 units; sold via way of on market campaign. Click here for property information memorandum
- 11-21 Woniora Avenue, Wahroonga; sale price $7,600,000; 85 units; sold via way of on market campaign. Click here for property information memorandum
- 566-594 Princes Highway, Kirawee; sale price $61,000,000; 600 units plus 15,000sqm retail; sold via way of off market select tender campaign. Click here for property information memorandum
- Wilga Estate, Ingleside; sale price $14,200,000, 90 housing lots, sold via way of off market select tender.
- 2 Morton Street, Paramatta, sale price $58,000,000; 774 units; sold via way of off market select tender campaign.
- 87 Bay Street, Glebe, sale price $53,500,000; 2651 units plus 24,950 sqm retail; sold via on market campaign. Click here for property information memorandum
MP: What are your forecasts for 2014?
Stuart: Site values have been driven up by at least 20 precent in the last six months with many sites achieving between $150,000-$250,000 per unit site depending on location, proximity to transport and amenity. In terms of construction finance, banks are still very conservative with 100-percent debt coverage required prior to funding and relatively low LVRs.
Fixed price D&C contracts are getting extremely competitive on margin when it comes to the tender process, which makes for favourable development conditions.
Sydney 2036 metropolitan study aims to promote redevelopment of metro land close to the CBD of Sydney, which has already seen developers begin to land bank sites in anticipation on rezoning due to lack of site opportunities.
Solid demand for residential apartment stock, not just from local investors and owner -occupiers but also from offshore cash buyers coupled with the lack of immediate supply, means that the market will continue to get more competitive from a site acquisition perspective.
Contact Stuart
scox@savills.com.au
Divisional Director
Residential Site Sales – NSW
Savills Australia
Direct Ph: +61 (0) 2 8215 8810
Mobile No: +61 (0) 438 770 867
