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The Debuilt Debrief brings together the week’s property news, to keep you up to date on the latest stories across projects, finance, lending and property markets.

Expert commentary

Building in the same old ways won’t end the housing crisis. We need innovation to boost productivity

In this week's article Professor of Architecture at Monash University Mathew Aitchison discusses the need for innovation in the construction industry to address the housing crisis and improve productivity. It emphasizes that relying on traditional building methods alone will not be sufficient to solve the ongoing housing challenges, and highlights the importance of embracing new approaches and technologies for effective change.

- Paul Abrahams & Daniel Burger, Directors at Debuilt Property

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News summary

Residential sector

The AFR reported that a growing number of buyers who purchased properties during the pandemic are opting to sell at a loss rather than continue with rising mortgage repayments. In the March quarter, 5.5% of all loss-making sales occurred within a year of purchase, more than double the figure from the previous year. Additionally, the share of loss-making sales for homes resold within two years has more than tripled. Sydney, Melbourne, Perth, and Darwin experienced the largest increase in loss-making sales. Conversely, Hobart, Adelaide, and Canberra were more lucrative for vendors, with the majority of resales resulting in a profit. (Pandemic-era buyers sell to avoid paying their mortgage, Nila Sweeney, 28/06/23)

The AFR reported that preliminary auction clearance rates in the residential property market have remained strong for the eighth consecutive week, with a national rate of 73.8%. Sydney led the market with a clearance rate of 78.7%, while Melbourne saw a slight slowdown with a rate of 70.1%. First home buyers rushed to take advantage of the expiring First Home Buyers Choice scheme in Sydney, which allowed them to pay an annual land tax instead of upfront stamp duty on properties under $1.5m. Brisbane had the busiest auction activity among smaller capitals, and Adelaide recorded the highest clearance rate. (Clearance rates strong as first home buyers rush to avoid stamp duty, Bonnie Campbell, 25/06/23
 
The AFR reported that annual growth in house rents has slowed to 8.1% in May from 10.1% in April, indicating early signs of softening in extremely tight capital city rental markets, particularly for houses. However, unit rents have surged 14.8% over the past 12 months, and economists predict that rent growth may moderate as the economy slows. The rental market for units remains tighter than houses, partially due to migration patterns. While there are signs of softening in the rental market, vacancy rates remain low, and limited new supply may prevent outright declines in rents, even as the economic environment slows. (House rents grow 8.1pc amid early signs of easing, Campbell Kwan and Michael Read, 25/06/23
 
The AFR reported that CoreLogic reveals that popular lifestyle locations such as Byron Bay and the Mornington Peninsula are at risk of losing their pandemic gains as weakening personal finances and a return of buyers to cities reduce demand in these areas. The hinterland of northern NSW's Richmond has seen declines of over 31%, while parts of Victoria's Mornington Peninsula have experienced a 10% drop. Rental incomes in coastal areas like Byron Bay and Bowral have also decreased, while vacancies have increased. The movement back to cities is reducing rental demand from new residents, leading to a rise in vacancy rates. However, not all regional areas are experiencing this trend, as the Sunshine Coast and Gold Coast continue to attract interstate migrants. (Popular regional areas on the brink of losing pandemic gains, Nila Sweeney, 26/06/23
The Australian reported that according to analysis by PropTrack, economists suggest that a recession is unlikely to cause a property crash in Australia. Historical trends show that property prices have only experienced moderate falls during past recessions before rebounding significantly. Even during the 1993 recession and the GFC, property prices dropped no more than 10% before recovering. Low unemployment rates, high migration levels, and a shortage of homes are currently supporting the property market. Buyers are actively looking for homes, attending open houses, and participating in auctions, indicating confidence in the market. Economists believe the likelihood of a significant property price crash is low and anticipate a potential boom in prices following a recession due to central bank interventions and government stimulus. (Property prices don’t crash in a recession: analysis, Mackenzie Scott, 23/06/23

OTHER KEY HEADLINES

1. Unit values underperform house values for the first time in 13 months – CoreLogic 26/06/23
2. Combined capital cities clearance rate rebounds to a three week high as the volume of auctions decrease - CoreLogic 26/06/23
3. Australian property taking 15 years on average to double in value - The Australian 30/06/23
4. Airbnb crackdown backed by housing minister – AFR 26/06/23
5. Melbourne’s mayor wants Airbnb owners to shift into long-term rentals – AFR 28/06/23
6. Sydney house sellers pocket more than $1 million average profit – AFR 28/06/23
7. Low supply to increase unit prices but don't expect houses to become cheaper - The Australian 23/06/23
8. Short-term selling on the rise as property profits fall – CoreLogic 28/06/23
9. CSR calls for land releases to avoid housing shortage - The Australian 27/06/23
10. How new Western Sydney Airport flight paths will affect home prices – REA 28/06/23
11. Five capital cities on track to new record prices over the next 12 months – Domain 23/06/23
12. Australia's fastest-growing regions so far in 2023 – Domain 27/06/23

Commercial sector

Office
The AFR reported that office rents in Melbourne have fallen in Q2, while other cities experienced modest gains with the help of incentives. Sydney saw a 2% increase in prime gross effective rents, reaching $975 per sqm per year, attributed to new building completions. In contrast, Melbourne's prime net effective rents dropped by 3.7% to $395 per sqm due to high vacancy rates and increased incentives. Brisbane experienced a 1.2% increase in prime gross effective rents, driven by limited supply and inflationary pressure. Adelaide saw the strongest growth with a nearly 9% rise in prime net effective rents, while Perth remained unchanged with incentives ranging from 45-50%. (Melbourne office rents fall as other cities eke out gains, Larry Schlesinger, 29/06/23)

The AFR reported that investors are taking a bet on C-grade office buildings, despite the challenges they face in a declining market. Rich Listers Shesh Ghale and Jamuna Gurung have sold a five-level office building in Melbourne's CBD for $14.5m, which will require a minimum investment of $2-$3m for refurbishment. The short weighted average lease expiry of 1.22 years highlights the pressure on lower-grade properties. Uncertainty over office demand due to remote working practices has led major landlords to upgrade their portfolios to attract blue-chip clients. Melbourne CBD rents continue to fall, and lower-grade buildings are more expensive to upgrade and lack energy efficiency. However, some investors, like Collective Capital, are willing to take a longer-term approach and see potential in these buildings. Collective Capital has previously acquired buildings in Melbourne and sees opportunities in the education sector and the return of foreign students. (Why some investors are betting on C-grade buildings, Michael Bleby, 29/06/23)
 
Industrial
The Australian reported that the last mile logistics sector, which focuses on delivering goods quickly to customers, is attracting significant investment from top institutions in Australia. Funds SA has awarded a $350m mandate to HMC Capital's specialist fund, signaling the growing interest in small sites that can be transformed into critical property assets for e-commerce players. The demand for fast deliveries has led to the development of last mile centres in cities and the repurposing of underutilised sites. The investment reflects the selective nature of investors in the commercial property market. Other players, such as Urban Logistics Co, are also active in the field, focusing on infill industrial areas to meet the rising demand for last-mile and e-commerce distribution. The supply of new land for last mile projects is limited, leading to rental premiums in key locations. Despite the challenges, the race to cover the last mile fastest is just beginning. (Going the distance: big institutions chase last mile edge, Ben Wilmot, 28/06/23)

OTHER KEY HEADLINES

1. RAM snaps up Noosa Hospital, Perth clinic in $80m development play – AFR 27/06/23
2. Vegemite factory to stay in local hands after Charter Hall swoops – The Australian 27/06/23
3. Star seals $192m sale of Sheraton Grand resort – AFR 26/06/23
4. Developer to turn Brighton’s Savoy Hotel into luxury apartments – AFR 28/06/23
5. Travellers bail on big box hotels in favour of boutique properties – The Australian 28/06/23
6. Kilter Rural water fund tops list for benefits to environment and investors – AFR 30/06/23
7. Cattle station sales surge to $300m despite tumbling beef prices – AFR 25/06/23
8. Mirvac gets government fund backing for $1.8bn build-to-rent trust - The Australian 28/06/23
9. Build-to-rent pipeline expands with new players Keylin and Abadeen Group - The Australian 26/06/23
10. Hundreds of build to rent units proposed for key inner west site – REA 27/06/23

Construction & development

The AFR reported that Brisbane currently has the highest hourly construction rate in Australia, reaching $66.66, due to a surge in infrastructure projects for the 2032 Olympic Games. This surpasses Sydney's rate of $65.32 and Melbourne's rate of $64.31, according to Turner & Townsend's International Construction Market Survey 2023. While Brisbane's average total cost ($/sqm)square sqm is lower than Sydney and Perth, the city is at risk of becoming the most expensive place to build if labor constraints and the high volume of upcoming work continue. (Why builders in Brisbane are earning more than any other city, Michael Bleby, 27/06/23)

The AFR reported that The National Housing Finance and Investment Corporation (NHFIC) reveals that there is a potential $9bn worth of shovel-ready housing projects in the development pipeline. If the delayed $10bn housing fund bill is passed, it could kickstart the immediate development of approximately 16,000 homes. The projects, mostly medium-density and townhouse developments, are ready to proceed and could help counteract the slowdown in the housing market, keeping workers employed and meeting housing demands. Additionally, NHFIC states that private investment could fund around 30,000 dwellings worth approximately $20bn over a five-year period. Community housing providers are expected to play a significant role in the subsidised housing sector's development. (HAFF could trigger $9b of housing work over next two years: NHFIC, Michael Bleby, 27/06/23)
 
The AFR reported that the Gold Coast is expected to experience the highest building cost inflation in Australia, with a projected growth of 10.5% this year. This surpasses Perth's 5.6% and represents a significant increase from the previous estimate of 7% just six months ago. Brisbane is also facing significant inflation at 5.1% annually until 2027, outpacing Melbourne and Sydney. The constrained labor force and increased demand from public projects, including the upcoming Brisbane 2032 Olympic Games, are contributing to these cost pressures. Additionally, supply chain issues have led to several construction industry collapses in Queensland, further impacting the sector's capacity. (Gold Coast faces country-leading 10.5pc building cost inflation, Michael Bleby, 28/06/23)
OTHER KEY HEADLINES
1. Developer Michael Teplitsky cops 25pc hit on Sydney site sale – AFR 30/06/23
2. Lendlease to take on $1.7b Queen Victoria Market redevelopment – AFR 28/06/23
3. Politics stalling Labor’s housing fund is a shame, developers say – AFR 28/06/23
4. Builders hope immigration will dig housing market out of a hole – The Australian 25/06/23
5. Victoria’s biggest builder tips home boom in 2024 after sustainable home requirements delayed – REA 25/06/23
6. North East Link tunnels from Watsonia to Bulleen take shape – Inside Construction 23/06/23
7. Plan A not an option? Lendlease tackles Plan B with renewable diesel – AFR 30/06/23 

Finance

The AFR reported that UBS suggests that investors in the housing market should focus on affordability by investing in apartments, manufactured housing estates, and BTR projects rather than traditional house-and-land developments. The current housing cycle is influenced by affordability constraints, high demand due to immigration, and production challenges, making apartments a more favorable option with relative affordability and strong rental growth. In contrast, house/land projects are expected to lag due to their sensitivity to interest rates, and home builders may face pressure, impacting customer confidence. (To profit in housing, invest in affordability: UBS, Nick Lenaghan, 25/06/23)
 
The AFR reported that NSW Premier Chris Minns announced, with no warning or consultation, that property developers will be offered an extra 30% height allowance on apartment buildings worth more than $75m if they subsidise 15% of the homes. This offer was qualified a few days later by the planning department which clarified that it would apply to buildings that are within 800metres of transport hubs and train stations. (Minns wants to break Sydney’s selfish property foundations, Aaron Patrick, 27/06/23)
 
The AFR reported that the latest data shows that headline inflation in Australia fell to 5.6% for the year to May, below expectations, as the April rate was 6.8%. However, economists believe that the RBA will still need to raise interest rates at least once in the coming months due to persistent price pressures. Treasurer Jim Chalmers is open to providing cost-of-living relief but emphasizes the importance of maintaining a healthy budget surplus to keep inflation in check. The budget surplus for 2022-23 is expected to be significantly larger than forecasted $4.2bn, but Chalmers argues that it should be retained for now. RBA Governor Philip Lowe is concerned about the challenges of controlling inflation, particularly as wages increase and labor-intensive service sectors experience price growth. (RBA tipped to hike rates again, even if it holds next week, Phillip Coorey and Michael Read, 28/06/23)

OTHER KEY HEADLINES

1. AI-driven single-click refinancing platform Sherlok lands $3.4m in VC backing - The Australian 28/06/23
2. Property crunch hits Cbus super but fund on track to post 8.5pc annual return - The Australian 29/06/23

What's on this month?
1. The People's House: Sydney Opera House at 50 - 1 July - 12 November, Sydney
The People’s House: Sydney Opera House at 50, a free exhibition opening on 1 July at the Museum of Sydney, invites locals and visitors behind the scenes to explore five decades of this extraordinary architectural icon and its impact on the cultural and social life of Sydney and the nation.

2. 2023 Architecture Symposium - 28 July, Art Gallery of New South Wales Sydney 
The 2023 Architecture Symposium: Reset (Sydney) will redefine the nature of home, curated by Jemima Retallack and Aaron Peters. As we return to “life as usual” in the face of changing social, economic and environmental climates, The Architecture Symposium: Reset will examine the residential work of architects and designers who question the idea of “usual.”

3. Open House Brisbane - 15 & 16 July, Brisbane 
Brisbane Open House is a free annual event providing residents and visitors with the rare opportunity to discover the hidden wealth of architecture, engineering and history in buildings and places around Brisbane city. Selected buildings are opened for the public with guided and self-guided tours to encourage visitors to explore, re-examine and engage with Brisbane’s built environment.

4. Open House Melbourne - 29 & 30 July, Melbourne
Melbourne’s most intriguing and inspiring venues are opening their doors to the public once again in 2023. The much-loved Open House Weekend in Melbourne, Ballarat and now Bendigo, sees tens of thousands of people come out to celebrate architecture and the city. Increasingly, the Open House program is tackling big city topics through major public talks, tours, and debates – producing over 100+ special events that are designed to build a groundswell of interest in critical issues for the city.

5. Dreamhome: Stories of Art and Shelter - Now until 27 August, Art Gallery of New South Wales Sydney
Dreamhome: Stories of Art and Shelter reveals what 29 artists from Australia and farther afield have made of the idea of home. For these artists, home is not only a house or a place, it’s also memories, people – and stories. Set across a series of rooms which do not align exactly, the exhibition itself forms a house of dreams in which locations and timeframes are always shifting. The artists take us to Cape Town, Los Angeles, Fitzroy Crossing; into living rooms, disaster zones and vast landscapes. Evocations of intimacy and sanctuary give way to visions of loss and upheaval, followed by projections of rebuilding and reconnection. 
Design and architecture
Melbourne, Victoria: Science Gallery Melbourne
Smart Design Studio
Winner of the Award for Interior Architecture (AIA Awards), the Science Gallery Melbourne, designed by Smart Design Studio, is a striking architectural marvel that seamlessly blends innovation and artistry. This cutting-edge building serves as a vibrant hub for interdisciplinary exploration and showcases the intersection between science, art, and technology, captivating visitors with its visually captivating design and transformative experiences.
Brno, Czech Republic: Mendel's Greenhouse
Czech studio Chybik + Kristof
Nestled in the city of Brno, Czech Republic, Mendel's Greenhouse, designed by Chybik + Kristof, is a beautifully restored structure located near Augustin Abbey. This greenhouse offers a harmonious blend of historical preservation and contemporary design, providing a serene and immersive environment for botanical exploration and research.
Learn more about Debuilt Property www.debuilt.com.au
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