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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

How do we get urban density ‘just right’? The Goldilocks quest for the ‘missing middle’

In this week's article Elek Pafka, a Senior Lecturer in Urban Planning and Urban Design at the University of Melbourne, explores the challenges and complexities of achieving the ideal urban density. The article delves into the dichotomy between low-rise detached housing and high-density towers in Australian and North American cities and discusses the concept of the "missing middle" in urban development.
- Paul Abrahams & Daniel Burger, Directors at Debuilt Property

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Discover Debuilt
Pre-sales analysis

Debuilt specialises in providing financiers with a comprehensive pre-sales analysis of residential stock. Unlike the developer supplied sales data which can include inadequate information or incorrect and formulas, Debuilt has designed a presales tracker that accurately captures key presales information to assist with accurate reporting and ongoing risk management related to sunset dates, price discounts, low deposits and uneven demand for different type of stock offered. This detailed analysis unveils where pre-sales were either surpassing or falling short of expectations, a crucial aspect in project initiation. Furthermore, Debuilt offers invaluable ongoing monitoring to support project success.

If you would like to know more about this, please get in touch with Daniel dburger@debuilt.com.au or +61 414 342 704.
News summary

Residential sector

The AFR reported that the spring auction season in Australia saw a rebound in the housing market, with clearance rates consistently above 70%. CoreLogic data reported a preliminary clearance rate of 71.2%. This marked the strongest start to a spring season since COVID-19. Around 2300 homes were initially scheduled for auction, but 7.5% withdrew, leaving 2119. Confidence and listings have improved in comparison to the previous year. (Spring auction start yields stronger-than-expected demand, Campbell Kwan, 3/09/23)
 
The AFR reported that house prices in premium NSW areas like the Southern Highlands and Byron Bay have fallen by 2% & 4.1%, respectively, over the last three months. In contrast, city property values saw 1% growth during the same period. Overall, 39% of regional areas in Australia experienced declining housing values, while only 8.3% of city districts did. Despite recent declines, regional house prices are still 33% higher than pre-pandemic levels after a 7.7% drop from their peak. (Southern Highlands, Byron Bay prices fall as cities pull ahead, Nila Sweeny, 5/09/23)

The AFR reported that the RBA’s decision to keep interest rates at 4.1% for three consecutive months may boost buyer demand in the coming months, leading to sharper price increases, according to SQM Research. Vendors are responding to rising house prices and stable interest rates, with Sydney and Melbourne witnessing significant increases in new listings. Demand is driven by strong population growth and the fear of missing out. Despite the surge in new listings, total listings have fallen nationwide compared to a year ago. Distressed listings have also decreased, alleviating concerns about mass defaults due to fixed mortgage resets. (Buyer FOMO is about to explode as rates stay on hold: SQM, Nila Sweeney, 5/09/23)
CoreLogic reported that ‘The value of Australia’s housing market just hit $10 trillion again. How is this possible?’ Read more...
 
This week will be the 5th consecutive week that auction activity across the combined capitals will be higher. Whilst the change in auctions last week to this week only rose by 3.1%, the difference from this time last year is 22.88%. CoreLogic has more…

OTHER KEY HEADLINES

1. Short stay accommodation soars 22.8% as Australia's rental crisis rages – REIA – The Real Estate Conversation 6/09/23
2. Housing affordability reaches three decade low – REA 2/09/23
3. 6800 future Melbourne homes to be impacted by $670m housing estate sell off – REA 4/09/23
4. Rates on hold but rent rises remain a problem for inflation - Ray White – The Real Estate Conversation 5/09/23
5. Rising unemployment the biggest risk for house prices: Mark Bouris – AFR 6/09/23

Commercial sector

The AFR reported that commercial property deals have slowed, with bid-ask spreads at historically high levels. Retail real estate transactions are down 62% to $5.1bn, office deals dropped 75% to $4.9bn, and industrial deals fell 55% to $7.8bn. In the office sector, the gap between buyers and sellers' price expectations is around 30%, suggesting transactions at 15% below book value. Major mall deals face a bid-ask spread of over 10%. (Major property deals on hold as buyers, sellers face off on prices, Nick Lenaghan, 4/09/23)

The Australian reported that rising interest rates have caused capitalisation rates to soften, potentially leading to a 30% decline in property values. In the past year, office properties experienced a negative total return of 2.2%, while retail returned 2.8%, and industrial properties thrived with a 6.9% return. Quality office properties historically outperform, with premium office values falling by 5.4%. (The Big Split: Quality will out for the best commercial assets, Adrian Harrington, 7/09/23)
 
Retail
The AFR reported that several large shopping centers worth approximately $2.5bn have been on the market for over a year, with prospective buyers cautious about potential overvaluation. Shopping centre transactions in the last quarter were 60% lower than the same period a year ago. While some activity is expected as interest rates stabilise, pricing clarity remains a challenge in the market.
(Big malls languishing on the market – for years, Campbell Kwan, 4/09/23)
The Australian reported that recent deals in the retail property market indicate a shift in investor focus towards subregional shopping centers. JLL's analysis reveals a divergence in yields between core and non-core assets in the retail sector. Syndicators and private investors are increasingly dominating acquisitions, with their share of subregional acquisitions reaching about 84% since 2022. This trend is driven by the potential for attractive returns in non-core subregional assets, while institutions focus on core assets with strong land components and mixed-use potential. (The subregional shopping centre surge could be about to kick off again, Ben Wilmot, 6/09/23)
 
BTR
The Australian reported that the BTR sector in Australia faces uncertainty as potential regulatory caps on rental increases could affect investor returns. While the national cabinet rejected rental caps as a solution to the housing crisis, the debate has caused delays in some major transactions. The BTR sector, with approximately 45,000 planned units, is seen as crucial to addressing Australia's housing crisis, and any brakes on its growth could exacerbate supply shortages and increased rents. Developers like Mirvac and Lendlease, along with international players, have entered the sector, but concerns about rental caps loom large. (Mooted caps on rental increases a risk to the surge of build-to-rent apartment projects, Ben Wilmot, 7/09/23)

OTHER KEY HEADLINES

1. Aware Real Estate buys Crown Group’s Mastery site for $121m – AFR 3/09/23
2. WeWork seeking to renegotiate almost all its leases – AFR 7/09/23
3. US billionaire to bring ultra-luxury Baccarat hotel to Australia – AFR 5/09/23
4. Harry Triguboff, 90, eyes second Melbourne hotel amid $400m expansion – AFR 6/09/23
5. NH Hotels landing in Sydney as Minor makes its move – The Australian 6/09/23
6. As good as pubs: MA Financial taps Toga veteran for $1b hotel push – AFR 6/09/23
7. $500m solar deal to cut warehouse energy bills by half – AFR 6/09/23
8. Magain Real Estate owner Mike Dobbin pays $1m for Whitsundays island – The Australian 7/09/23
9. Vicinity hunts capital partner for $1b build-to-rent focused platform – AFR 4/09/23
10. Property veterans lean in on affordable housing challenge – AFR 6/09/23
11. Dexus eyes next $200m raising as healthcare race heats up – AFR 6/09/23

Construction & development

The AFR reported that rising construction costs have driven up the prices of new apartments in Australia by almost 8% in the year to June. This surge in costs has made it unaffordable to develop lower-priced rental and for-sale units, resulting in a shrinking pipeline of affordable housing stock. The average per sqm sales rate for apartments rose to $13,140, limiting viable projects to those targeting wealthier market niches, such as downsizing owner-occupiers. This trend poses a challenge to government efforts to increase the supply of affordable housing and could worsen the nation's housing crisis. (Rising costs hit pipeline of cheaper apartments, Michael Bleby, 7/09/23)

The AFR reported that a new housing advocacy group called Housing Now! has been formed NSW, consisting of representatives from universities, business groups, and unions. This organisation aims to push for additional housing in the state, particularly in the form of apartments near train stations. It also seeks to streamline the approval process for housing applications, reduce the backlog, and provide incentive payments to councils from the NSW government. Housing Now! includes members affiliated with the Labor Party, which may enhance its political influence in NSW, where there is a growing focus on increasing inner-city housing. (New YIMBY housing group to push for apartments near train lines, Aaron Patrick, 4/09/23)
 
The Australian reported that Japanese property developers are returning to the Australian property market, but this time they are partnering with local developers and focusing on mid-range high-rise projects and office buildings, avoiding luxury hotels and resorts. Mitsui Fudosan, a major Japanese developer, has teamed up with Frasers for a significant apartment precinct in Sydney's northern suburbs worth close to $1bn. This shift in strategy, in contrast to the 1980s boom, aims to create more sustainable and mutually beneficial partnerships between Japanese and Australian developers. (Japanese make property return with a local twist via partnerships with big players, Ben Wilmot, 4/09/23)
OTHER KEY HEADLINES
1. Quintessential secures long-term lease with St Patrick’s Church to build The Arbory office building – The Australian, 8/09/23
2. Changes to penalties and union rights...a risk to the residential building industry? – HIA – The Real Estate Investor, 7/09/23
3. Builder, client in stand-off over $73m twisted wreck – AFR 3/09/23
4. Imported steel not at fault in collapse of $73m building, builder says – AFR 5/09/23
5. Pallas Group’s Fortis makes luxury office play in Double Bay – The Australian 6/09/23
6. Bunnings invests $75m in a changing home-build market – AFR 6/09/23

Finance

CoreLogic reported that the RBA has maintained the cash rate at 4.1% for the third consecutive month. Inflation is decreasing faster than expected, and there are signs of a weakening labor market and reduced household spending. While the RBA remains confident that inflation will return to the target range by late 2025, uncertainties persist, including the impact of the cash rate pause on purchasing demand and the sluggish consumer sentiment that has lingered near recessionary levels for nearly a year. (RBA holds as speculation mounts the rate hiking cycle has peaked, Tim Lawless, CoreLogic 5/09/23)
 
REA Group reported that Australia's economy grew by 0.4% in the June quarter, with annual growth slowing to 2.1% from 2.3% the previous quarter. Household consumption remained flat as consumers cut back on discretionary spending to accommodate essential expenses and rising mortgage repayments. The household saving ratio fell to 3.2% in the June quarter from 3.6%, marking the lowest rate since mid-2008, as consumers tapped into savings built during the pandemic. While the RBA has paused interest rate hikes, the economy is expected to soften in the coming months due to the impact of previous tightening measures. (Households run down savings buffers as cost of living bites, Sarah Dowling, REA 6/09/23)

The Australian reported that liquidation and external administrations in Australia surged by 18% in August, reaching a total of 651 appointments nationwide. The ATO’s aggressive debt collection efforts, including targeting businesses with director penalty notices, are pushing more companies and directors closer to bankruptcy. Many business owners are resorting to unsecured business lending, often supported by a director guarantee, to cope with rising costs and falling sales, increasing their personal liability. NSW and Victoria experienced the highest number of failures, with the construction industry particularly impacted, and business and consumer sentiment remaining weak. (‘Houses on the line’ as directors face bankruptcy, Chris Herde, 4/09/23)
 
The AFR reported that the Clean Energy Finance Corporation (CEFC) is partnering with MaxCap to encourage non-bank lenders to support the decarbonisation of commercial real estate. The CEFC is committing $75m to the scheme, with the first project being the refurbishment of the 30 Pirie Street office tower in Adelaide. MaxCap and the CEFC will co-invest $35m each in a loan to Quintessential Equity for the acquisition of the building and to achieve a five-star base building energy rating. This initiative aims to involve more non-bank lenders in retrofit and decarbonization projects in the commercial real estate sector, complementing efforts from traditional banks. (Green bank scheme to drive more non-banks into decarbonization, Larry Schlesinger, 7/09/23)

OTHER KEY HEADLINES

1. In-person home valuations close to becoming a thing of the past with AI revolutionising industry – The Australian 4/09/23
2. ‘Chronic housing crisis’ costing Sydney’s economy $10bn a year – The Australian 7/09/23

Design and architecture
Sydney’s Northern Beaches, NSW: Trilogy House
Peter Stutchbury
Trilogy House, a captivating architectural journey unfolding in three chapters, originally designed in 1961 by Peter Muller and later enhanced by Glenn Murcutt and Wendy Lewin, invites us to explore a masterful fusion of old and new. This house newly extended by Peter Stutchbury Architects, not only connects with its past but also embraces the beauty of its natural surroundings, offering a unique blend of architectural elements that span across generations.
Crete, Greece: O Lofos 
Block722
O Lofos, meaning "The Hill," is a harmonious holiday home nestled into the picturesque mountainside of Crete. Crafted by Athens-based studio Block722, this nature-inspired retreat seamlessly blends earthy tones and natural textures into its architectural design.
Learn more about Debuilt Property www.debuilt.com.au
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