Five bold expert opinions on property’s biggest issues today
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In this article, CBRE's senior experts provide insights into key property sector issues, highlighting challenges and opportunities in Australia's real estate market. They discuss topics such as residential price growth, office occupancy revival, easing construction costs, the state of big refurbishment projects, and the potential of purpose-built student accommodation, shedding light on the trajectory of these crucial sectors in the coming years.
- Paul Abrahams & Daniel Burger, Directors at Debuilt Property
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Meet the team – Vicky Tsang
In 2018, Vicky joined Debuilt Property as an Assistant Development Manager. Prior to her role at Debuilt Property, she accrued a decade of experience specialising in design, project management, and multi-disciplinary team organisation within commercial architecture firms in Australia and Hong Kong. Her expertise spans various sectors, including commercial, industrial, and multi-residential projects, covering all stages of building development. Vicky excels in fostering collaboration with both internal and external stakeholders, driven by her passion for delivering high-quality project outcomes for clients.
Outside of work, Vicky enjoys practicing pilates and exploring new destinations through travel.
If you have any questions about our services, please get in touch with Daniel on dburger@debuilt.com.au or +61 414 342 704.
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Residential sector
The AFR reported that a potential interest rate hike on Melbourne Cup day has dampened buyer confidence, leading to a dip in auction clearance rates to 68.5%, the lowest in seven months. Preliminary data reveals 3,383 homes were auctioned, the highest since Easter last year, challenging buyer demand depth. The market shows signs of cautiousness amid the looming rate increase. (Home buyers spooked by prospect of another rate rise, Nila Sweeney,29/10/23)
The AFR reported that in October, national home values increased by 0.9%, accelerating slightly from the previous month's 0.7% gain, according to CoreLogic's home value index. However, the quarterly pace of growth slowed to 2.6% over the past three months, down from 3.7% in the June quarter. Sydney's dwelling values rose by just 2.5% over the past three months, while Melbourne's quarterly growth nearly halved to 1.2% from the 2.2% recorded in the June quarter. (Quarterly house price growth loses momentum, Nila Sweeney, 1/11/23)
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The AFR reported that economists and analysts anticipate a 7% rise in home prices nationally for the FY24, driven by limited listings and positive sentiment toward housing, despite potential challenges posed by higher borrowing costs. The rebound in home values, already at 6.3% in the six months to September, defies the fastest rate-rising cycle in three decades. While experts don't view this growth as sustainable, they find it difficult to identify factors that might halt the current housing recovery. (Economists tip property prices to rise 7pc in 2024, Campbell Kwan and Nick Lenaghan, 30/10/23)
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The AFR reported that rising house prices and declining housing starts are intensifying pressure on the RBA to raise rates, coinciding with dwindling household mortgage buffers. Australia's surging immigration, the strongest growth rate in five decades, is considered a significant economic shock. Despite a 30% drop in home lending since May 2022, the housing market remains inflationary due to increased immigration, prompting suggestions for a 0.25% rate hike to 4.35%. Mortgage holders face potential payment hikes, with mortgage buffers almost depleted, posing challenges amid soaring house prices and record low vacancy rates. (This vicious housing cycle looks hard to escape, James Thomson, 1/11/23)
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The Australian reported that a shortage of home listings, combined with surging migration, is driving rent escalation in major Australian cities. New rental listings were down 5.7% annually in September, the lowest in over a decade. The national rental vacancy rate hit a record low of 1.1%, pushing rents higher. The national median weekly advertised rent on realestate.com.au reached $550, up 3.8% over the quarter and 14.6% over the year. Sydney experienced an 18.2% rent increase over the past year, with Hobart and Canberra being the only markets where rents remained unchanged. (Tough times for renters as listings drop and demand surges, Ben Wilmot, 30/10/23)
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OTHER KEY HEADLINES
1. Houses selling twice as fast as a year ago says REIWA – The Real Estate Conversation 1/11/23
2. ‘Extraordinary’ property tailwinds to persist: CBA, AMP – Investor Daily 1/11/23
3. Some of Australia’s most exclusive suburbs are also the most indebted – The Australian 29/10/23
4. Data shows density is key to community vibe - The Australian 2/11/23
5. Melbourne rental listings fall to decade low as median rents soar to a record high – PropTrack – REA Group 30/10/23
6. ‘Priced out’: warning to landlords – REA Group 31/10/23
7. The best time to sell your home – REA Group 31/10/23
8. Aussie home prices soar to new highs as Sydney breaks price record – REA Group 1/11/23
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Commercial sector
Office
The AFR reported that a survey of analysts and economists conducted by the AFR suggests that higher interest rates and the persistent WFH trend could lead to a potential further 20% decrease in office building values. The office sector, particularly lower-grade office towers, is considered most vulnerable as tenants opt for higher-amenity accommodation in the weaker market. While some experts expect a decline in prime CBD office values, others believe that higher-grade offices might be shielded from significant value drops due to rising net effective rents. Transaction activity remains limited due to uncertainties, high bond rates, and the expectation of further value adjustments. (Office tower values could tumble 20pc further: survey, Campbell Kwan and Nick Lenaghan, 2/11/23)
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Retail
The AFR reported that Australia is expected to face a substantial drop in mall space per person over the next decade due to high population growth and barriers to new supply, according to industry analysis by Colliers. With the population forecasted to grow 15% to nearly 30 million by 2032, an additional 2.225m sqm of retail space would be needed to maintain the current per capita ratio. However, it's nearly impossible to develop new major malls due to land constraints, creating a premium on existing shopping centers. (Is Australia running out of shopping mall space?, Nick Lenaghan, 30/10/23)
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The AFR reported that Vicinity Centres has repurchased the remaining 49% stake in Sydney's Chatswood Chase for $307m, at a 45% discount to the price it sold that stake to Singaporean sovereign wealth giant GIC six years ago. The deal pricing aligns with the correction seen in the retail property sector, indicating that the correction may be close to the bottom. Vicinity plans to invest in a $620m upmarket makeover at Chatswood Chase, including boosting dining and fresh food courts and adding a rooftop "office village." The funding for the investment is sourced through debt and the sale of smaller assets. (Vicinity sold Chatswood Chase stake for $562m, buys it back for $307m, Nick Lenaghan, 31/10/23)
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Industrial
The AFR reported that the demand for warehouse space in Australia has led to a surge in speculative development, with 45% of the 3m sqm of warehouse supply due in 2023 being speculative, up from the previous average of 27%. Unlike the US market, where speculative projects account for 80% of new facilities, Australia's industrial sector continues to prioritise pre-leased projects. Despite the increase in speculative development, strong pre-commitments in Australia are expected to maintain low vacancy rates, driving further rental growth. (Build it and they will come: speculative warehouse development surges, Larry Schlesinger, 1/11/23)
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Affordable housing
The AFR reported that Australia's purpose-built student accommodation (PBSA) sector is facing rising rents due to a growing demand for international student housing that outstrips supply. Despite an increase in PBSA beds, the surge in international student numbers has led to a 27% rise in rents nationally since pre-COVID levels. The Oxford Economics Australia report predicts further rent hikes, driven by tightness in the broader residential market and extended waiting lists. Although construction slowed during the pandemic, strong underlying demand is attracting investments, with financial and institutional support expected for new PBSA projects in the coming years. (Student housing rents to keep rising as demand outstrips supply, Michael Bleby, 1/11/23)
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OTHER KEY HEADLINES
1. Fawkner, PAG seal $465m deal for Midland Gate as malls bounce back – The Australian 2/11/23
2. Simonds family selling Melbourne site to pursue ‘New York opportunity’ – AFR 1/11/23’
3. WeWork to enter Chapter 11 bankruptcy as soon as next week – AFR 2/11/23
4. Ashe Morgan swoops on Edward Street tower in trust play - The Australian 1/11/23
5. Turning old hotels into homes may ease housing crisis – AFR 30/10/23
6. Indonesians extend hotel spending spree to $270m with Sydney deal – AFR 30/10/23
7. Now is the time for farmers to expand holdings – AFR 29/10/23
8. Big rural investors chase sustainable returns - The Australian 1/11/23
9. NT’s Broadmere Station sells to Vietnamese-backed hotel developer – AFR 29/10/23
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Construction & development
The AFR reported that Sydney's architectural reverence is hindering the city's ability to address the shortage of offices and apartments. The preservation of historic buildings, such as the 1957 Bates Smart designed MLC building in North Sydney, often takes precedence over developing new structures to meet the city's growing demands. In this case, an architecture lobby group and heritage considerations led to the veto of a planned replacement tower, contrary to the support from some residents. The emphasis on architectural significance sometimes impedes urban development and the creation of more affordable housing options. (The architects holding back Sydney, Aaron Patrick, 30/10/23)
The AFR reported that a complete ban on engineered stone could significantly increase the cost of kitchen benchtops for consumers. Caesarstone's managing director, stated that opting for the upmarket alternative of porcelain, which is already more expensive than engineered stone, would cost consumers approximately $12,000-$13,000 for a kitchen renovation, compared to the $6,000-$7,000 cost for engineered stone. Despite the higher cost, Cullen warned that alternatives like porcelain, granite, or natural quartzite also contain silica and might face bans in the future. (Engineered stone alternatives will double benchtop cost, industry says, Michael Bleby, 27/10/23)
Build Australia reported that the Green Building Council of Australia (GBCA) and the PCA have released a report titled "Every Building Counts – For Local Government," outlining 19 policy recommendations across six key themes to promote greener, healthier, and more equitable built environments. The report emphasises the role of local governments in demonstrating climate leadership by setting net zero targets for 2050 or sooner, supported by clear, long-term strategies. Read more…
The Real Estate Conversation reported that new house approvals in Australia have fallen to their lowest levels in a decade. The ABS’ monthly building approvals data for September revealed a 4.0% decline in new house approvals for the month, leaving approvals 13.9% lower in the last three months compared to the same quarter the previous year. (House approvals fall under the weight of rate hikes – HIA, Tom Devitt, 1/11/23)
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OTHER KEY HEADLINES
1. Apartment slump bites Central Equity as developer calls for incentives – The Australian 2/11/23
2. Controversial developer Tim Gurner’s $1bn plan to transform Adelaide CBD site – The Australian 2/11/23
3. Grollo family to redevelop ski village to ease housing crisis for seasonal workers - The Australian 1/11/23
4. House building times blow out to almost a year – REA Group 1/11/23
5. Australian invention clinches victory at constructsteel Awards 2023 – Inside Construction 1/11/23
6. Ralan founder pleads guilty to fraud – AFR 1/11/23
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Finance
The Age reported that Australia's government reverse mortgage scheme is experiencing rapid growth, with the number of participants increasing at an annual rate of about 60%. The Home Equity Access Scheme, which allows retirees to unlock the value of their homes, had 9,750 participants in June 2023, up from 6,041 in June 2022. The scheme's eligibility criteria were expanded, allowing more people over the pension age to participate and access lump sum advances, making it an attractive option for retirees looking to supplement their income. (Retirees flock to government’s reverse mortgage scheme to boost income, John Collett, 1/11/23)
The Age reported that the International Monetary Fund (IMF) has called on the RBA to raise interest rates further and advised the government to cut or delay some of its $150bn infrastructure projects to ease the burden on home buyers. The IMF's annual report highlighted the need for additional rate hikes to curb inflation and recommended a more measured and coordinated approach to public investment projects. Working families, facing a 9% inflation rate, are particularly affected by rising home-loan repayments, emphasising the urgency for appropriate policy adjustments to alleviate the pressure on households. (IMF says Australia needs higher rates, while inflation soars for working families, Shane Wright and Rachel Clun, 1/11/23)
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OTHER KEY HEADLINES
1. Cromwell, Australian Unity plan for $1b property fund falls apart – AFR 27/10/23
2. Decision time for $240b IFM, ISPT mega-merger – AFR 29/10/23
3. Rich lister Lang Walker’s developer profits up 30pc – AFR 31/10/23
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Sydney, NSW: Steel House/Stone House
Retallack Thompson
In the heart of Sydney, architects Jemima Retallack and Mitchell Thompson undertook a daring transformation of a narrow, dilapidated sandstone house and its adjacent modern addition, creating a mixed-use, multigenerational home. The 1830s sandstone house, meticulously adapted into a two-bedroom dwelling and a ground-floor studio, posed challenges due to its irregular structure. The architects utilised steel elements and slimline edges to optimise space, designing a precise counterpoint in the new addition, Steel House. This project showcases a harmonious blend of heritage restoration and modern architectural innovation, illustrating a thoughtful response to spatial constraints.
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Baião, Portugal: Lavandeira Douro Nature & Wellness
FCC Arquitectura
Lavandeira Douro Nature & Wellness, designed by FCC Arquitectura, seamlessly blends tradition, nature, and modern luxury in rural Baião, Portugal. The retreat features elegant luxury cabins, meticulously crafted with natural materials and panoramic windows, offering guests serene views of vineyards and the Ovil River. Emphasising sustainability, the cabins are strategically positioned amidst wooden walkways, fostering a deep connection to nature and providing a tranquil sanctuary for guests seeking relaxation and rejuvenation.
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