THE PROPERTY DEVELOPMENT REVIEW
and interest rate rises, with hopefully some more clarity moving forward we are expecting a significant increase in assets coming to market later this year and into 2025 particularly as assets settle providing new benchmarks. One of the defining themes over recent years has been the influx of private capital & foreign capital targeted toward commercial real estate assets - how have you observed this thematic & what’s driving this investment with reference to the residential land market? There have been multiple factors driving this demand and investment wave, one factor that has always been attractive about the Adelaide market is the stability and liquidity that the local market offers, being one of the most liquid and stable markets in Australia and traditionally faring well during market downturns. The other factors are more recent phenomenon’s- strong population growth and an emerging diverse and highly skilled economy. South Australia’s record population growth, currently 1.7% (year- on year), is the strongest growth since the ABS began tracking the figure. An obvious result of this is an increase in demand where demand for housing was already high, further underpinning this as an attractive investment class and city to invest. Adelaide’s robust market fundamentals and emerging industries like Technology, Defense, Aerospace and Health are attracting a highly skilled labour force which is further supported by a strong education industry. These are long term and big picture industries which have played an important part in presenting Adelaide as very attractive investment proposition for private, interstate and foreign capital alike. In closing, are there any other investment trends or market themes that you’re analysing that are likely to have a material impact on values in 2024? Firstly, the recent 2024 Budget includes a number of changes that look to assist first homebuyers. With $14 million allocated over four years, the property value stamp duty thresholds will be removed for first homebuyers on new properties and development sites. This move will provide a leg-up to a number of first home buyers with potential combined benefits of over $50,000. This extra financial support is likely to boost the entry of first homebuyers into the market and could have a material impact on new property values particularly given the current limited supply, limited trades and building timelines. While a step in the right direction, I would have liked to see the assistance go a little further with a wider review of stamp duty for all first home buyers and not just for new dwellings. A lesser discussed item which will impact development across the board is the reform to South Australia’s tree protection laws which have become far stricter earlier this year. This will impact a significant number of developments but especially so in the smaller scale 1 into 2 and 1 into 3 residential developments space creating longer development lead times, increased development costs also potentially locking up sites which would have under previously laws been suitable for new housing. On the other hand, another noteworthy reform is the introduction of ‘outline consent’ in planning applications by the South Australian Government. This new assessment tool allows applicants to obtain an early development application decision before committing substantial resources to projects. The aim is to streamline the approval process and reduce red tape. We are cautiously optimistic that this change will improve approval time frames and contribute to a more efficient and investor-friendly environment, while enabling more opportunities to be considered in turn leading to better development outcomes.
This is expected to accelerate the maturation of the Adelaide apartment market with a likely generational shift opening the door to apartment living with buyers seek amenity and central locations to support lifestyle. While BTR won’t be the silver bullet for the rental crisis as it has traditionally focused more on providing key lifestyle and amenity features, I feel that we are on the precipice of some significant growth in the sector; particularly in the CBD and inner ring. This should be further assisted by the Federal Government announced a reduction in the managed investment trust (MIT) withholding tax rate for newly constructed residential build-to- rent projects (BTR) from 1 July 2024. As BTR is in its relative infancy in Australia, as somewhat of a legacy issue the industry has been subject to a 30% MIT withholding tax rate which has meant that BTR in Australia is less attractive in comparison to other property asset classes from a tax perspective such as office, hotel and student accommodation assets which are subject to a lower 15% rate. While this is expected to improve investment in the sector, exactly how this will play out and be implemented is yet to be seen. Similarly, land-lease communities are another asset class through which significant capital has been deployed recently, particularly from large-scale residential development groups - how have you observed this evolution and do you anticipate further growth in these sorts of deals.? To date we have not seen a lot of activating in this sector in SA other than in holiday / leisure locations such as Waikerie, Moonta, Goolwa and in the outer growth areas such as Waterloo Corner. That said we have a couple of local groups that are replicating east coast models and activity, pursuing the model to put a more cost-effective housing outcome on sites while firming up long term annuity income. With the push for more affordable housing and the continued increase in the cost-of-living pressures we expect to see growth in the sector and other non-traditional residential development models. Based on your discussions with vendors / potential vendors, how are they observing market dynamics in your region & to what extent do you expect an increased volume of properties coming to market over the course of the next six or so months? While the overall market sentiment remains cautiously optimistic, there are certain factors that are expected to influence the volume of properties coming to market later this year and into next year. In the residential space we expect the volume of properties coming to market to remain relatively steady. Noting that Renewal SA have been proactive in releasing more residential land in key growth areas which should assist in the ‘shovel ready’ pipeline in the medium term, this is expected to have limited impact in the short term. With ongoing demand for housing remaining high, previous increases in interest rates and costs of living does not appear to have dampened demand, supply side remains constrained is not expected to significantly ease demand pressures. In contrast, we anticipate the potential for an increase in the volume of development sites coming to market. Vendors of inactive sites will be facing mounting holding costs, including increasing interest rates and continued State Land Tax and statutory expenses and as a result, be more inclined to sell these sites rather than continue to hold if there is no development strategy for the site. Regarding the commercial market more generally, transactions are well below the historic averages driven by market uncertainty
June / July 2024 – 113
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