WA MARKET OVERVIEW
WESTERN AUSTRALIA
Brett Wilkins - Director of Capital Markets | RWC WA
Thanks for the opportunity to share your insights - to begin, give us a sense as to how you’re finding transaction activity for residential development land sites as we approach the mid-point of 2024? There is strong enquiry and transactions for residential development land sites that are shovel ready or close to that. Sites that are genuinely suitable for development now or soon, with no major obstacles to near-term development, are keenly sought after. Developers are particularly interested in parcels that have already cleared zoning, environmental, and regulatory hurdles, allowing them to expedite the construction process and respond quickly to market demands. The heightened interest in these ready-to-develop sites is driven by the ongoing robust demand for housing and the need to meet stringent project timelines. Additionally, with financing costs high due to increased interest rates, developers are prioritising projects that promise quicker returns on investment. The preference for shovel-ready sites also reflects a strategic shift towards mitigating risks associated with lengthy approval processes and potential regulatory changes. Overall, the market for residential development land remains vibrant, with a clear preference for sites that offer immediate or near-term development potential. Clearly there’s an acute housing shortage across Australia - based on your conversations with developer clients, what’s their appetite for pursuing new opportunities & what are the underlying fundamentals they’re considering in their analysis? There is a huge appetite for new opportunities among developers, driven by recent significant sales of titled lots combined with low stock levels. The strong fundamentals underpinning this demand include low supply, strong population growth, and minimal investment product built in recent years. Developers are eager to capitalise on these conditions, recognizing the urgent need to address the housing shortage across Australia. In their analysis, developers are closely examining several key factors. Firstly, they are considering population growth trends, particularly in urban and
suburban areas where demand for housing is most acute. Secondly, they are assessing supply constraints, including the availability of suitable development land and the speed at which new projects can be brought to market. Additionally, developers are mindful of economic indicators such as employment rates and income growth, which influence housing affordability and demand. Furthermore, developers are paying attention to government policies and incentives aimed at boosting housing supply, as well as the regulatory environment that can either facilitate or hinder project approvals. Overall, the combination of low supply, high demand, and supportive fundamentals is driving a robust interest in pursuing new residential development opportunities. There’s a number of challenges and pressures facing developers, not least the cost of construction, cost of capital & availability of land - what’s your gauge as to how developers are mitigating some of these issues? Developers are offsetting these challenges through a combination of strong sales rates and significant price increases. The robust demand for housing has allowed developers to raise prices, which helps counterbalance the rising costs. Although construction costs are not being mitigated easily, they are now plateauing, providing some relief and predictability in development feasibilities. The increased cost of capital has certainly been a hurdle, but developers are managing this by focusing on shovel-ready projects with tighter timeframes. By accelerating project timelines, they can reduce the period of exposure to higher interest rates and expedite returns on investment. In terms of land availability, developers are becoming more strategic, seeking out underutilised parcels and engaging in land banking to secure future projects. Additionally, they are leveraging innovative financing solutions and public-private partnerships to navigate the challenging economic landscape. Overall, despite the pressures, developers are finding creative ways to sustain momentum and drive successful outcomes. As you know, the rise of build-to-rent (BTR) as an asset class has grown exponentially in Australia
BRETT WILKINS
120 – June / July 2024
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