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5 February 2018

Developers sense a shift in sentiment

WA BUSINESS NEWS

Stuart Gardiner acknowledges the past few years have not been easy for those in Perth’s land development business. He says 2017 was a good example, with the latest data from the Real Estate Institute of Western Australia showing a 17 per cent decrease in residential lot sales in the 12 months to September.

But Mr Gardiner, who is Frasers Property Australia’s general manager for residential WA, said the latter part of 2017 had, anecdotally at least, proved more fruitful.

The national property group made a decision last year to place home sites at its 30-lot Seaspray Island development at Port Coogee back on the market, having removed them from sale three years earlier.

First released in 2008, five of the unsold 13 lots were re-subdivided to create eight smaller lots, ranging in size from 336 square metres to 582sqm, following a strategic review of the Perth property market.

The other five residual sites remained at 733-776sqm.

Mr Gardiner said all the properties had sold within the last six months of the year, with the larger sites averaging $1 million per lot.

“That has really given us confidence,” Mr Gardiner told Business News.

“Seaspray is a high-end marketplace, but if that top end starts to move then the bottom end usually starts to as well, it’s just a matter of time.

“We’re now in a position to bring more stock to the market; within a month we’ll be returning to Port Coogee with more stock.

“What we’ll be releasing won’t be waterfront lots, although they will be in close proximity, with pricing ranging from $485,000 to $515,000.”

Beyond the Seaspray Island sales results, Mr Gardiner said the residential land market as a whole was starting to show signs of improvement. “I’m seeing signs of recovery,” he said.
“Recovery may mean different things to different people; for me it’s bouncing along at a steady pace with volume returning to the market.

“It all comes back to confidence; if people are confident they’re going to have their job in 12 months, get a pay rise, or whatever their (favourable) personal situation, then that’s great for property.”

Emerging signs of improvement across a range of other industries in WA were assisting to spark consumer confidence, according to one of the state’s stalwarts of residential development, Nigel Satterley.

Mr Satterley pointed to a number of drivers for rising sentiment in WA: the record amounts of LNG exports to Asia; overseas demand for WAs wheat and other resources such as iron ore, gold and lithium; and the $5 billion worth of upgrades to the state’s shopping centres, which will create jobs for tradesmen.

“These things are real things that are happening and helping to encourage confidence,” Mr Satterley said.

“I think we can see the bottom in sight, and we’ll start this year where we can see that people will feel more comfortable about their jobs and, hopefully, more comfortable about buying property.

“There’s an oversupply of existing homes and rental properties are still high, so 2018 is still going to be very competitive and hard work.

“I don’t think the volumes will pick up a lot, but I think at the end of it (2018) there’ll be some good signs that we are now hopefully entering that soft recovery phase.”

Activity

Data from the Urban Development Institute of Australia WA shows 2017 recorded the lowest number of lots under construction in 11 years, at 9,889 (excluding the December quarter), down from a peak of 26,826 in 2014.

Lot approvals also continued to decline in 2017, with 2,173 final lot approvals recorded by the Housing Industry Forecast Group in the June quarter – less than half of the 2015 peak of about 5,500 approvals in the same quarter. The average price of lots has also dropped over a 10-year period from $318,706 in 2007 to $233,907 in 2016 – partially due to the size of lots decreasing from an average 527sqm to 382sqm.

The first micro-lots, at 80sqm, were introduced to WA last year. UDIA WA chief executive Allison Hailes said this reflected a broader market trend towards more product diversity on offer at new land developments, which had created different price-points and more affordability.

“While there were some decreases in sales activity in selected areas, for the most part 2017 was generally a year of stabilisation,” Ms Hailes told Business News.

“Our data shows that, during the September 2017 quarter, sales activity was steady and the decline in average prices ceased.

“In fact, the average price of land increased a moderate 1.1 per cent in the September quarter to $234,837.”

Ms Hailes said these results were despite the government ending its $5,000 boost payment to first home buyers six months early.

“UDIA categorically called the bottom of the market during 2017 and we are now confident that we will see steady, incremental growth in the residential land market over the coming 12 to 24 months,” she said.

Perron Group chief executive Ross Robertson is also optimistic about the year ahead, after coming off a challenging 2017, with price reductions and rebates widespread across its two growth corridors – Piara Waters and Baldivis.

Mr Roberston said the group was preparing several of its land bank properties in Treeby and Baldivis to convert to active estates over the next 12-24 months, while its joint venture with Peet to develop housing authority land at Brabham was due to start this year.

“Overall we remain positive on the medium-term outlook and expect to see in 2018 an increase in volumes and prices to start firming,” Mr Robertson said. “Not dramatic but an upturn.”

Cedar Woods Properties state manager WA Ben Rosser said he had started to see an uplift in activity in the second half of last year across the business’s 12 active projects.

“We’re seeing increased demand now and there have been opportunities where we’ve been able to increase prices, not everywhere but in two locations we have,” Mr Rosser told Business News.
“If we would have said that 12 months ago, no-one would have believed us.

“Our employment numbers are now stable, interest rates historically low and the costs of producing land are as low as we’ve seen.

“Over the past six months, particularly within the northeast and inner south-east corridors, things are really starting to move again.

Cedar Woods launched its new 273-hectare Bushmead estate located in Hazlemere off Midland Road in June last year, where two thirds of the land will be reserved as parks and a recreational reserve.

Mr Rosser said sales had been strong so far, with the site’s natural bushland offering a point of difference to other stock on the market, such as the ex-farming land in Baldivis. The group had another five projects in various stages of approval.

“We’ve got good sales strategies for our projects and the market is responding to that,” Mr Rosser said.

Investment

Brown-Neaves Investments, headed by residential veteran Gary Brown-Neaves, added to its land bank in 2017.

Chief operating officer Brad Headling said that, since its establishment in 2016, the business had grown its portfolio, which comprised its flagship Brightwood Baldivis project (1,165 lots), The Living Edge in Wellard (195 lots) and two other estates – Flamewood, Brabham, and Beenyup Grove, Byford, which were part of syndicates. Brown-Neaves Investments’ current pipeline will bring 3,800 lots to market in the next 10 years.

“We’ve been quite active and added more lots to the Brown-Neaves investment portfolio last year, so we’re continuing to grow,” Mr Headling told Business News.

“Everybody is looking for an improvement and there have been early signs of that throughout the back end of 2017.

“I think there’ll be greater consistency for 2018.” Mr Headling said the business was actively looking for more partnership opportunities.

“I think it’s a good time to invest here,” he said. “And that’s why you’ve seen a few deals by some of the listed players in the Perth market.”

The state’s most active land developer, Stockland, made the largest public investment of 2017, acquiring three parcels of land for $91 million (see page 20).

The ASX-listed company purchased sites in Sinagra, Baldivis and Brabham from three different undisclosed vendors, comprising a total 385ha. Stockland general manager WA Col Dutton said the business was constantly assessing opportunities, regardless of where the market was.

“We believe we’re near the bottom of the land cycle,” Mr Dutton told Business News. “Established markets, the economy and jobs have shown signs of positivity, so it’s about trying to make the right assumptions to purchase.

“We actively look for opportunities as part of having a longer-term rather than a here-and-now approach and track things like where infrastructure, like Metronet, will be provided, and where land uses may change.”

The group currently has six active residential communities, where first home buyers had made up the majority of purchasers, but Mr Dutton said more upgraders and downsizers were coming back to the market and expected this trend to continue across 2018.

Politically, Mr Dutton said the state government had made some good calls for the industry, such as the decision to pull together the two land agencies, the Metropolitan Redevelopment Authority and LandCorp, to target a more coordinated approach to development.

Planning Minister Rita Saffioti also announced the establishment of a new planning reform team in 2017 to better streamline the planning and approvals process.

“I think this has set the industry up well for the New Year,” Mr Dutton said. “The market feels more positive, but I think the real indicator will be the first two quarters of 2018.”