HOW WILL 50% OF FOREIGN OWNERSHIP LIMIT AFFECT DEVELOPERS?

As well as restricting supply to an already full rental market, the 50% foreign ownership restriction removes some of the competitive advantages overseas developers had over local developers.

Prior to this change coming into effect, overseas developers had a competitive advantage as they had no overseas sales limits whatsoever. Overseas developers using overseas banks could, if they so desired, have 100 per cent foreign sales, with 100 per cent en masse sales occurring overseas.

What Scott Morrison has done is even the playing field between local and overseas developers, with overseas developers now forced to generally work within the same FIRB sales metrics as local developers.

To commence a development, local banks require local developers to presell approximately 70 per cent of the apartments in a development and impose a 25 per cent Foreign Investment Review Board (FIRB) restriction on these presales. This means local developers require 52 per cent local sales prior to construction commencing.

Once the developer has achieved financial close with a local bank, they are free to sell the rest overseas. Meaning, under a 25 per cent FIRB presales limit, local developers using local banks can develop buildings with circa 48 per cent foreign ownership.

Banks are always looking at the FIRB presales limit and whilst many current developments are at 25 per cent, there is a more recent bank trend to constrict this further – more in the realm of 15 per cent. If this is the case, then locally banked projects can end up with 40 per cent foreign ownership.

It is also fair to say that overseas purchasers have settled better than local sales. Many pundits were nervous about large buildings settling this year, yet what we are seeing is that very few overseas purchasers are falling through when it comes to quality developments (just 1-2 per cent in fact), even against Australian Prudential Regulation Authority’s (APRA) headwinds of overseas purchaser mortgage finance.

With the 50 per cent FIRB restriction placed across the whole market, coupled with APRA’s new powers across non-bank lenders, it means that the metrics by which local and overseas developers, local and overseas banks, and local and overseas non-bank lenders are becoming converged.

As a flow on effect of the overseas sales metrics now being similar, this policy change will result in overseas developers using local banks and non-bank lenders more readily to avoid foreign exchange risk, again levelling the playing field.

Perhaps this new measure may even narrow the gap between what an overseas and local developer can pay for a site, which sets the market and ultimately gets passed onto the (local) consumer.

As an unintended consequence however, this change will further constrict supply to rental markets, thus driving rental and housing prices further out of reach of local first home owners and owner occupiers. It is only state planning ministers that can affect real change by encouraging the supply side of the housing economic supply/demand pendulum.

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POINT POLARIS REACHES NEW HEIGHTS AT REFLECTIONS

Point Polaris brings luxury park-side living one step closer for purchasers, with the topping out of ‘Reflections’, North Melbourne.
Designed by national award-winning practice, Plus Architecture, Reflections leads the way in Melbourne’s inner-city apartment market with its superior architectural quality and unique exterior. Located in a tranquil pocket of North Melbourne, this prestigious collection of 142 apartments is spaciously set over 13 floors, the last of which was poured this week. The project is 96% sold out and expected to achieve 100% within six weeks.
Appointed as the Development & Project Manager, Point Polaris is overseeing the construction of Reflections, which commenced construction in October 2016.
“Reflections is a great project for us; we have been involved from inception so have been able to manage the design of quality that we deliver across our projects,” said Andrew Hogan, Managing Director of Point Polaris.
“Rather than just seeing projects through to completion, we prefer to go on the development journey with our clients and ensure the end product is a resounding success, both from a development and liveability perspective.”
“From the first sod turning through to the ground works and now the topping out, we are on track to deliver something truly unique at Reflections. ABD Group is the appointed builder on the project and has done an excellent job and are currently ahead of program by 3 months,” Hogan said.
“Working collaboratively with Point Polaris, our subcontractors and all other stakeholders, ABD Group have created a recipe for successful project delivery. Reflections will be the benchmark project for ABD Group and a platform to allow our company to deliver quality projects up to $100m systematically with quality, time and cost in balance” said Andrew Christou, Construction Director of ABD Group
Focus has now shifted to the construction of the 14m high, mirrored glass façade which is designed to reflect the beauty of the lush treetops in neighbouring Gardiner Reserve. The polished metal on the lower portion of the building will embrace the imagery of adjacent elms which change with the seasons – it will be a dynamic looking building.
Purchasers have been drawn to this striking architecture, the luxurious interior fit-outs, concierge service, tranquil park location and proximity to public transport, established schools, cafés, shopping and amenities.
Reflections’ positioning is quite rare for inner-city living and has appealed to discerning owner occupiers, which make up the vast majority of purchasers.
Reflections is on track for completion in Q1 2018, which is tracking three months ahead of schedule.

INDUSTRY LEADERS WEIGH IN ON POST JUNE 30 MARKET

Joining our Managing Director, Andrew Hogan, both Andrew Leoncelli, Managing Director of Residential at CBRE and Chris Moyle, Head of Property at Westpac offer their insights on the changing market conditions.

CBRE shared their experiences in the post June 30 Market and said that their sales had never been stronger. They were expecting that sales in the July, August and September 2017 months would be slower and they did not have any major launches occuring.

Westpac gave their views on the market and are continuing to lend for quality developers in quality locations. They are also taking much more care in due diligence and in their investment decisions.

Point Polaris stated that the supply and demand pendulum is in equilibrium in Melbourne, and where the supply does equal demand, you can expect reasonable healthy conditions to prevail, especially toward the end of 2017.

NERIDA CONISBEE PRESENTS OUTLOOK SERIES – ‘STATE OF THE MARKET’

As part of the Point Polaris Outlook Series, Point Polaris welcomed their clients and industry professionals to join for a poignant discussion about the state of the residential markets in Melbourne and Sydney. Our guest presenter for the day was Nerida Conisbee, Chief Economist for REA Group and one of Australia’s leading property experts.

Andrew Hogan, Managing Director of Point Polaris, started the lunch by commenting that it was an interesting time in the residential market, with the industry at an inflection point. Speaking to the recent government and regulatory changes affecting the local market, Andrew noted how resilient the industry has been.

The first bellwether of these industry changes occurred mid-last year when banks stopped lending to foreign buyers, which reduced offshore purchasing in Australian residential property.

“Foreign purchasers have proved they can settle apartments without local banks, there are other funds out there stepping in. That was the first issue we faced, but I think the development industry has banded together and stood tall throughout that,” said Hogan

“Most recently, we’ve seen a tax grab by the local state government in changes to the stamp duty concessions for investors. We’re also seeing the RBA and Apra doing everything they can do within their remit.”

Despite these market conditions, Andrew went on to quash the negative press that has continuously labelled the market as ‘oversupplied’. “We look at the number of commencements versus the need for apartments, and if you look at those numbers you’ll see we’re actually in a supply/demand equilibrium,” said Hogan.

“Another factor affecting the market is the vacancy rate, which at a low 1.7 per cent, means our apartments are full. “

“We’re also within an all-time low interest-rate environment, which is propping up construction and expenditure all around.”

By tracking the number of people looking to buy on REA’s platform versus the number of listings, Conisbee was able to track demand in the Melbourne market.

“There are more and more people looking to buy, but less properties selling,” said Conisbee.

“Australians are property obsessed, and it’s because we’ve done remarkably well out of it. We have a lot of confidence in property, and in investing in property.

“As a result, we’re holding on to properties longer to build bigger and bigger portfolios.”

This significant demand for property has affected affordability, driving many first home buyers to consider buying an apartment over house and land. Conisbee pointed to this as a key factor driving apartment demand in Melbourne.

“In Melbourne now, houses are pretty unaffordable for the average first home buyer, but apartments aren’t. The average first home buyer could buy an apartment and not be under housing stress.”

“Affordability does change buyer behaviour significantly,” she said.

These insights point to a market that is challenged by state and federal governments, but is well-placed to withstand changed and continues to show signs of positive growth.

 

 

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