Sydney’s residential site sales market experienced unprecedented demand for development sites that offered definitive planning controls and delayed settlement terms throughout 2018, despite the residential market slow-down.
More than $600 million worth of development sites transacted in 2018
We witnessed a growing appetite for sites that were situated within close proximity of retail, transport and education facilities and amenities, with the Residential Site Sales team transacting more than $600 million worth of development sites within the Sydney metropolitan region alone.
The sale of 15-19 Clarence Street, Burwood, was one such sale that capitalised on this demand with 13 expressions of interest received.
Such was the demand for this site that a short tender process was undertaken to separate the buyers and enact an unconditional exchange.
Increasing trend of collective sales
2018 saw the continued rise of ‘mum-and-dad’ private owners grouping together to form collective sales, where they could offer developers medium to high-density scale sites in areas that would benefit from development uplift.
These collective sales have enabled owners to achieve two to three times the market value of their existing home or investment property, provided they can grant delayed settlement terms to these purchasers, who are demanding a minimum of 12 to 18 months post exchange to settle.
This delayed settlement requirement is due to the reluctance of banks to lend in the present environment, and the low Loan-to-Value Ratios attributed to raw sites that don’t benefit from a Development Approval.
Lucrative areas for these collective sales included Macquarie Park, Burwood, St Leonards, Chatswood, Redfern and the Lower North Shore.
Decline in developer appetite due to restrictions and market conditions
Highly publicised decline in developers seeking to acquire sites on and off the market was off the back of a variety of market conditions, including the banks’ reluctance to lend following the Australian Prudential Regulation Authority’s (APRA) investigation; and investors’ inability to obtain investment loans from banks, leading to a near non-existent pre-sales market in Sydney.
Restrictions imposed on investors within interest only loans became increasingly difficult to obtain, and the banks then wanted a minimum 20 percent deposit, which many purchasers don’t have.
Similar restrictions and additional taxes were placed on offshore buyers, such as the 8.0 percent stamp duty surcharge for offshore buyers, in addition to the standard rate.
It then proved problematic for offshore developers to get their money out of China.
The negative noise created a knock-on effect within the market, discouraging buyers from committing to large-scale purchases.
Several developers thought that the market would continue to decline into 2019 so why would they buy now? Why not wait until 2019, when they can secure a cheaper site?
Looking to 2019, we expect a slow start to the year in line with the APRA findings being finalised and developers opting to wait and see which direction the market sways.
Not until banks start lending again to both investors and developers, and presales start to occur, will we see the market start to improve again. This could be towards the end of 2019, if not early 2020.
We expect to transact a significant amount of stock off market next year, as many existing owners of sites will be forced to transact sites due to the significant slow-down in the presales market, the rise in holding costs, and the inability of the banks to keep funding land-bank sites that generate minimal income.