‘Investors are back’: Wary apartment developers crank up new projects
There are glimmers of hope in the development market after a savage few years, with some players cautiously announcing new projects instead of shelving them or listing sites for sale.
Developer Salvo has reported 240 presales for a new Southbank tower after a launch last summer. Meanwhile the Deague Group, opting out of high-rise, has fielded 1500 expressions of interest for an estate in Victoria’s high country.
A render of Salvo’s Moray House.
In Yarraville, Frasers and Irongate sold half the 44 townhouses on offer at last month’s launch of the long-awaited Bradmill redevelopment project. In the inner north, developer DCF has sold ten of the 46 luxury apartments on offer at its new building, New Abbotsford.
It’s early days, though, as there are plenty of permitted development sites going up for sale. Rising building costs and reluctant financiers are slowing construction, and while governments have blamed councils for slow permit approvals, the data shows that numbers have not been stacking up for many developers.
“We’re certainly not building high-rise. The cost of building doesn’t work – it’s now costing $16,000 per unit instead of the $10,000–$11,000 we used to be selling at,” Deague Group’s chief executive Will Deague said.
“We settled 530 apartments in January 2020, and we haven’t done much since then. We were lucky with the timing, but it’s been frustrating having no projects on go,” Deague said.
Property research house Charter Keck Cramer has warned developers and financiers they risked missing the next cycle if they didn’t start launching new projects.
Charter’s State of the Market report painted a gloomy picture of 2023 when construction started on 4600 apartments, the lowest in the past decade and a long way from the 25,000 units under construction in 2015.
The number of project launches in 2023 revealed a more dramatic scenario – just 4,400 new apartments came on the market, a staggering 82 per cent fewer than the peak in 2016.
Fewer than 10,000 apartments were completed last year, a decline of 40 per cent from the pre-pandemic cycle. With only 10,000 units under construction and due for completion in 2024-26, the situation is set to worsen over the next three years.
Chapter Group’s Dean Lefkos is one who pressed ahead, with an expected 2025 completion date, after strong pre-sales for his 57-unit Smith Street project.
“All buyers to date have been owner-occupiers, very much from within the local area, ranging from 20s to 60s, including downsizers, empty nesters and young professionals,” Lefkos said.
Salvo, which has not yet signed a builder or funder for Moray House, is about to demolish the two-storey office building on its site at 42 Moray Street, which it bought in 2018.
“Investors are back, which ties with rents being quite strong in the past 18–24 months. The breakdown between owner-occupiers and investors is 50–50,” Salvo boss James Maitland said.
“This is the first building we’ve designed and launched after COVID. One of the things we’ve done is rethought the way people want to live. People want better amenities, and they want community.”
The Deague Group is returning to development in an unexpected location: Bright, on a 40-hectare former tobacco farm at 805 Great Alpine Road.
An artist’s impression of a Bright Valley streetscape.
The first 78 houses out of a planned 350 at Bright Valley, inspired by the architecture in the alpine resort town of Queenstown, New Zealand, are about to be released. An Albury-based builder is lined up for the building project and funding is coming from one of the big four banks.
Frasers and Irongate are looking at apartments down the track, but have kicked off Bradmill Yarraville, on the site of a former denim factory, with townhouses.
“We’re seeing green shoots. A mixed-use site like this is going to go well because there’s no competition out here. We are selling in a good position,” Frasers’ development director Theo Della Bosca said.
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