Rush to launch Melbourne projects

PROPERTY developers with residential projects in Melbourne, Victoria are actively launching them ahead of July 1, when new punitive property cooling measures kick in. For instance, buyers of units in off-the-plan projects will no longer enjoy stamp duty savings from that date.

“The [impending] removal of the stamp duty savings has certainly fast-tracked new launches in Melbourne,” says Darien Bradshaw, CBRE executive director of international project marketing for Asia. “There’s a massive rush as there’s a lot of stock in the marketplace.”

Singapore-listed property firm Fragrance Group received planning approval for the development of a 625-unit apartment tower at 555 Collins Street in Melbourne last September. A 62-storey tower with 431 apartments by China-backed developer Aurumstone Group at 299 King Street is also set to be rolled out on the market.

Malaysian-listed property group S P Setia, which acquired the high-profile site at 308 Exhibition Street from Telstra for A$101 million (RM320 million) in May last year, is set to launch the development next month. 308 Exhibition Street, S P Setia’s fourth project in Melbourne, will be a mixed-use high-rise designed by Australian design firms, Cox Architecture and Fender Katsalidis Architects. The project preview will be on June 10 and 11, with a global launch scheduled for later next month.

Meanwhile, Yarra One previewed in Singapore on the weekend of May 13 and 14, with its global launch set for the weekend of June 3 and 4. The 268-unit freehold development is by Eco World-Salcon Y1, and designed by Fender Katsalidis. Eco World International acquired an 80% stake in Salcon Development (Australia) for A$120,000 last month. With that, Eco World embarked on the development of Yarra One, which has a gross development value of A$218 million. Salcon Australia continues to own the 2,128 sq m prime land parcel in South Yarra, 5.3km southwest of Melbourne’s CBD. CBRE is handling the global launch of Yarra One.

A matter of timing

Australian-based developer Beulah International was more fortunate in terms of the timing of its launch. It unveiled its third and largest project, Paragon, in late April. The 227-unit, 48-storey mixed-use development was showcased in a series of weekend road shows in Kuala Lumpur, followed by Singapore, China, Hong Kong and Taiwan, as well as Australia. The project is 95% sold. The freehold tower has a gross development value of about A$190 million and is located in Melbourne’s CBD.

Beulah was founded by a Malaysian couple, Chan Jiaheng and Adelene Teh, in 2012, when they were fresh graduates of the University of Melbourne. Teh’s father is Teh Kean Ming, who was CEO and managing director of Malaysian listed property developer IJM Corp before he retired in 2015.

Paragon is Beulah International’s first high-rise mixed-use development. Its first two projects are low-rise, residential developments. One is an 11-storey, 136-unit freehold project called Gardenhill Doncaster. It was fully sold and completed last year. The second, Hallmark Ivanhoe, is a 35-unit, five-storey development. Launched in March this year, the project has only five unsold units.

Beulah has two more developments in the pipeline: a site in South Yarra that will be redeveloped into 10 high-end apartments, and a site in South Melbourne that will be built into 27 townhouses. As these projects are small and primarily targeted at local homebuyers, Beulah’s Chan does not see the new government measures having any impact on them.

Acting swiftly is Singapore-listed conglomerate Aspial Corp, which is seeking to sell the remaining units in its landmark 101-storey, 319m tall Australia 108. Billed as the “tallest skyscraper in the Southern Hemisphere”, Australia 108 is designed by Fender Katsalidis.

Aspial Corp engaged SQFT to showcase Australia 108 at a weekend exhibition in Hong Kong on May 20 and 21. Its second project in Melbourne is the 456-unit Avant, which is 96% sold. Its third project is the 187-unit Nova City Tower 1 located in Cairns, Queensland.

According to Aspial, the group has locked in A$1.1 billion in sales revenue for Australia 108 and Avant. The profit and revenue will be recognised when the various phases of the two projects are completed from 2018 to 2020. Aspial also announced on May 16 that it would spin off its international property arm, World Class Global, into a separate Catalist entity to hold its development projects in Australia and Malaysia.

’Recycling capital’

Lian Beng Realty, the property investment arm and wholly-owned subsidiary of Singapore-listed construction and property development company Lian Beng Group, had also been actively acquiring sites in Melbourne over the past two years.

In 2015, Lian Beng Realty purchased a historic seven-storey office building at 247 and 249 Collins Street in the Melbourne CBD for A$23 million and fully leased it. When it received several unsolicited offers for the building, the group decided to put it up for sale by expression of interest. In April this year, the building was sold for A$35 million.

In October 2015, Lian Beng also acquired a site on St Kilda Road from 19 vendors for A$24.35 million. Initially, Lian Beng planned to launch its first residential project at St Kilda by 3Q2017, a 170-unit upscale apartment block designed by Bates Smart, one of Australia’s most established architectural firms. However, executive director Matthew Ong says the site was recently launched for sale by expression of interest after he received “unsolicited offers from several parties”. The indicative price tag for the residential site is A$40 million.

Ong is emphatic that Lian Beng is not exiting the Australian property market. “We are just recycling capital,” he says. Lian Beng still owns a freehold 18-storey office building at 50 Franklin Street in the Melbourne CBD. The group purchased the property for A$51.5 million last November.

Meanwhile, Hong Kong-listed Far East Consortium International will be rolling out West Side Place in a global preview. West Side Place is a redevelopment of the former headquarters of the The Age newspaper at 250 Spencer Street and designed by Cottee Parker Architects. The new mixed-use development will be the largest residential development in Melbourne’s CBD, with over 2,600 apartments and the first Ritz-Carlton in Melbourne. The 250-room luxury hotel will occupy one of the four towers in the development, which will span 62 to 81 floors.

West Side Place is said to have one- to three-bedroom apartments, with prices starting from A$5,800 psm (about S$559 psf).

Removal of stamp duty savings; cap on foreign buyers

There is a massive rush to launch new projects in Melbourne before the removal of the stamp duty savings for off-the-plan projects as these have traditionally been favoured by overseas investors and second-home buyers. And it is something that is unique to the state of Victoria, says Joo Ann Tay, associate sales director of SRI, who specialises in marketing international properties. “The stamp duty savings can [go] up to 5% for homebuyers of units in off-the-plan projects,” she adds. “On top of the removal of the stamp duty savings, foreign homebuyers will now have to pay stamp duty of 7%, up from 3% last year.”

A new vacant residential property tax, which also kicks in on July 1, will be levied on residential units left vacant for at least six months. “It will be very difficult for the government to police vacant units effectively, especially in high-rise developments,” observes CBRE’s Bradshaw.

Effective May 9, the Australian government introduced a 50% cap on foreign ownership in new developments. Bradshaw sees it having an impact on foreign developers, which will “reconsider buying and developing high-density developments in the Melbourne CBD because more than 50% of the sales is generated offshore”, he says. “And, project sizes have been reduced by new planning measures.”

However, he says the 50% cap on foreign homebuyers will have “a minimal impact” in Sydney as local demand for apartments in the city has remained strong, with demand outpacing supply. “Less than 15% of sales are recorded as offshore purchases for Sydney apartment projects,” says Bradshaw.

Interest could shift to Sydney

Some reckon that foreign developer and investor interest will switch from Melbourne to Sydney. The New South Wales government had increased the stamp duty surcharge for foreign home buyers to 4% from June last year. Thus, foreign homebuyers have to pay an 8% stamp duty.

“The 8% stamp duty in Sydney hasn’t really put people off,” says Julian Sedgwick, Sydney­based global head of sales and marketing at Crown Group, one of Australia’s leading privately held property developers. “It’s still lower than the 15% additional buyer’s stamp duty [ABSD] for foreign homebuyers in Singapore, the 30% stamp duty for foreign buyers in Hong Kong, and 15% tax in Vancouver and Toronto. The hike in taxes and stamp duty for foreign homebuyers has become a global phenomenon.”

Crown Group’s 2017 launch is Waterfall, its 331-unit, 20-storey sculptural development at Waterloo, which is part of the Green Square regeneration precinct. The project is a nine-minute walk to the Green Square station and a 10-minute train ride to the CBD. There are plans for a new light rail station nearby. The project is also close to the new Gunyama Park Aquatic and Recreation Centre and the public library.

Waterfall will be unveiled at a preview on May 26, with a global launch set for the weekend of June 17 and 18. The project will be launched in Sydney, Jakarta, Hong Kong and Singapore, with CBRE as the marketing agent. 

The 50% cap on foreign homebuyers, which came into effect on May 9, is not a concern for Crown Group, says Sedgwick. “We sell 70% [of all our projects] to the local market and 30% to the international market. We do that because we want the buildings to ‘come to life’; we want to build a community. So we use this 70:30 ratio in each of our developments.”

Crown Group is said to have a pipeline of projects worth A$5 billion. While most of its upcoming developments are in Sydney, the developer has secured a small project in Melbourne that it intends to launch in Singapore early next year. Crown has also secured a development site in Brisbane, and another site with a joint-venture (JV) partner in downtown Los Angeles, marking its maiden foray into the US market. It also intends to roll out its maiden project in Jakarta.

Prices at Waterfall will start from A$650,000 for a one-bedroom suite and from A$1.2 million for a two-bedroom unit. Buyers need to pay a down payment of only 10% upon exchange of contracts, and 8% stamp duty within three months. The balance will be settled only upon completion of the project in 2020. “It’s a form of leverage,” says Sedgwick.

Supply-and-demand factors

With fewer projects in the pipeline and slower future supply, prices of apartments in Melbourne will continue to grow in terms of value and yield, notes CBRE’s Bradshaw.

According to a recent news report, Melbourne residential property price growth outpaced that of Sydney in 1Q2017. In the first three months of this year, house prices in Melbourne rose 4% q-o-q, while apartment units gained 4.6%. In Sydney, house prices increased 2.8%, while apartment units were up just 1.3% over the same time frame.

Some are of the view that more foreign developers will switch their focus from Melbourne to Sydney. “We’re open to talking to Singapore developers and other foreign JV partners because we understand the Sydney market and we have the expertise,” says Crown Group’s Sedgwick. 

Doris Tan, regional director at Strawberry Star and a veteran of more than 30 years in marketing overseas properties, feels that Melbourne is likely to see a softening in demand from July, at least in the short term. But Hong Kong, Chinese and Malaysian homebuyers will continue to look at opportunities in Melbourne, as they still want to send their children there to further their studies. “And they can still afford to buy,” she adds.

Singapore buyers, on the other hand, are likely to face higher financing costs, owing to the total debt servicing ratio loan framework introduced in June 2013. It has curtailed Singaporeans’ demand for overseas property since.

What’s more, Australian banks have also curbed lending to foreign property buyers. “The stamp duty surcharge in Sydney, Brisbane and Melbourne over the past year has not really put a dent on demand, but tightening of mortgage lending to foreign buyers will have a bigger impact,” notes Bradshaw.

This article first appeared in The Edge Property Singapore, a pullout of The Edge Singapore, on May 29, 2017.

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