We are pleased to provide you with our weekly?JLL Development Site Services Market Update -?The Development Digest.
Please contact me on 0402 085 702 / [email protected]
if you would like to receive our more detailed weekly updates via email each Friday morning.
- JLL Research Apartment Market Overviews Q2 2023
- J.P.Morgan Research - Australian construction: Up and down
- JLL Asia Pacific Debt Monitor – 25 August 2023
- Headlines of the Week
JLL Research Apartment Market Overviews Q2 2023
National Apartment Market Overview
- Existing dwelling prices have now grown the past five consecutive months and just about all sub-markets have returned to growth.
- Conditions in the apartment market remain mixed, but steadily improving. Demand for new mass-market product remains soft, but a lack of stock in the existing housing sale market, slowly improving investor demand, and constrained supply of new product into this market are all helping support market balance in most locations. Demand for quality new boutique apartment projects remains robust, driven largely by downsizers.
- Over the medium-term, the main concern for the apartment market remains whether enough stock will be built to keep pace with rapidly rebounding population growth. Development conditions remain very challenging at present. In particular, there are few larger build to sell projects (with longer selling periods) progressing to construction anywhere across Australia.
Melbourne Apartment Market Overview
- Pre-sales rates in most of Melbourne’s apartment market remain moderate, but there are signs that the strong rebound in migration and foreign students over the past year is starting to have an impact.
- The number of apartments under construction has risen slightly in 2023, but remains moderate. Around 62% of this remains in the Melbourne City precinct (JLL, as at Q2 2023).
- Since reaching a COVID-19 peak of 5.5% in late-2020, Melbourne’s rental vacancy has recovered significantly to reach a low of 1.1% in early-2023 (SQM Research). The return of migrants and foreign students has driven the recovery.
- Melbourne unit prices grew 0.4% in July and are up 4.2% YTD. However, despite recent rises, prices are still 1.6% lower over the past year, which compares to -5.0% for houses (CoreLogic).
- Falling capital values and rising rents have seen Melbourne gross apartment rental yields rise by around 80 basis points over the past year (JLL Valorem, Apr-23). Yields are now around 50 basis points above their average of the past decade.
Should you wish to receive a full copy of these reports please, contact the JLL team.
?J.P.Morgan Research - Australian construction: Up and down??
- Australian construction work done rose 0.4%q/q, less than consensus expectations (+0.9%q/q) but above J.P. Morgan’s estimate (0%q/q). Although last quarter was better than first thought, as the ABS revised up the 1Q estimate from 1.8%q/q to 3.8%q/q. Residential construction remained flat on the quarter.
- Building approvals declined 8.1%m/m in July (J.P. Morgan: 0%m/m, consensus: -0.5%m/m). Approvals for detached houses rose 0.1%m/m, while high density approvals fell close to 16%m/m. Detached housing approvals remain close to 2019 lows, and we think 2019 levels are about fair for the overall series as well, given the broader housing market was similarly soft in both periods.
JLL Asia Pacific Debt Monitor – 25 August 2023
Last week, global bond markets displayed mixed moves – some countries witnessed yields continuing to rise whilst others saw a reversal in yields. What was more universally observed across the markets was the phenomenon called ‘yield curve flattening’ where short term yields increase relatively more than long term yields. During the week, most short term yields in the US climbed – for example, the US 3 year and 5 year treasuries were up by 9bps and 5bps respectively. In contrast, the US 10 year treasury yield modestly declined by 2bps, marking the end of a remarkable run up of the long term yield that began in late July
As discussed, the last week encountered the heighted monetary policy risk with every analyst eyeing the Jackson Hole symposium. The market had two key concerns:??1) whether the Fed would acknowledge the US long term neutral rate dubbed R* has structurally shifted higher and 2) whether the FOMC members would adopt a more hawkish tone in light of the double whammy of re-accelerating US economy and re-surging inflation risk.
However, those concerns were swiftly alleviated. During his closely watched speech, the Fed chair indicated the inflation remains too high and the fed is prepared to raise more. And then the tension quickly dissipated when the market latched onto his repeated phrase of ‘proceed carefully’. It is worth recalling, the same time a year ago at Jackson Hole, he literally stated the Fed is willing to risk a recession to curb inflation. This notable shift in tone reassured the market that the Fed will skip the hike during the September FOMC.
Headlines of the Week
The AFR – Cashed-up buyers seeking mansions but missing out
- After creeping higher for three consecutive weeks, the combined capital cities preliminary clearance rate dropped 2 percentage points to 72 per cent based on the 1766 results collected by research house CoreLogic.
- Just under 2400 homes were scheduled to go under the hammer in the last week before spring – numbers that will rise again next week – though a 10 per cent withdrawal rate cut that figure to 2275.
The AFR – House rents tumble in 20pc of nation’s suburbs
- Across the combined capital cities, 15 per cent of suburbs posted a drop in quarterly rent, smaller than the combined regionals where house rents declined in 29 per cent of all suburbs. Unit rents declined in 12 per cent of suburbs nationwide.
- Nationally, rents increased by 2.1 per cent over the past three months, which is substantially higher than the previous decade average at 0.4 per cent for this time of the year, although slower than the 3.2 per cent quarterly increase at the peak, according to CoreLogic.
- The trends were different in Melbourne, where the weakening rental markets were concentrated on the Mornington Peninsula such as Balnarring, Blairgowrie and McCrae, where house rents fell between 3.9 per cent and 4.2 per cent.
The AFR – Housing shortage could impact on the economy
- A shortfall of housing for international students and migrants prepared to work in regional areas could exacerbate the nation’s labour shortage, weighing on the economy as it faces headwinds out of China and the lagged impact of high interest rates.
- Research to be released today shows non-traditional housing, aimed at students, working migrants and even in the aged care sector has helped reduce some pressure on the national housing market.
The AFR – Builder Simonds says confidence returning
- Even as higher materials and labour costs cut gross profit to $119.2 million in the year to June from $135.9 million and net after-tax loss widened to $23.3 million from $9.7 million, it said consumer confidence was picking up after 12 interest rate rises in 13 months.
- It’s a hopeful sign for an industry desperate for good news. The home builder – the country’s seventh-largest, in the most recent industry ranking, for financial year 2022 – reported earnings after a mixed half-year in which it cut a further 10 per cent of its staff, the second such reduction in seven months, but also picked up contracts for unfinished homes following the collapse of rival Porter Davis Homes.
The AFR – Eureka’s focus on build-to-rent for retirees pays off
- Retirement village operator Eureka Group’s focus on the affordable end of the market, with a portfolio heavily weighted to Queensland, is paying off for its investors, with a 22 per cent lift in revenue to $36.4 million for the 2023 financial year.
- While a relative minnow among the listed property trusts, Eureka’s budget build-to-rent business distinguished itself with a healthy 33 per cent increase in its portfolio valuation to $229 million, a contrast to the asset write-downs experienced by many of its larger peers.
The AFR – Melbourne short-stays face fee, 180-day limits
- The City of Melbourne plans to bring in a $350 registration fee for short-stay accommodation providers and impose a 180-day-a-year cap on listings on platforms such as Airbnb and Stayz, to push more housing into the longer-term private rental market.
- The governing council of Australia’s second-largest city voted yesterday to push ahead with a local law to govern the short-stay industry, which it says has 4100 listings, or 14 per cent of Melbourne’s total residential stock.
The AFR – Tax changes will challenge BTR Mirvac
- Ms Buckley said the proposed thin capitalisation changes would offset the incentives arising from a tax cut for managed investment trusts relating to residential BTR projects, and push investors away from the sector.
- She warned the BTR sector could lose momentum because the lack of progress on the MIT tax reforms – which were announced in the May budget – meant investors were unsure what yields were available from BTR assets.
The AFR – Falling housing approvals cloud Labor’s target
- New housing approvals fell to a four-year low last month, pointing to a slump in activity that made the federal government’s revised target of 1.2 million new homes in five years unachievable, economists say.
- Monthly declines in new detached houses and attached homes, apartments, townhouses and semi-detached dwellings, pulled total approvals for the 12-month period to 174,051, Australian Bureau of Statistics figures yesterday showed.
The AFR – Hard times for builders but recovery on horizon
- Major listed developers and property companies are bracing for short term pain as interest rate hikes hit residential lot sales and keep builders under pressure, but they say a recovery is on the horizon after delivering their results.
The AFR – Time is right to end all the planning quagmire
- Many things are happening in the field of producing more apartments, but the opposite result has been achieved so far. In fact, less and less are being produced. We changed the NSW government, but the planning department is still performing as before, probably worse. It is strange that no one is particularly concerned. We now accept that their position is hopeless.
We hope you have enjoyed another edition of The Development Digest. Please contact our team if there is anything we can assist you with.??
