The Development Digest | 7.10.23 | JLL Development Site Services

We are pleased to bring you 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.

This update will cover:

• 2023 APDA’s Victorian Housing Statement: Impacts & Assessments
• Charter Keck Cramer’s State of the Market Event
• Victoria’s Vacant Residential Land Tax Announcement
• RBA – Holds Rates for the Fourth Consecutive Month
• JLL Asia Pacific Debt Monitor – 29 September 2023
• Headlines of the Week

2023 APDA’s Victorian Housing Statement: Impacts & Assessments?

This Monday 9 October, I am delighted to be hosting APDA’s Victorian Housing Statement: Impacts & Assessments – an event that will dig deeper into the recent Government housing announcements and we will hear from a panel of leading planning experts.

With more questions than answers off the back of the recent announcements, I personally am very excited to get into the detail around these exciting developments for our industry.

If you would like to attend the event, please reach out to the JLL team.??

Charter Keck Cramer – State of the Market Update

During the week the JLL team had the privilege of attending Charter Keck Cramer’s State of the Market Event. Below provides an insight into the incredibly insightful and well-attended event.

• Expectations of one more rate rise in 2023, most likely in November
• Purchasers borrowing power has decreased by 40%, and in some cases they are required to pay an additional 10-15% for an apartment or townhouse due to rising revenues
• The Government is drastically underestimating Net Overseas Migration (NOM) with 35% of NOM expected to arrive in Melbourne
• Demand for between 15,000 to 18,000 BTS and BTR apartments to be delivered every year
• Given the current supply-demand imbalance, it is reasonable to expect elevated continued growth in the rental market over the next 3 to 4 years?

Victoria’s Vacant Residential Land Tax (VRLT) Announcement??

During the week, Victoria’s Allan government announced that tax on vacant land will expand to include areas outside Melbourne and vacant plots of land in the city to ‘try to ease the housing supply crisis’ while raking in an estimated $37 million in extra funds.

Below provides a brief summary of this new tax arrangement:

• The existing VRLT regime, which currently applies in the inner and middle rings of Melbourne, will be expanded to apply statewide.
• VRLT would continue to be payable on vacant residential properties per the current regime, at 1 per cent of capital improved value of a property that has been vacant for at least six months in a calendar year. The existing VRLT exemptions will continue and apply statewide.
• The change would take effect from 1 January 2025, capturing properties deemed vacant for the purposes of the tax during 2024.
• The VRLT will also begin to apply to undeveloped land in "established areas" of Melbourne. Residential land that has been undeveloped for more than five years will incur the VRLT from 1 January 2026 onwards.
• Under the changes, the tax will apply to land across the state from January 2025. From January 2026, it would also apply to land in Melbourne that is waiting to be developed but has been unimproved for more than five years. This could capture an estimated 3000 undeveloped properties.
• The two measures combined are expected to raise about $37 million in extra revenue.?

Source: Property Council Victoria?

RBA – Holds Rates for the Fourth Consecutive Month

JLL Asia Pacific Debt Monitor – 29 September 2023??

Global yields continued to experience upward pressure, reaching new highs last week. The US treasury market was the biggest contributor to this uptick. The markets remained unsettled from the Fed's fresh economic outlook and forecasts which indicate rates will stay higher for a longer period whilst implying that some FOMC members think the US neutral rate has already shifted upward.

Turning to the BOJ, in its latest September monetary policy meeting, the Bank of Japan has chosen stability over further policy normalization. As usual, the bank kept everything unchanged, leaving their policy rate at -0.1% while maintaining the yield curve control bandwidth at 1%. However, prior to the meeting, there was speculation that the BOJ might abruptly announce the conclusion of its negative policy rate program in September. Indeed, many economists have recently adjusted their forecasts, anticipating an earlier removal of the negative policy rate as well as yield curve control. Some now speculate that this regime change could occur as early as December.

What is driving these regime changes?

At the center of this potential shift is the depreciation of the JPY. The JPY has recently depreciated to 149 yen per USD, nearing its highest point during the global monetary tightening cycle. The continued delay in monetary policy normalization has created a yield gap of up to 400bps, based on 10-year government bonds, between Japan and the rest of the globe, putting pressure on the yen. This could be further exacerbated given the growing belief that global rates will remain higher for a longer period. These exchange rate headwinds could drive the BOJ to normalize its monetary policy faster and steeper.

Our weekly Debt Monitor update is provided by Sungmin Park (Director, Asia Pacific Capital Markets Research).

The AFR - Buyers step up, despite weekend of finals fever

• Amid the drama and distraction of a footy finals weekend, auction clearance rates have held firm on lower volumes nationally, with the market still leaning in favour of sellers and steadily rising prices.
• The overall tally of auctions listed over the week, at 1215, was less than half the previous week as some vendors steered clear of Saturday’s AFL grand final in Melbourne and yesterday’ NRL and NRLW finals in Sydney, where it is also a long weekend.
• Buyers were still out in force, though, with the national preliminary clearance rate easing only slightly to 70.3 per cent from 72 per cent a week earlier, on CoreLogic numbers.

The AFR - Sydney home prices jump 11pc in nine months

• Sydney home prices have bounced back 11 per cent since bottoming out in January and are on track to hit new highs by early next year as the upswing broadens despite higher interest rates and worsening affordability, CoreLogic’s September home value index shows.
• The data company’s new modelling showed Sydney home values increased by 1 per cent over the month, rising at a slower pace than the 1.8 per cent growth in May, but a hefty gain considering affordability issues, according to CoreLogic research director Tim Lawless.
• The national index is also on the verge of reaching a new high, which may come even earlier after home values rebounded by 6.6 per cent from the peak-to-trough decline of 7.5 per cent.

The AFR - Perth nod for tallest timber tower

• Melbourne developer James Dibble’s Grange Development has received approval to build the world’s tallest hybrid timber tower, after his C6 apartment building in South Perth was approved by Western Australia’s Joint Development Assessment Panel.
• The 191.2-metre, 50-storey structure, designed by architects Elenberg Fraser, will be built at 6 Charles Street near the Perth Zoo, It will be notably taller than Atlassian’s hybrid timber tower in Sydney, which is under construction and set to top out at 180 metres when completed in 2025. No time frame for the construction of C6 has been given

The AFR - Developers see signs of life as build costs fall

• Developer Mark Stevens says moderating building costs make apartment projects more viable than they were, and has just lodged plans with Brisbane City Council for a $1.5 billion mixed-used 380-unit project with offices and a hotel in the riverside suburb of Teneriffe.
• Melbourne-based Mr Stevens’ company, Kokoda Property Group, made the application after seeing the strength of demand for build-to-sell apartments in the Queensland capital – a separate project in nearby Milton sold 100 of its 144 off-the-plan units six weeks after launch.
• The pick-up in demand – or developers’ ability to meet it – was reflected in official figures showing new housing approvals, an indicator of future activity, rose 7 per cent in August to a seasonally adjusted monthly total of 13,647, following two months of decline.

The AFR - Vic Labor widens vacant land tax

• Victoria’s Allan government will expand its tax on vacant land to include areas outside Melbourne and long-abandoned plots in the city to try to ease the housing supply crisis while raking in an estimated $37 million in extra funds.

The AFR - Crisis collaboration raises the roof

• A Melbourne council has given a developer two extra storeys – exceeding its own planning controls – as a way to triple the proportion of affordable housing on the 10,000-square-metre Coburg North site at no extra cost.
• Merri-bek Council’s lifting the height to five levels increased the yield on the 16 Sheppard Street site and allowed 15 per cent of the 200-odd apartments – up from the council’s 5 per cent minimum – to become designated key worker housing, Nightingale Housing chief executive Dan McKenna said.
• The deal predates Victoria’s announcement last month of faster proposals for projects with at least 10 per cent affordable housing, but combining the two such measures would make below-market-rate rental units more attractive for commercial developers, Mr McKenna said.

The AFR - Rents scale fresh peaks as vacancy rates hit new lows

• The nationwide residential rental vacancy rate returned to a record low of 0.8 per cent in the September quarter, pushing rents up to new highs, Domain Group data shows.
• Vacancy rates slumped to their worst ever levels in Sydney and Perth at just 0.9 per cent and 0.3 per cent respectively; in Melbourne, Brisbane, Adelaide and Darwin, they fell close to new lows at less than 1 per cent.
• House rents jumped to a record high across the combined capitals and all cities apart from Canberra and Hobart, Domain data shows. Melbourne led with the largest quarterly increase at 5.8 per cent, followed by Perth at 3.4 per cent, Sydney at 2.9 per cent and Brisbane and Adelaide at more than 1 per cent each, according to Domain data.

The AFR – Hyatt brings house service to apartments

• Global accommodation giant Hyatt has secured a foothold in Australia’s booming serviced apartment market after revealing plans to open its first Hyatt House hotel in Melbourne in 2025.
• The 97-room Hyatt House South Melbourne will open within local developer Holder East’s $240 million Oasis Residences tower on Cobden Street, close to the Royal Botanic Gardens.

The AFR - ‘Build or sell’ land tax to spur housing will backfire developers

• The changes mean residential land that has been undeveloped for more than five years in established areas of Melbourne will from January 2026 be taxed an extra 1 per cent of the capital improved value of the land. The changes also expand the existing vacant land tax to all of Victoria.
• The policy, which is forecast to raise an extra $37 million a year, is designed to discourage long-term land banking and stimulate new housing developments, Treasurer Tim Pallas said.

Current JLL Development Site Opportunities

With an acute focus on high-quality offerings, we have a number of new sites coming to market shortly, both on and off-market, so please reach out to the JLL team to discuss any current requirement or mandate you have.

Should you wish to receive additional information, please contact any member of the JLL team for a confidential discussion.

We hope you have enjoyed another edition of The Development Digest. Please contact our team if there is anything we can assist you with.??

Jesse