Marshall White Projects: It's A Local Owner Occupier Market

Opinion By Marshall White Projects Director, Leonard Teplin

As of the First of July this year, the landscape for off-shore buyers and developers targeting overseas markets, will most certainly change as the foreign investment tax increases from three to seven per cent. Much has been said about the widespread implications of this decision, but what does this mean for developers and referral partners whose audience is primarily overseas purchasers?Whilst it seems we have little choice other than to adopt a wait-and-see attitude, at least for the first few months until the weight of such a decision can be realised and measured, here is what we do know:The real estate adage ‘the good will always sells’ has never been more relevant, especially when it comes to new and off-the-plan projects. Whilst premium locations within the inner-ring of metropolitan areas, continue to outperform those further out, we are now seeing a clear delineation between the housing typologies. Known as the “wealth-belt”, these areas can be defined as those specifically within 5 km of a city’s CBD – for Melbourne, we’re talking Kew, Hawthorn, Brighton; for Sydney and Brisbane it’s significantly further out.

To survive in this market and actually turn a profit, developers focus their attention here. Unlike the central business districts that have become synonymous with oversupply and over-developed investor stock, inner-ring suburbs present fewer limitations, less risk and greater value for money.

Beyond understanding the local market, having the foresight to know which housing models will be in demand when the project eventually comes to market (some year or so later), is absolutely crucial and so often responsible for a developer’s undoing.

This may seem obvious, but until recently, many developers – both local and international – hadn’t done their due diligence on sites and are now finding themselves having to change tact, adapting floorplans and redesigning entire buildings because of poor sales traction and low take-up amongst local owner-occupiers.

Marshall White Projects Director, Leonard Teplin.

For example, we recently recommended a number of our clients rethink the ratio of one to three bed apartments in their developments as this was heavily skewed in favour of the former. Since recommending these developers consolidate multiple apartments to allow for a greater number of three bedders, sales have increased by 50% or more in some cases.

This is further validated by Marshall White Projects data, which has recorded an increase in the number of three-bedroom apartments over $1.5 million, with 51 sold the year to date, compared with 20 in the previous year.

We are also noticing a change in the scale of developments that are coming to market, with a shift away from the high-density apartment tower offering popularised in recent years forgone in favour of a boutique offering.

Ranging from 18 – 23 apartments, projects such as ‘281’ (281, Tooronga Road Glen Iris), ‘Gardiner’ (corner of Burke Road and Paxton Street, Malvern East) and ‘Gramercy’ (70 Wattletree Road, Armadale) exemplify a growing restraint amongst developers, who, having pursued a path of quality over quantity, have found a willing and local market of owner-occupiers, who are keen to secure property almost oblivious to the extra duties applicable to an off shore buyer.

These three developments were all 60 – 90% sold within a matter of weeks, with each achieving prices in the range of $9,500 to $12,500 per square metre.

It is about time larger developers move out of the murky waters of the CBD and focus on developments of a more refined scale with 60 or fewer apartments located within “wealth belts”. After all, it is these that will generate real return on investment and be less impeded by the increased foreign investment tax as they will have a healthy pool of local owner-occupiers to fall back on, who will continue to enjoy historically low interest rates and significant uplifts in their sale prices when the time comes to sell the family home.

Main image: 281, Tooronga Road, Glen Iris.