Mega Apartment project may flood Melbourne market

Queens Place, Melbourne

An artist impression of the $1 billion Queens Place project in the Melbourne CBD

Mega apartment project gets green light in Melbourne CBD

12 March 2016  AFR   by Nick Lenaghan

A syndicate of expatriate Chinese investors has won approval to develop a $1 billion, high-rise apartment project, creating one of the largest residential developments in the Melbourne CBD.

Approval for the massive project, which will deliver 1800 apartments in twin 79-storey towers, comes amid growing unease the apartment boom will culminate in oversupply.

A grim scenario has been outlined for the Melbourne and Brisbane markets especially, with forecaster BIS Shrapnel predicting a “messy end” to the boom.

Undaunted, the 3L Alliance is pressing ahead with a spectacular project, dubbed Queens Place and designed by high-profile architects Fender Katsalidis and Cox Architecture.

The syndicate – the family names of its shareholders begin with the letter L – bought the 350 Queen Street site off-market two years ago for $135 million.

On the 7295-square-metre site already is a 21-storey tower, with plenty of room to develop further. The site is on a corner with La Trobe Street, near the popular Queen Victoria Market precinct.

Recruited to the 3L Alliance camp is heavy-hitting consultancy Hawker Britton, better known for its work lobbying governments than for spruiking property developments.

“We’ve deliberately set out to be an exemplar project in design and community outcome,” said 3L Alliance general manager Gavin Boyd. “We’ve responded to the policy challenges being put forward by the state government and the city of Melbourne.”

Although it was assessed under now out-dated planning rules, the Queens Place project has won approval as both city and state authorities pay closer attention to skyscraper design, inside and out.

DOG BOXES IN THE SKY

On Thursday, Melbourne’s lord mayor Robert Doyle delivered harsh words to the city’s high-rise developers, accusing some of creating “dog boxes in the sky”.

The final nod for Queens Place came from Planning Minister Richard Wynne, who praised the quality of its apartments, its setbacks from the street and other features including a childcare centre.

“The Queen Street project is a good example of how developers are responding to our push for a higher standard across Melbourne,” Mr Wynne said.

“Apartments are more than just an investment asset, we need to treat them as people’s homes, and,  while not everyone wants to live in a big apartment, affordable options can still be liveable.”

The prospect of a looming apartment oversupply was of less concern to Mr Wynne, who noted the inner city needs an estimated 45,000 new homes in the next 15 years to accommodate population growth.

But some developers have got cold feet already. Among them, BRW Rich Lister Paul Little is selling a city-fringe project with approval for 940 apartments. In the CBD, Singapore-based Fragrance is offloading a major Collins Street site, where it had hoped to develop a 91-storey tower.

Melbourne’s inner city market has been averaging 6000 apartment completions in the last three years. Over the next three years, the run rate is forecast to hit 8000 annually.

“It’s treading water at the moment. If it takes another step up, it will probably start sinking,” said BIS Shrapnel’s Angie Zigomanis.

Original article here 

As warned last year…

 

FIRB exemption under ChAFTA may impact commercial property

By Steve Blizard

Following ten years of negotiations with China, on 17 June, Trade and Investment Minister Andrew Robb and China’s Commerce Minister Gao Hucheng signed the China-Australia Free Trade Agreement (ChAFTA) in Canberra.

However, this does not mean that the treaty has taken effect, as a number of steps are required before commencement.

These include review of the ChAFTA before the Australian Joint Standing Committee on Treaties (JSCOT) with a “National Interest Analysis” and the passage of legislation to enable the ChAFTA (primarily for Customs provisions).

Falling commodity prices have left Australia with a $35 billion budget deficit and the Federal government wants other sectors in the economy to offset commodity exports.

Non-mining sectors will need to fill the gap if we are to shift away from our current reliance on natural resources.

And that’s where the ChAFTA theoretically should come to our rescue.

There are pros and cons of the Federal Government’s free trade deal.

Over time, potential benefits include:

  • Consumers may see cheaper prices on Chinese manufactured electronics and whitegoods.
  • Tariffs on Australian commodities and various manufactured exports will eventually be eliminated.
  • Tariffs of up to 30 percent for beef, dairy, sheep, pork, live animals, hides, skins and leather, horticulture, wine and seafood to be eliminated between two to nine years.
  • Tariff reductions or elimination for some processed foods including canned fruit, orange juice, and natural honey.
  • Australian tourism and hospitality operators can operate wholly-owned subsidiaries in China, including hotels and restaurants.
    New multiple entry visas for up to 10 years should see 3.1 million Chinese nationals visit Australia in 2019.
  • China to allow Australian firms to establish profit-making aged care institutions throughout China, and wholly Australian-owned hospitals in certain provinces.
    For Australian healthcare services, that amounts to 500 million new potential customers.
  • Australian businesses will be allowed to take a majority stake in joint ventures providing services in agriculture, forestry, hunting and fishing in China.
  • Improved access to partnerships with Chinese firms for legal and financial services in China, but 49 percent Australian ownership limit on financial services joint-ventures.
  • Australian firms will have some rights to sue Chinese governments for policy changes that adversely affect their interests.

However, possible negatives for Australia include:

  • No tariff reductions for sugar, rice, wool, cotton, wheat, maize or canola.
  • China has the discretion to apply additional customs duties if imports of beef or milk powders exceed certain limits.
  • Threshold for Foreign Investment Review Board (FIRB) screening of Chinese investments in “non-sensitive sectors” (ie. excludes agriculture, media, telecoms and defence) rises from $252 million to $1,094 million.
  • Chinese firms will have some rights to sue Australian governments for policy changes that adversely affect their interests.
  • Chinese investors in projects valued over $150 million will receive additional rights to bring in temporary migrant workers to Australia without local labour market testing.

Unlocking capital flows

ChAFTA aside, economists and regulators across the globe are grappling with the impact of China opening its capital borders.

As Chinese Premier Li Keqiang relaxes capital-flow regulations, the nation’s excess savings, with deposits standing currently at $27 trillion, will be gradually invested overseas.

While China is unlikely to open the floodgates altogether, the unleashing of Chinese capital will reverberate around the world.

Chinese regulators plan to give wealthy individuals more freedom to put their money abroad.

Under a trial program, Chinese citizens with net assets of at least 1 million yuan in cities including Shanghai and Shenzhen will be able to invest directly overseas, potentially opening up billions of dollars in Chinese savings onto global stock and bond markets, according to a Securities Times report.

FIRB investment exemption

While there has been extensive media reports in Australia about residential and farm purchases that breach FIRB conditions, little attention has been given to new investment terms established under ChAFTA.

With discussion around the sale of the Kidman Enterprise, one of Australia’s largest holdings of land, the Agriculture Minister Barnaby Joyce has revived Australia’s foreign investment debate, saying he’d support a ban on foreign state-owned companies buying farmland.

However, under the new trade agreement, the threshold of FIRB screening for Chinese investors targeting commercial real estate has been lifted from a comparatively low $252 million to a massive $1.094 billion, in line with existing limits on private business investments.

The only barrier to new Chinese investment is now local planning approval.

One example is the massive state-owned Chinese property developer Greenland, constructors of the 600 unit Greenland Centre tower in Sydney’s Central Business District.

Greenland has an annual turnover of $50 billion, dwarfing that of any Australian company.

Investor Impact

While overseas investment is welcomed, rather than question “if” capital inflows from China will impact Australian property markets, investors need to carefully consider “how” and “to what extent”.

With strong demand from Chinese investors and willing developers, this may eventually result in an oversupply of high-rise apartments in some capital cities, driving vacancy rates higher and eventually driving down rents.

While the additional housing supply may bring much needed relief, investors need to ensure they don’t get caught should markets turn.

steve@blizard.com.au

 

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