Some green shoots are starting to emerge in property development after the post-GFC downturn.
Some green shoots are starting to emerge in property development after the post-GFC downturn.
LAND developers are preparing for a buoyant 2013 after a recent surge in land sales marked a rebound in the new homes market from several years of underperformance.
Real estate industry groups are forecasting land sales to jump close to 40 per cent, the first strong performance for several years after the horrors of the GFC and tighter credit controls that followed.
The impact has been keenly felt at developer level, with some significant players battling to survive and wholesale restructuring of portfolios.
A good example is Aspen Group, which decided to quit much of its residential land development to concentrate on established property assets. As a result it dropped eight places in the WA Business News list to be 17th in terms of total lots in estates under its control.
It is not all one-way traffic, however. Aspen’s former head of residential, Chris Lewis, has emerged with management rights for at least two of his former company’s estates under his newly created Progress Developments business, backed by Melbourne’s Little Property Group (see Progress takes over where Aspen left off).
Satterley Property Group remains Western Australia’s leading developer, with estates containing more than 36,000 lots at various stages of development - from just entering earthworks to near completion.
The next three major players - Stockland, Peet, and LWP - are each at about half that level. LWP is the most concentrated of those top four developers, with more than half its total in Ellenbrook, a long-running and still popular area to the north-east of the metropolitan area.
State agency LandCorp sits at 5th, although its influence in the sector is understated by this survey because most of the estates it joint ventures in are listed under the lead developer’s brand.
Private players Ardross Estates, which is focused on the regional area of Jurien Bay, PRM Property Group and Heath Developments sit at 6th, 8th and 9th positions, while listed operators Mirvac (7th) and Cedar Woods (10th) round out the top of the state’s league ladder.
After a tumultuous few years, Port Bouvard has dropped out of the top 10.
Australand, which has kicked off a new development in Baldivis this year, has moved up to 11th.
A number of the totals used to rank these players are based on estimates using public accounts, company websites and information on land transaction.
Despite the turmoil in the market, the sector remains relatively intact at the top end. Those that have survived the difficulties will be welcoming the lift in sales at the end of last year, which is providing hope for the sector.
Improving sentiment
According to the Real Estate Institute of Western Australia, first homebuyers are leading the charge and comprise at least 25 per cent of the lots being bought, significantly more than their typical representation in that category.
High rents, more available finance, consumer confidence, and a tight established housing market have conspired to push the FHB category into buying house and land packages.
WA Business News has obtained a variety of different measures for land sales growth, each of them extremely positive.
There has also been anecdotal evidence of a return to homebuyers camping out to be early in the line for new land releases - a phenomenon that many had relegated to history after the GFC.
The WA chapter of the Urban Development Institute of Australia surveyed the largest developers in Perth and recorded a 23.4 per cent rise in land sales over the December quarter from the previous three months; and 77 percent more sales over the previous corresponding period.
UDIA WA division CEO Debra Goostrey said its figures showed the average block in Perth sold for $231,000, while half of the vacant lots sold by the largest developers in Perth were priced under $200,000 in 2012.
She said first and existing homebuyers were taking advantage of five to six years of stable land values and buying homes in new developments.
REIWA director of policy Stewart Darby estimates residential land sales in the Perth metropolitan region in 2012 will end up between 11,500 and 12,000 lots, with a precise figure taking up to nine months to determine due to the settlement process.
The latest figure for settled sales of blocks below one hectare in 2012 was 10,071, which did not include the bulk of sales made in the December quarter.
Mr Darby said a mid-point of 11,750 represented a 39 per cent increase on land sales over 2011 and was in line with the 15-year average of 11,500 sales per annum.
He said there had been little movement in Perth’s median land price during the past three years, rising 2.5 per cent to $241,000 from 2011. The 2012 figure is well below the $262,000 recorded in 2007.
Strong trend
“The trend is good,” developer Nigel Satterley said.
“Up to $800,000 (in value) the market is gradually moving off the bottom.
“I think you will see residential prices in the up-to-$800,000 bracket grow 3-4 per cent this year.”
Mr Satterley points to strong population growth of more than 78,000 for the year ending June as a key driver.
Stockland general manager residential WA, Col Dutton, also highlighted the strong underlying trends - especially low unemployment and high immigration - that suggested WA property was in a good position. This is backed up by his company’s experience this summer, when inquiries started coming in much sooner after Christmas than anticipated.
“In regard to 2012, we see the established (housing) market came back relatively strongly with listing numbers down and rental vacancies down,” Mr Dutton said.
“Particularly in the back end of the year we saw good inquiries with regard to land and new homes.
“Builders reckon the run into Christmas was the best in the past few years. That sets up 2013 as a good year.
“It seems everyone had a couple of weeks off for Christmas but January was a bit more lively than we expected, particularly at prices below $500,000 for a house and land package.”
Mr Satterley produced Australian Bureau of Statistics figures that showed the state’s population grew by 3.3 per cent over the 12 months to June 30, with net overseas migration the largest contributor to annual population growth (more than 47,000 people) adding 2 percentage points.
Natural population growth was around 20,000 while net interstate and repatriation of more than 11,000 people helped drive the land development sector.
Hot spots
Strong areas of activity include Baldivis, which is not just booming in land sales but is also catching more established growth suburbs such as Canning Vale in terms of established house sales. Baldivis has helped the south-west coastal corridor to be the biggest area of sales, ahead of its northern seaside peer running from Brighton up to Yanchep, which was also performing strongly.
REIWA figures showed Baldivis had more than twice the land sales of the next highest selling suburb, Ellenbrook, based on settled sales to date of 885.
Mr Darby said it was possible sales in Baldivis for 2012 could surpass the 2009 peak of 1,085, a figure that included re-sales, which were as much as 25 per cent in the boom years.
Baldivis was also one of the cheaper areas to purchase land among the top-selling suburbs. The median sales price for the year ending December was $183,000 per lot.
The next strongest area for land sales in 2012 was Ellenbrook with 399 lots sold to date at a median price of $199,000. Adjacent suburb Aveley was another popular area in the north-east corridor with 316 lots.
The south-east corridor had the biggest spread of top 10 suburbs, led by Piara Waters with 384 lots sold in 2012, neighbouring Harrisdale (345) and, further south, Byford (281).
The north coast was led by Butler with 380, closely followed by the emerging powerhouse of Alkimos at 376. Also in that general area was Landsdale at 317.
Issues
UDIA warns of the potential for shortages as soon as 12 months away if current demand patterns continue and hold-ups to fresh land supply are not dealt with.
This would mirror the situation in the middle of the past decade when a deliberate policy of slowing urban sprawl caused chaos as demand spiked and Perth became one of the most expensive cities in the world to buy a house.
“Although there is still more land available than during the peak of the boom there is concern that the industry may not be able to meet demand if the market recovery strengthens rapidly,” Ms Goostrey said.
“Industry professionals continue to cite a slow approvals process and difficulty funding infrastructure as two of the biggest constraints to the timely provision of residential land, however capacity constraints, especially skilled labour, are now emerging.”
For the third time the UDIA has outlined the key issues that are troubling its membership in the land development sector.
While remaining similar to previous years, the issues highlight the fact that government rules and regulations present the biggest barrier to developers cost-effectively bringing land to the market in a timely fashion.
Among the major issues highlighted on this occasion are: public open space; raw material supplies; the approvals system; infrastructure coordination; and tax.
Most of these issues involve governments imposing direct burdens, creating indirect costs through the bureaucratic processes, or failing to provide the resources needed for the sector to operate efficiently.
Digging deeper, Ms Goostrey highlighted a number of new issues, including the awkward tax treatment of infrastructure assets that developers gift to utilities such as Western Power. The state’s Economic Regulation Authority has deemed the developer liable for the tax liability generated by the transaction.
That could cost millions.
There are also numerous examples of seemingly petty issues that unnecessarily add to the mountains of costly red tape encountered by developers. Take, for instance, expensive moves to reduce the noise created by electricity transformers.
“They are looking at charges that will cost millions to implement in terms of making transformers quieter and yet there have only been about five complaints in seven years,” Ms Goostrey said.
All of that adds to issue of housing affordability.
En globo land
Big parcels of developable property, known as en globo land, rarely change hands and deals are often done beneath the radar.
After a flurry of such transactions following the GFC hit to developers at all ends of the spectrum, there has been a lot less activity in the past year.
Major players like Cedar Woods and Stockland confirmed they did not make any such purchases during 2012.
Cedar Woods CEO Paul Sadleir said his company had been looking but acknowledged the opportunities for major pieces of land that fitted his company’s portfolio were hard to find.
The company’s cautious approach to investment meant it has survived the property meltdown and financial crisis better than most players.
“We have been looking and bidding on a few,” Mr Sadleir said.
“I think this calendar year we will pick up a few things.”
He said most of the big sales so far were by developers that had big debts and were forced to act by their financiers. He expects another round of sales from property owners that are not indebted but can’t secure the finance required to move the project forward.
This suggests a continuation of the consolidation that has taken place over the past few difficult years as the cost and risk associated with land development has risen while, at the same time, the opportunity for reward through fast growth has receded.
Smaller land developers, often syndicates or private players not normally associated with the sector, have been pushed further to the fringes of the industry. A case in point is a stretch of land suited to development along the western edge of the freeway at the northern end of Baldivis.
The major collapses of two unrelated groups - the Oswal family and SAS Global - resulted in fire sales of large tracts of en globo land. In the SAS Global case, a property it paid $36 million for in 2006 was acquired by residential construction giant BGC for $14.5 million in 2011.
At least two other pieces of land in that area have been sold by owners no longer able to sustain the journey to development. While development in the whole area was upset by delays to infrastructure investment, namely the new sewage treatment plant, financiers also played a role having lost their appetite for land development.
The trouble in the sector has not been limited to the smaller private end of the market.
Even big listed land developers have struggled. Some, like Aspen, have been forced to sell off assets while Port Bouvard has been scrambling to keep the bankers at bay by raising equity at heavy discounts. Five years ago, Port Bouvard shares were trading at more than $1; these days the price is around 1 cent.
Last month, Port Bouvard completed a rights issue that raised about $24 million. As a result, Sun Hung Kai Investment Services emerged with 13 per cent of the group. SHKIS is the major backer of FKP Property, which was Port Bouvard’s biggest shareholder prior to the rights issue with around 30 per cent.
