29/07/2014 - 05:10

Tall storeys develop at S&L forum

29/07/2014 - 05:10

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Is our apartments boom a natural development, or something prompted by over-regulation?

Tall storeys develop at S&L forum

We had a fantastic debate on the property market as part of our signature Success & Leadership series last week, with a top panel that provided some seriously helpful information for those interested in the market.

One of the core areas of our interest was the burgeoning apartment sector, which has driven the surge in cranes sprouting across key areas of the inner city.

The panel – Real Estate Institute of WA president David Airey, Hegney Property Valuations founder Gavin Hegney, Blackburne Property Group managing director Paul Blackburne and, wearing two hats, Hames Sharley executive chairman and Cedar Woods Properties chairman Bill Hames – typically agreed that there was going to be plenty of room for more apartments in Perth over the next few decades.

However there was some conjecture about the current level of demand, and whether or not all of the projects rising from the ground, or trying to, would be successful.

Despite my own expectations and some gentle prodding, no-one dared mentioned the word 'glut', even Mr Airey, the most conservative of these commentators when it came to apartments.

On the flip-side, as a very bullish developer of apartments, Mr Blackburne still acknowledged that real estate markets were not linear and not all projects were equal, providing the opportunity for some to get into financial trouble without being a signal that the sector was doomed.

My view is to watch this space.

There is no doubt that Perth is changing rapidly, and a significant market segment that previously would have sought a house and land now has a different view.

Prices, distance from work, improvements to inner-city living, an ageing population, a young generation with a different outlook, and an influx of foreigners with more experience of high-rise dwellings has altered the balance in the market.

But that doesn't mean they will take anything on offer.

The danger is, of course, that investors take a short-term punt on the long-term trend without necessarily being able to know what will work best in the market.

Investors push up prices and catch both themselves and genuine owner-occupiers as well.

In the meantime, Mr Hames highlighted the massive gap in Perth between the traditional dwelling – some form of stand-alone house ­– and an apartment complex.

He believes other forms of multi-unit dwellings, various of forms of semi-detached housing such as villas, have gone missing in Perth – meaning lots of people who'd prefer to gradually step up to apartment living (or never go to that level) can't get a foot in the door.

I suspect there are a number of reasons for this.

Regulatory issues will probably form the biggest blockage. Mr Airey highlighted the problems the real estate community has with the plethora of councils in Perth, each with its own set of rules and each potentially captive to very unrepresentative minorities.

There is no doubt that Perth has to go up. It just makes sense. But in many places councils, the anti-development brigade and even state governments have blocked very sensible developments, including along the coast where there seems to be some feeling that the view from a distant cargo ship at anchor in Gage Roads ought to be the same as when the first settlers arrived in 1829.

Not all of Perth needs to be 20 storeys of concrete and steel, some of it can be more modest than that. Small suburban shopping centres may get a new lease of life if low-rise developments are incorporated into them.

Yes there'll be more traffic – but we all have to deal with that anyway and, hopefully, increased density means we'll have public transport that might pay a little more of its own way.

The regulatory and community block has made the typical developer of small multi-unit complexes shy away from this field. Most of these developments are by small private groups – families, builders, investment clubs and the like.

They don't have the resources to get past the vast machinery of bureaucracy, which fears upsetting a few local neighbours (voters) more than they do some potentially distant owners.

Even if the landowners, the ones with the greatest financial stake in the outcome, are local, they might find themselves outvoted by other residents who have the numbers without the equity.

Furthermore, since the GFC, these small developers have found it increasingly difficult to get finance.

This has led to an intriguing situation where high-rise apartments have probably filled the demand of smaller dwellings.

Generally, high-rise apartments will have developers with the resources to push their projects through the tedious process of planning approval and win over the banks for the finance they need.

In some ways then, Perth might be skipping a more natural infill growth phase and leaping straight into a style of development typically suited to bigger cities or those with greater land constraints.

In the longer term this might be a good thing, but inevitably, there must be some risk if this generational change occurring all at once, rather than more gradually.

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