Tuesday, March 19

Making money in Melbourne’s property market

2

TA03536It is no secret that property hunters have had their love affair with Melbourne – a bustling economy, good geography and a steady increase in property prices all but tick the top three boxes of the city’s investment appeal.

Property investors – especially Malaysians – are no strangers to taking the risk when they see a good opportunity.

One driver for Malaysians to buy property in Melbourne had been the general slowing down in the Malaysian property market, which led to many firms looking to add Melbourne to their property development portfolios.

The increasing number of Malaysians showing interest spells good news for the Australian city’s sagging real estate sector that is still trying to recoup from the global slowdown. Melbourne is one of Australia’s most dynamic cities and is experiencing the largest population growth among the country’s capital cities, according to the Australian Bureau of Statistics, an arm of the Australian government.

“For each of the past 12 years, it has experienced the largest population increase of all Australian capital cities,” it said on its website.

“Although the broader metropolitan area has been growing steadily for some time, the most noticeable recent population growth has been in the central business district and the inner-city areas adjoining the CBD.”

Melbourne has proved to have a resilient economy and an enviable lifestyle, and this is helped by a competitive and successful business environment, its thriving arts and cultural scene, burgeoning diverse ethnic communities, exceptional food and wine scene, world-class education, exciting sports and entertainment as well as reliable infrastructure.

 

World’s most livable city

The Economist Intelligence Unit’s 2015 Global Liveability Index, which assesses living conditions in 140 cities globally, has awarded Melbourne the top city for the fifth year running.

Melbourne has consistently ranked as one of the world’s three most liveable cities since the index began in 2006, according to Invest Melbourne.

“In 2015, Melbourne was once again ranked the world’s most liveable city by the Economist Intelligence Unit’s (EIU) Global Liveability Index – an accolade we’ve received five years running. This world recognised index rates 140 global cities across a range of liveability factors.

“While this is our fifth consecutive year at the top of the table, we’re proud to have consistently ranked as one of the world’s top three most liveable cities since the index began in 2006,” its government said on its website.

“Contributing to our ongoing top ranking is Melbourne’s consistent performance across five broad categories.

“In 2015 we achieved perfect scores in healthcare, education and infrastructure while we outranked Sydney in the areas of stability, and culture & environment.”

Perhaps one of the key attractions of Melbourne is its selection of the best schools and universities in the world. Over half of all Victorians aged 15-64 hold some form of post-secondary qualification, while over one quarter have a university degree.

“With 10 world-class universities, Melbourne has the highest ranked university in Australia and the third highest in Asia Pacific. In addition there are over 2,500 schools in Victoria of which over 1,300 are in Melbourne.”

 

Deterring foreign property buyers?

With so much attraction to bring interest and focus on the capital of Victoria, it makes sense that industry observers anticipate a rise in residential property demand.

However, a recent move by the Australian government shows signs of dissuading foreign buyers from whipping up properties in Sydney and Melbourne.

New South Wales with its capital city, Sydney proposed a stamp duty surcharge of four per cent and a 0.75 per cent land tax in its June 21’s Budget following the move by Victorian and Queensland.

Treasurer Gladys Berejiklian said she was confident the extra cost would not deter foreign buyers.

“It’s been proven successful in Victoria, we also know that Queensland is moving in this direction and we also know that most foreign investors are likely to absorb this cost and proceed with their transaction anyway,” she said.

“We do not feel that this will in any way compromise the property market at all.”

Meanwhile, the Victorian government led by its capital city Melbourne announced in its 2016-2017 Budget to impose additional stamp duty for foreign buyers — ranging between three to seven per cent — effectively from July 1, 2016 and triple its land tax surcharge for absentee landholders from 0.5 to 1.5 per cent from 2017.

Hong Leong Investment Bank Bhd (HLIB Research) opined that the recent cooling measures could curb speculation by foreign property buyers.

“These cooling measures mentioned above should lead to moderation in demand for investment property with a consolidation of prices in Melbourne and Sydney. We expect buyers’ sentiment to be dampened in the short term,” it said in a June 17 research note.

“Under our universal of stock coverage, a few listed developers have exposure to the Australian market.

“SP Setia Bhd, UEM Sunrise Bhd and Matrix Concepts Holdings BHd have presence with majority projects concentrated in Melbourne which are subject to the stamp duty and land tax surcharge.

“In term of percentage of remaining total gross development value, the exposure in Australia is relative small, with SPSetia at 2.9 per cent, Matrix at 1.4 per cent and UEM Sunrise at one per cent.

“For new projects in pipeline, UEMSunrise is targeting to launch St Kilda by end of the year with GDV of RM750 million– circa 38 per cent of FY16’s total GDV launches).

“As such, any slowdown in Australia’s property market is expected to impact UEMSunrise on its new sales.”

 

Financing foes

Many Malaysian firms have been actively involved in property construction, recent buying trends indicate that a lot more people who are currently in Malaysia might be interested in buying property in Australia.

Many banks in Australia, as a result, have expanded their overseas mortgage loan facilities.

However, in addition to the stamp duty surcharges and land tax surcharge, tightening measures are also being introduced to the banking system.

“Local press reported that Westpac, one of the big four banks in Australia has announced stopped lending money to foreign property investors and tightening the rules for Australian citizens whose main source of income is derived from oversea after similar move announced by Commonwealth Bank,” HLIB Research added.

“In term of geographical profile of buyers, foreign buyers (non-Australians) accounted for a large percentage, ranging from 54 per cent to 86 per cent.

“The Chinese and Malaysian are the majority of the foreign buyers.

“We understand that majority of Malaysian buyers secure financing from local banks. That said, we would expect tightening of lending rules on foreigners to dampen sales growth.”

Despite all these negative bias given prolonged weakening of domestic consumer sentiment, Malaysian firms are steadfast in undertaking their projects in Melbourne. BizHive Weekly looks at the projects in detail:

 

SP Setia well rooted in Melbourne’s market

SP Setia Bhd (SP Setia) has its roots deep in Melbourne, with the group launching its third property in in the city soon.

The group’s maiden property project in Melbourne, Fulton Lane, was completed ahead of schedule and the second project, Parque, which was fully sold and making significant construction progress further underscores the Group’s conviction to be on the lookout for strategic acquisition in Australia.

TA03537

“In November 2015, we successfully acquired a parcel of land in Carnegie, a suburb located 11km away from Melbourne’s central business district. The parcel of land in Carnegie is targeted to be launched in FY2016,” said Tan Sri Dr Wan Mohd Zahid Mohd Noordin, SP Setia non-independent non-executive chairman in its Annual Report 2015.

“Delivering on promises was the main drive for the group in the year under review. Key phases and projects that were completed and delivered include the Fulton Lane in Melbourne,” he said, adding that the project was handed over two months ahead of schedule.

“While the current economic environment is challenging, it also offers opportunities to the group to possibly acquire strategic landbanks at reasonable prices. As of December 31, 2015, the group has 3,907 acres of landbank with an estimated RM70.6 billion GDV.

“We are on an active look-out to grow our landbanks both locally and abroad and to this end, we have acquired a third piece of land in Melbourne, Australia. This A$6.7 million site with an estimated GDV of A$34 million will fit nicely with our quick turnaround strategy as it came with planning permission to develop apartments.”

Australia remains a crucial part of its growth strategy, SP Setia officials said, and that it, as a developer, is becoming increasingly familiar with the Melbourne market.

Named Maison Carnegie, SP Setia’s third residential project will have a gross development value (GDV) of A$32 million and would be completed towards the end of 2017.

It is being introduced to the market just six months after the developer acquired the land there for A$6.68 million.

Carnegie is an established residential location in south-east Melbourne, located 12km from the city’s central business district (CBD).

Fulton Lane is SP Setia’s first Australian venture – a high quality, high density apartment building that is supported by a genuine shopping and dining experience right in the heart of Melbourne’s central business district.

Meanwhile, Parque Melbourne sets the benchmark for luxury residential living. Designed by Fender Katsalidis Architects, the landmark building will feature a collection of majestic Melbourne residences above a picturesque and a residents only park spanning 9,000 square metres.

Looking forward, SP Setia has bought a 1.02-acre site in Melbourne – the largest east-end Central Business District (CBD) development site in the city to be sold in over a decade – where it will undertake a mixed development project with an estimated gross development value (GDV) of A$640 million (RM1.91 billion).

The property developer told Bursa Malaysia in an April 30 statement that it had secured its fifth site in Australia, 308 Exhibition Street, in “a highly competitive International Expression of Interest bidding exercise” from Australian telecommunications company Telstra Corp Ltd.

Its Australian property development arm Setia (Melbourne) Development Co Pty Ltd has inked a conditional agreement to acquire the freehold land opposite the Carlton Gardens for A$101 million (RM300.96 million).

Once transformed by the company, SP Setia president and chief executive officer Datuk Khor Chap Jen said that the site would be the epicentre of Melbourne CBD’s cultural, commercial, education and city garden hubs.

“This development will boast a combination of multi-level retail, prime A-grade office space and luxurious apartment towers and will set a new precedent for premiere developments across Melbourne and revolutionise its urban landscapes,” he said in a statement.

SP Setia proposed to redevelop the land into two residential towers comprising up to 800 residential units with a retail podium space. The development is slated to be launched in the second half of next year. As of December 31, 2015, the SP Setia group has 27 ongoing projects, with an effective stake of 3,907 acres in undeveloped land bank remaining and RM70.6 billion in gross development value.

 

UEM Sunrise shines with three projects

UEM Sunrise Bhd (UEM Sunrise) is another Malaysian corp making a name for itself in Melbourne, having had success with three residential projects, two of which made up the firm’s top sales for its financial year 2015.

UEM Sunrise’s unit UEMS LaTrobe in December last year signed the agreement to dispose of the serviced apartments component of the La Trobe Street mixed-use development, Aurora Melbourne Central.

TA03538

“Aurora Melbourne Central mixed-use development is UEM Sunrise’s maiden project in Australia with a gross development value (GDV) of A$770 million.

“The construction of the project has commenced, with the official ground-breaking ceremony held on September 21, 2015. Completion of Aurora Melbourne Central is scheduled for 2019,” it said.

As the tallest building in Melbourne’s CBD, with an enviable location and unrivalled connectivity to transport networks, the 92-storey development comprises more than 120,000 square metres of built-up area and includes 941 residential apartments, signature retail spaces, strata offices as well as the 252-room serviced apartments.

Aurora Melbourne Central is located in the heart of Melbourne, which is a major corporate centre while also renowned for its extensive annual calendar of festivals, exhibitions and major sporting events.

Analysts across the board lauded the sale. MIDF Amanah Investment Bank was positive on the news as UEM Sunrise will be able to focus its resources on marketing and selling its other Melbourne projects.

“Note that managing serviced apartments is not the core business of UEM Sunrise,” it said in a note after the sale.

Maybank Investment Bank Bhd (Maybank IB Research) said with the enbloc sale, UEM Sunrise was then on track to meet its sales target for FY15.

In fact, following the group’s financial year 2015 results, it is observed that top three sales contributors were Aurora Melbourne Central at RM721 million, Conservatory at RM622 million and its other project in Mount Kiara, Malaysia called Residensi Sefina.

“We are very pleased with our projects in Melbourne, which have been attracting much positive interest not only from the local Melbourne market but also globally including from Malaysia and other international buyers,” the group rounded up in its Annual Report 2015.

“Although the property market continues to be vibrant in Melbourne, we are conscious of the need to offer top quality products that not only appeal to the customers’ sophisticated aesthetic sensibilities, their current lifestyle as well as discerning amenity needs, but also to satisfy niche demands.”

For example, Aurora Melbourne Central enjoys a superb location in the heart of the CBD and is the only residential development with direct underground connection to the rail network, the Melbourne Central Station as well as the CBD’s largest continuous retail precinct of over two million square feet.

“Its groundbreaking ceremony on October 21, 2015 was a momentous occasion for the Company, marking the commencement of construction for our first project in Australia,” it added.

“Conservatory, also located within the Melbourne CBD, has breathtaking views of the UNESCO World Heritage-listed Carlton Gardens. This development offers a unique proposition where city vibrancy meets garden tranquillity offering the best of both worlds.

 

“Having enjoyed a very encouraging response for our first two developments, in July 2015, we went on to acquire a 21-storey tower on a 0.387-acre corner site on St Kilda Road, Melbourne’s most prominent boulevard that leads into the CBD.

The tower offers panoramic views of the city, the Royal Botanic Gardens, Shrine of Remembrance, Albert Park and Port Phillip Bay and, being slightly less centrally located than the earlier two projects, will cater to a different target market.

“We are in the midst of planning the development of this site into an ultra-luxurious residential development. With this development, we have a firm pipeline of projects in Melbourne.

“On December 3, 2015, we entered into a Contract of Sale with Ascendas Hospitality Trust for the disposal of the 252-unit serviced apartment at Aurora Melbourne Central together with 10 car park lots and part of the ground floor retail space. Ascendas Hospitality Trust is to manage the development of this component into a four or five-star hotel.

“Our expansion overseas supports an overriding strategy to expand our portfolio geographically. Geographical diversification has the advantage of reducing single market risks, as demand for property in different countries do not necessarily grow and ebb in sync.”

For the year ahead, UEM Sunrise will be rolling out RM1.2 billion of projects against RM2.6 billion in FY15. This marked difference comes as the property developer will put more focus on the affordable segments in Malaysia.

 

Maiden venture by Matrix Concepts

Property developer Matrix Concepts Holdings Bhd (MCHB) has made its maiden venture abroad with the recent launch of the M Carnegie boutique low-rise apartments in Melbourne.

The project consists of 52 apartments which will be built on 1,865 square metres in the suburb of Carnegie – located some 15km from the Melbourne central business district.

Managing director Datuk Lee Tian Hock said the entire project will have a gross development value of RM100 million. The apartments come in various sizes ranging from 52.9 square metres to 173.6 square metres.

“Although we are confident that the units would be sold out, we decided to start our first foreign project on a small scale to mitigate any potential risk.

“We are already being offered properties in Melbourne and I can confidently say that the M Carnegie will not be our first and last project in Melbourne which has been ranked as the world’s most livable city,” he said to reporters in his office recently.

M.Carnegie is also strategically located with Australia’s largest shopping complex Chadstone Shopping Centre, the Monash University Caulfield as well as other facilities such as train and tram stations, supermarkets and schools all located within a short distance.

Work on the project would begin in September and scheduled for completion in November next year.

Researchers with BIMB Investment Management Bhd in a May 23 report pegged the group with a buy call following the group’s inaugural Australia project.

“This will be the group’s maiden overseas project. The address is a prime location within the Melbourne Central Business District surrounded by excellent public amenities.

“The project comprise of 52-units of low rise apartments with an estimated GDV of A$32 million,” it calculated.

“The land cost to GDV is circa 20 per cent or A$6 million which is within the market value of such prime location. The group is targeting sales preview by end-May 2016.”

Hong Leong Investment Bank Bhd (HLIB Research) also concurred with this view, adding its belief that this project will be well taken up given its location near Melbourne’s central business district.

In other related news, Matrix Concepts’ wholly-owned subsidiary Matrix Concepts (Australia) Pty Ltd (MCAPL) has entered into separate sale and purchase agreements to sell properties in Australia to MCHB directors for A$2.11 million (RM6.39 million).

Datuk Mohamad Haslah Mohamad Amin is buying a unit of two-bedroom apartment for A$755,000 and Datuk Lee Tian Hock is acquiring two units of two-bedroom apartments for A$1.36 million, both in Carnegie, Melbourne.

The transactions are expected to be completed within 24 months from the date of the agreements of June 17.

 

Salcon: Fresh off the boat

Salcon Bhd (Salcon) is the latest Malaysian properteer to join the foray in Melbourne, announcing on June 27 that Salcon Development Sdn Bhd, a wholly-owned subsidiary of Salcon has incorporated a wholly-owned subsidiary in Victoria, Australia known as Salcon Development (Australia) Pty Ltd.

The initial issued and paid-up share capital of SDAPL is A$100 comprising 100 ordinary shares of A$1 each.

The intended principal activity of SDAPL is property development.

On Jun 30, Salcon announced that it has interests to acquire the 2,125 sq m land parcel, buying 16-22 Claremont Street from the private K&E Rogers Pty Ltd for A$37.88 million in a deal struck in early June.

Given the general slowing down in the Malaysian property market, the group seeks to diversify its property development portfolio overseas.

“This acquisition will allow the group the opportunity to ­establish a presence in the Australian property market, where demand for Australian properties has remained strong in key cities such as Melbourne, in ­particular in the inner-city areas,” Salcon said.

The purchase consideration for the property was arrived at following an international expression of interest bidding exercise conducted by Colliers International and CBRE on behalf of the vendor and on a willing-buyer and willing-seller basis after taking into consideration of the market value of properties in the surrounding area and the development potential of the property.

The South Yarra suburb of Melbourne is situated approximately 4km south-east of the Melbourne Central Business District (CBD).

The property is strategically positioned in South Yarra, adjacent to the Chapel Street and Toorak Road shopping strips, as well as many of their associated amenities within a 1km/15 minute walking radius.

The site is well serviced by public transport connections including the South Yarra Train Station in addition to trams along Chapel Street and Toorak Road. The site has easy vehicular access to and from the Punt Road/Hoddle Street Axis and the Monash Freeway.

The group is proposing to develop the property into a residential development comprising of 336 residential units with a retail podium space. The gross development value is estimated to be A$230 million.