Townhouses are now the most popular residential development sites

 

Townhouses have trumped apartments and houses to become the most popular residential development sites in Australia.

By value, the portion of medium-density development sites sold in Australia in 2016-17 was 13.8 per cent — up from 6.3 per cent a year earlier.

Knight Frank head of residential research Michelle Ciesielski said from a development perspective, this product offers developers less stringent financing by the major lending institutions.

“The less risk involved in not going vertical in construction allows the staged development to be more controlled,” she said.

“It allows the developer to kick off construction earlier, rather than waiting to achieve a high portion of sales within the residential tower project. As more downsizers are also drawn to this product, it’s likely we’ll see more of this type of development in this space over the coming years.

Much of the capital growth gained in greater Sydney and greater Melbourne is where many first-time buyers are now priced out of the single-dwelling, low-density market, with a clear trend emerging towards medium-density housing.

“Whilst affordability remains an issue in major Australian capital cities, many purchasers are now opting to buy into the townhouse market, or upgrading to a townhouse as the next best option when priced out of the low density, single dwelling market,” Ciesielski said.

Knight Frank highlighted the trend towards medium density has been evident in the types of development sites being purchased. In 2014-15 the portion of medium density development sites was 3.0 per cent. Two years later, this increased to a 13.8 per cent share of total disclosed sales in 2016-17.

Low density sites have also taken a greater share at 13.6 per cent of sales in 2016-17. As a result, higher density sites have fallen from 87.5 per cent in 2014-15, to stand with a share of 72.5% two years later.

Sydney

The total volume of Greater Sydney major site sales suitable for residential development lagged annual sales recorded over the past three years.

Knight Frank director of NSW site sales Tim Holtsbaum said in 2016-17, residential sites tallied $3.3 billion – notably lower than the significant volume recorded in 2014-15 of $6.4 billion.

“It was at this time that the government began to ramp up the encouragement of higher-density residential projects being built along transport corridors and amenity hubs. Since this time, the demand for greater Sydney higher-density sites has eased back towards that recorded in 2012-13.

“The more recent trend has emerged over the past year, with developers and investors opting to purchase sites suitable for medium-density development. This is a result of access to debt financing and constrained supply of medium-density land,” he said.

Melbourne

According to Knight Frank Head of Victorian Commercial Sales Danny Clark, the total volume of Greater Melbourne major site sales suitable for residential development outperformed the previous four years to record $3.1 billion in 2016-17.

“This was up 57.4 per cent, by value, on 2015-16 and was dominated by several low density sales.

“Overall low-density sites recorded a 26.2 per cent portion of total sales in 2016-17 (or $818 million), growing from a year earlier when these sales represented only 6.1 per cent.

“Medium-density site sales represented 3.5 per cent of total sales in 2014-15. This increased to a 13.2 per cent share in 2015-16, whilst most recently recording the greatest share of 15.5 per cent in 2016-17.”

Clark said many purchasers of occupied sites were taking advantage of this income stream – especially in suburban markets with tight office vacancy along the fringe – with a steady pipeline of new apartments earmarked for the suburb.

Brisbane

Greater Brisbane recorded two consecutive years of lower total sales of major development sites than achieved at the peak of the market in 2014-15 — a similar trend experienced in Greater Sydney and the Gold Coast LGA.

In 2016-17, Greater Brisbane residential site sales tallied $409.2 million, down 46.4 per cent from the year earlier — for those sites valued at higher, or equal to $2 million.

“Over the past three years, the portion of higher-density sites purchased throughout Greater Brisbane has averaged annually 73 per cent when calculated against all sites suitable for residential development,” Knight Frank Queensland’s Christian Sandstrom said.

“The more interesting thread to follow is the share of those sites suitable for medium density growing from 2.3 per cent in 2014-15 to 9.8 per cent in 2015-16; to record 11.0 per cent or $45.0 million in 2016-17.

“As the ongoing downsizer trend continued and the median value for houses in Greater Brisbane grew on average 5.1 per cent per annum between 2014-15 and 2016-17, townhouses became a favourable option.

“Over this time, the share of low density sites sold dropped from 25.1 per cent to 17.4 per cent. In 2016-17 this portion was 15.8 per cent or $64.5 million,” Sandstrom said.

Perth

The total volume of major site sales in Greater Perth suitable for residential development lagged annual sales recorded over the past four years, for those valued at or above $2 million. In 2016-17, residential sites tallied $129.7 million – almost a quarter of the volume recorded in 2014-15 when Greater Perth site sales totalled $520.6 million.

At this time, the total volume of development site sales peaked across the Australian market.

Dividing development site sales by potential density in Greater Perth, in 2014-15 and 2015-16, higher density sites represented 67.1 per cent and 66.0 per cent respectively. Although coming off a lower base, by 2016-17 the portion of higher density sites sold had increased to 91.8 per cent.

“Greater Perth has not experienced the recent high level of demand towards medium density sites by developers and end-buyers as witnessed in Greater Sydney and Greater Melbourne,” Knight Frank’s Todd Schaffer said.

Many buyers in these cities are using this medium density platform as an entry-level option into home ownership.

“Instead low density houses are becoming more affordable for first home buyers in Greater Perth. As a consequence, the residual of total development site sales have been for low density housing, with an 8.2 per cent share in 2016-17,” Schaffer said.

Source: https://www.theurbandeveloper.com/home-buyers-seek-townhomes-houses-grow-unattainable/