Australias property market headed for a bust? Dont bet on it say developers

A good gauge as to the economic health of any industry is how many businesses are willing to bank on its future by sinking a significant financial investment into the sector, and property is no different.

So when I read that a large national company is doing just that and undertaking $3.5 billion worth of new projects across the country, I know things not likely to be as ominous as what many naysayers would have us believe.

According to a Business Week report, Frasers Property Australia, a unit of Fraser & Neave Ltd., is betting on a revival in Australia’s housing market, even though it has fallen by 3.2 per cent overall in the past year.

One of the major projects is a $2 billion apartment development in Sydney’s center that will create about 2,000 new dwellings by 2015.

Frasers is counting on Australia’s continuing economic growth along with a demographic shift that’s seeing the Aussie preference for apartment living increase, to drive sales of their upcoming new stock.

Chief Executive Officer Guy Pahor says, “There are short-term issues we need to deal with in the housing market, but these have more to do with consumer sentiment than underlying fundamentals.

“Over the medium to long term, the affordability factor is going to be key in more people choosing apartment living over owning a house on a quarter-acre lot of land, as will people prioritizing lifestyle and proximity to social amenities and employment over a larger backyard in outer suburban estates.”

Supporting the developer’s theory regarding our move away from large detached dwellings to more compact apartment living is findings from a recent survey conducted across Sydney and Melbourne by the Grattan Institute.

When 706 people were asked what their priorities were when looking for a home, having a detached house came fifth on the list of factors that most influence housing choice; most single and older people said location was more important than anything else.

Adding to the appeal of apartments for those looking to generate wealth through residential real estate is the relative consistency with which this sector has performed during the recent property downturn, compared with detached dwellings. While apartment prices fell by 0.9 per cent in the year to August 31, house prices dropped by 3.6 per cent overall, according to RP Data.

Infrastructure Australia’s State of Australian Cities 2011 report, says our ageing population, shrinking household sizes, lifestyle choices and government policies are driving more of us toward inner city living.

Frasers have obviously done their due diligence, with 80 per cent of their current projects located in Sydney – the city that has recently outperformed the rest of the country with a price increase of 0.3 per cent for housing, while every other capital saw property values decline.

This, coupled with the fact that Sydney-siders have an obvious penchant for apartment living with almost a quarter opting for high density accommodation compared with just 7.1 per cent and 8.4 per cent in Perth and Adelaide respectively, is enough to convince any cashed up developer to invest in the NSW capital.

“It’s obviously on people’s minds that global economic situations can impact the growth in Australia,” Pahor said. “But we have a shortage of housing in Australia, and that shortage is most acute in Sydney.”

Frasers is undertaking their Central Park project in partnership with Sekisui House Ltd., Japan’s second-largest home builder. Upon completion, it will incorporate 255,000 square meters of floor space, 16,000 square meters of retail space, 70,000 square meters of office space, student housing and possibly a hotel in addition to its residential component.

To date Frasers has sold 80 per cent of the units in the first of 11 buildings that will transform the old Kent Brewery site in the inner Sydney suburb of Chippendale.

Obviously Australia’s property market is gaining favour with our Asian neighbours, who see the potential that comes from having a pressing need for extra accommodation to house our ever growing population.

With Singapore’s third biggest developer by assets – Fraser & Neave – and Japan’s second largest home builder, joining forces to concentrate their investment efforts in Sydney, it seems the world is well and truly banking on good things for the future of Australian real estate.


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