An unprecedented apartment boom is reshaping Sydney’s skyline, reinvigorating the construction industry after a decade of under-development that left it struggling. Downsizers, self-managed superannuation fund investors, first-home buyers and offshore investors are buying off-the-plan apartments at record rates.
Sydney’s apartment approvals are, in fact, outpacing houses – there were 2620 apartments approved in October, compared to 1684 homes, according to the Australian Bureau of Statistics. The Reserve Bank of Australia’s policy of keeping interest rates at record lows is stimulating dwelling construction and the impact so far is most obvious in Sydney.
And apartment living could become a nationwide trend if the population reaches 37.6 million by 2050, as is forecast by the Australian Bureau of Statistics.
Cranes dominate Sydney’s inner-western suburbs from Erskineville to Forest Lodge and Chiswick. South Sydney’s industrial areas have been reborn as investment hotspots. And north of the Sydney Harbour Bridge, units in suburbs such as Chatswood and Lane Cove are selling out.
Even traditionally low-rise areas such as the eastern suburb of Randwick will be reinvented to match buyer behaviour, which is dictated by affordability, record-low interest rates and buyers from Asia.
Suburbs offering easy road or public transport access to the CBD are drawing in the developers and evolving into medium- and high-density living areas.
Construction growth booming
“We’ve seen 15 to 20 per cent growth [in work] in the last 12 months,” says Peter Maneas, general manager of construction company Ganellan.
His company is building projects for developers such as Australand, Wintern and Defence Housing Australia.
“It will definitely run into the second quarter of 2014,” Maneas says.
“Anyone talking beyond that is looking into a crystal ball; there are too many variables to be able to predict anything beyond then.”
Sydney’s housing market was sluggish for the last decade. Its capital growth lagged other major cities and the market was left severely under-supplied as construction in some years dipped to 50-year lows.
But RP Data senior analyst Cameron Kusher says Sydney’s house prices have risen more than 13 per cent in 2013, year on year, and apartments are up 9.2 per cent.
The city’s median house price is now $749, 995 and the median price for a unit is $547,500, making the traditional notion of home ownership out of reach for younger people in particular. The high property values help push up rents as well.
“Renters in the city don’t want to move to the city fringe, so apartments are a more viable option for them,” Kusher says.
Affordability drives apartment interest
Affordability is definitely the driver of the boom, rather than a desire for apartment living ahead of traditional housing, agrees Kim Hawtrey, associate director of property research company BIS Shrapnel.
Hawtrey says equal numbers of apartments and houses were being built for the first time in Sydney’s history – houses have previously dominated the city’s landscape. And the shift is structural, not just cyclical .
“The apartment industry is in an awkward teenage stage at the moment, the recovery is concentrated entirely in the CBDs and has not spread to the country and there has been no shift in alterations and additions,” Hawtrey says.
Shorter commute times and the lack of work opportunities on the fringe of the city make inner areas more desirable than outer suburbs with cheaper housing.
Socially, people want to stay in their existing communities with easy access to services – a common wish, in particular, among first home buyers and downsizers.
Tim Blythe, a director with planning consultancy Urbis, says planning policy now provides for higher density living in the suburbs and also in areas marked for urban regeneration regions, such as Green Square in South Sydney and the area around Macquarie University in North Ryde.
“There is a greater acceptance [in Sydney] of urban density outside the CBD; unlike the other capitals it is also happening beyond a 10-kilometre radius of the city,” Blythe says.
Demand is expected to continue and this boom is expected to be Sydney’s largest. As it stands, 25,000 apartments have either been approved or are awaiting approval.
More than 10,500 will be completed in 2014, predominately in large-scale projects such as Frasers’ 1900-unit Central Park in Chippendale, and Meriton’s Eon project in the former industrial suburb of Zetland, four kilometres south of the CBD.
Challenges of availability
But site availability is a challenge for developers and after paying a premium for the land – whether it is a former warehouse or an office block – they want to maximise the number of units on a site, Blythe says.
Iwan Sunito, chief executive of property developer Crown Group, says prices for off-the-plan units have risen about 10 per cent this year and most developers have upped their price in line with “huge” demand.
As inner-city sites are limited, city office towers are selling for well above their values to cashed-up offshore development groups who turn them into apartments.
A former Water Board site on Bathurst Street in the CBD sold to China’s Greenland Group for $100 million in March. Sydney’s tallest apartment tower, with more than 400 apartments on more than 60 levels, has been approved for the site. It is a classic example of an Asian-backed developer wanting to make an imprint on the city with a landmark project. Chinese buyers have bought entire floors in a number of apartment blocks, often investing on behalf of offshore family members, and their appetite for property is unlikely to diminish quickly.
The next stage of the $440 million development of the Swiss Grand Hotel on Bondi Beach was launched on Saturday and selling agent Steven Chen of McGrath said 16 of the 18 apartments launched sold in 20 minutes, predominantly to Asian buyers.
Its one-bedroom loft-style apartments with courtyard start from $700,000. Two- and three-bedroom apartments start at $1,550,000. Hutchinson Builders has started work on the project, known as Pacific Bondi Beach, and its NSW manager, Brian Hood, says the surge in sales would lead to an uplift in work which should continue into 2014.
“We’re always trying to slowly grow our staff levels and we have gradually brought more people on,” Hood says.
In the inner west of the city, listed developer Mirvac Construction is responsible for the Harold Park project in Glebe, a $1 billion redevelopment on a former harness-racing site close to the University of Sydney.
There are about 850 workers on site daily and more than 4000 direct construction jobs will be supported over the life of the project. Another 16,000 workers may also be involved in providing services to the project at various stages of its life.
An extra 345 apartments have been approved at the development, director Stuart Penklis says, and it will have 1250 terraces and apartments when complete.
Penklis says while there were now more apartment projects on the market, interest from buyers has not diminished and interest is at its peak. John Carfi, chief executive of Mirvac’s residential business, says the company was focused on finding new sites now developer confidence had surged.
“I think it will be some time before the pent-up demand is met,” Carfi says.