Australia's Shortage of Townhouse Developments most prevalent in coming years
According to Knight Frank's latest research, across the major Australian cities, development sites suitable for high-density continue to be the overall preferred option for developers.
Knight Frank's Australian Residential Development Review H2 2019 reveals that in the 2018-19 financial year, high-density sites comprised 73.1% of all residential development sites sold by volume, followed by low-density with a 20.9% share.
According to Knight Frank Partner and Head of Residential Research Michelle Ciesielski, "Medium-density or townhouse sites much suited to the downsizing population, and those priced out of the single dwelling market on the East Coast, last recorded a 6% share of Australian sites being sold for residential development in 2018-19.
"In recent years, there has been substantially more land released for low-density in growth corridors of major cities. As a result, we've seen the uptick in first home buyers, however, there is still elevated demand for those looking for townhouse stock, especially at the top-end of the market.
The total volume of residential site sales recorded was $5.1 billion in the 2018-19 financial year, down 38.2% on the previous year, which included sites available suitable for low, medium and high-density development across Australia."
According to Knight Frank Director of NSW Metro Site Sales Adam Bodon, "We've recently seen a pick-up in off-market development site activity in Sydney for quality sites.
"Many development site sales are being structured to settle over 18-24 months, aligning with growth forecast in established capital values.
Ms. Ciesielski added, "The strict lending criteria for buyers has now been loosened, but access to traditional finance is still difficult for many local and offshore developers which has resulted in many projects put on hold.
"As a result of project marketing being postponed, and in many cases construction commencements, the pipeline of new apartments tapers back significantly over the next three years, potentially not supporting the population growth projected for major Australian cities.
There was a decrease in offshore developers and investors buying development sites during the 2018-19 period, with a 47% reduction from this group in sales recorded in the previous year.
Mr. Bodon commented, "Despite difficulties accessing traditional financing, offshore developers and investors remain committed to investing in Australian sites comprising 36.9% of sites suitable for residential development.
China purchased 54.6%, by value, of the offshore countries purchasing Australian residential development sites, following by Singapore (21%), Hong Kong (15.1%) and Malaysia (2.7%).
Ms. Ciesielski said, "Amongst the assets sought by international developers, Greater Melbourne was still the most popular capital city for investment by offshore developers and investors with a 68.2% share of disclosed total residential sites sold in the year ending June 2019 and Greater Sydney followed with 27.3%.
"In the past financial year, bucking the overall trend, offshore developers invested predominately in sites suitable for low-density development (59.5%) but still preferred high density (35.1%) ahead of medium-density sites with a 5.4% share.
The report also found the sites sold collectively are suitable for low, medium and high-density development across Australia made up 20.2% of total disclosed sales in 2018-19.
These collective sales include horizontal sites, with multiple homeowners banding together to form amalgamated residential super-lots; and vertically, with owners of individual apartments, office and industrial suites within a building.
Ms Ciesielski commented "Vertical site sales have been more prevalent in NSW with the new legislation for strata properties coming into operation in late 2016.
"Since November 2016, a total of $1.45 billion worth of vertical sites have sold in NSW, representing 15.4% of development site sales ripe for regeneration. The legislation has had a significant impact when compared to the previous 32-month period when only 2.3%, or $364 million, were sold for this purpose."