[+] Outcomes Uncertain in Off-the-Plan Limbo

The off-the-plan market is in limbo. Difficult to finance despite high demand, apartments are plagued with reputational issues while all typologies face the same construction cost escalation. Community developer Peet chief executive Brendan Gore says that uncertainty is taking its toll. “The market is getting really nervous around builders’ ability to deliver on time, if at all, and there are numerous instances where developers have gone back to purchasers and asked for more money,” Gore says. Despite the bleak outlook, there are opportunities in off-the-plan markets—if you know where to look. Shifting sands It is becoming clear that mid and lower-range apartments are struggling to proceed more so than houses. Apartment approvals continued to decline in April at 3703 approvals, a month-on-month decline of 4.3 per cent and a more worrying annual dip of 27.6 per cent. Meanwhile, the Australian Bureau of Statistics reported, housing approvals rose to 8678 for the month—a year-on-year increase of 6.2 per cent. “We have mothballed some apartment sites for the time being because the build costs are very high and uncertain,” Gore says. “Apartments are increasingly getting worse, but we’ve seen our build cost with townhouse and terraces stabilise somewhat. Trade issues are still impacting costs, but they are plateauing.” ▲ Peet delivers townhouses, apartments, and family homes, often in major masterplanned communities such as Rochedale, pictured. Director of Melbourne-based developer Prime Edition Alistair Taylor says that, as always, it depends on the area of the market you’re operating in. “In some cases, affordability is key. In others, the product is driving purchasing decisions as people at various stages of life look to right-size their homes,” he says. “The off-the-plan market is dynamic across various product types, with right-sizers and families driving the most activity in the market … [and many of these] buyers are not reliant on bank finance for off-the-plan products.” Some states have been proactive about the potential for off-the-plan as well as the real financial challenges facing buyers—the Government in WA has introduced an off-the-plan loan for prospective buyers . ▲ Prime Edition has had sustained demand for premium and affordable downsizer projects such as its Como project at Toorak, above and top image. But Golden Age development director Damien Hehir agrees that location and offering are key, evidenced by contrasting speeds of off-the-plan sales across its projects. “Our outer suburban medium-density projects, mainly townhouses, are experiencing good market acceptance, and the level of enquiry remains strong from the owner-occupier market,” he says of the developer and funds manager’s experience of late. “Investors are still in the market but the conversion of these sales is taking longer than usual. “Our greenfield project at Rockbank (west of Melbourne) continues to face pressures in new sales enquiry however we have found that the settlement rate on delivered stages has surprisingly been strong.” Financing off-the-plan Peet sells detached and townhouses much later in the development process than usual for off-the-plan projects. “If we sell close to or at completion that uncertainty is gone—it’s easier to get finance, they can value it in real time and certainly they can touch and feel the end product and have confidence they can move in really quickly,” Gore says. “We can cover cost increases on the way through as a developer because of our balance sheet. “It gives us comfort that we can make a fair return on our investment within reason but also deliver the product on time and budget.” ▲ Golden Age has diversified into build-to-rent with its partnership with Local Residential at SKY SQR in Box Hill. But the financing issues and long-term security of projects are sometimes insurmountable, and developers are becoming much more nimble with their approach and model. “Golden Age has made a conscious decision to pursue alternative development solutions for our residential apartment developments,” Hehir says. “Medium-density developments still value up and can have a viable finance solution to deliver the project,” he says. Keeping it high-end As is the case in other sub-sectors , the current financial situation has pushed residential off-the-plan development towards the higher end of the market. “From the investor perspective, there’s been a notable trend towards premium and boutique projects. Financiers have continued to invest in projects that have strong presale demand, reducing delivery risk,” Fortis general manager, property development NSW Ed Eve says. High-end off-the-plan sales continue to be strong, as do many other areas of the luxury market, which has seemed bulletproof to economic headwinds, a space in which Fortis plays comfortably. “[This sub-sector] in which Fortis operates has remained relatively strong in recent years and has further improved through 2024,” Eve says. ▲ Fortis teamed with architects at MHNDU to deliver 12 high-end residences in Sydney’s Rose Bay. “We are seeing positive and sustained interest in apartments in Sydney, Brisbane and Melbourne, and in many cases have achieved new record sales rates for those apartments. “This has been driven by limited supply in the prime locations in which Fortis operates, the financial stability of our target demographic and their capability to purchase, or invest in, premium properties, and confidence in the ability of Fortis to deliver quality projects in more challenging conditions.” The future of off-the-plan Despite these issues, there may be light at the end of the tunnel. “We believe that investor and buyer confidence will continue to grow as financial markets stabilise further,” Eve says. “Off-the-plan developments in areas characterised by high demand and limited supply will continue to out-perform, as will developers who prioritise quality of design and build, transparency, the integration of modern amenities and customisation options.” ▲ Golden Age has three townhouse projects, two strata office buildings and a land subdivision—Willow Spring at Rockbank—in its $1-billion-plus pipeline. Taylor agrees, saying that it was “a crucial part of delivering much needed housing supply”, but onerous tax obligations in states such as Victoria make it more difficult for projects to stack up. “Unfortunately, this has real implications for affordability and supply,” Taylor says. It’s a cycle, and cycles must reach the bottom before they return to the top, according to Gore. “The whole market is in a state of flux, particularly with apartments. While houses and townhouses are stabilising, the market still has to be confident builders can deliver and the builder and developers are not confident on where things are sitting at the minute.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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