Apartment builders are ‘kidding themselves’ if they start projects now

Property magnate Tim Gurner says developers are “kidding themselves” if they try to launch apartment projects of 300 units or more in Sydney or Melbourne amid an exodus of Chinese buyers and a collapse in immigration caused by the COVID-19 pandemic.

Speaking at a round table forum attended by some of the nation’s top developers hosted by The Australian for The List — Australia’s Richest 250, Mr Gurner said he was concerned about the Chinese government taking capital away from Australia, which would mean a “complete systemic change to our market”.

“It doesn’t matter if you’re selling high end in Toorak or wherever you are, it still affects you. And I think the answer is the population. Just get the bloody Virgin and Qantas planes and go and pick up all the (international) students and bring them back.”

Before COVID-19, Chinese students contributed an estimated $40bn a year to the local economy, but Chinese travel spending in Australia, including the contribution of students, was down more than $7.3bn in 2020.

More generally, negative overseas migration for the first time in 27 years has seen vacancy rates more than double in some apartment-dense suburbs of Sydney and Melbourne, though outer suburbs were performing well.

“I think (detached) houses are going to absolutely fly this year, there’s no question. Prices will be up 15 to 20 per cent,” Mr Gurner, a member of the The List, told the forum. A special feature from the event will be published in The List in The Weekend Australian on Saturday.

“The big difference we’re seeing is the investment apartment, the 300 apartment stuff. I mean, you’d be kidding yourself to try to get something off the ground today.”

Australia’s population growth rate is forecast to fall from 1.2 per cent in 2019-20 to just 0.2 per cent in 2020-21, and 0.4 per cent in 2021-22.

Over the past 10 years net overseas migration, including temporary visa holders such as international students, has contributed 0.9 percentage points a year to the average population growth of 1.6 per cent.

Sam Tarascio, managing director of the Salta Properties group, said there was a rental shortage before the onset of COVID, but this had now “vanished”.

“We’ve got a huge oversupply of apartments available to rent. Rents have gone down — 30 to 40 per cent in some cases.”

He also said construction costs were rising 5 per cent a year, year on year, “and we can‘t do anything about it”.

The chief executive of the Deague family, William Deague, agreed with Mr Gurner that the apartment market had been transformed by policy changes before COVID and by the subsequent loss of Chinese investment and immigration.

“I don’t think the future is just punching these little towers straight up, 500 or 600 (units) at a time. “It’s got to be more thought out than that,’’ he told the forum.

Perth property developer Paul Blackburne said his home town had the lowest share of foreign buyers in the country, with less than 10 per cent of residential property bought by offshore investors.

“It means that there is a real rental crisis on in Perth now. And that is part of the reason there’s been very little (new project) starts the last five years.”

“We manage 1000 apartments around Perth and when the moratorium on rent increases goes on March 23, we’re putting rents up 20 to 25 per cent because we haven’t been able to put them up for the last nine months.”

But the Canberra property market has been a beneficiary of some of the policy changes and impacts of COVID in other markets, attracting interstate and foreign buyers.

“We usually only ever had about 2 per cent of our sales come out of Victoria but last year that increased (to) about 10 or 15 per cent,’’ the Canberra-based CEO of Geocon Group, Nick Georgalis, told the forum.

Beulah International executive Director Adelene Teh said her Melbourne-based group’s focus on downsizers and owner-occupiers meant its projects had been largely protected from any major impacts from a drop-off in foreign buyers.

“Australia has shown great resilience throughout the pandemic and this will be attractive to people who are looking to move,’’ she said.

With reporting from John Stensholt.

This article first appeared on www.theaustralian.com.au.