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World property Wed26Nov14 – Sydney apartments sell, funds buy Inghams portfolio

Stampede to buy latest luxury Sydney apartments
Charter Hall buys Inghams portfolio for 6 funds

Stampede to buy latest luxury Sydney apartment

Sydney property developer Crown Group sold the whole initial offering at its $A250 million Sydney by Crown project at 161 Clarence St in the cbd last weekend, in a price range that started at $A826,000.

Construction is scheduled to start early next year for completion in late 2017, on a site where Multiplex had planned a large development, but abandoned it 10 years ago.

The 25-storey Crown tower will have 220 apartments, including a collection of Crown Suites serviced apartments.

Australia’s Property Observer website said the 142m² penthouse was likely to be priced at just under $A50,000/m².

Links: Property Observer, Sydney by Crown secures weekend sellout
Crown Group

Charter Hall buys Inghams portfolio for 6 funds

ASX-listed Charter Hall Group said on Monday it had secured an $A171.4 million industrial portfolio leased to Australasian poultry producer & processor Inghams Enterprises Pty Ltd on behalf of its managed funds. The transaction reflected an average initial yield of 7.82%, benefiting from a weighted average lease expiry by income of 22 years.

The 6 properties will be split among 3 Charter Hall managed funds or partnerships.

Private equity firm TPG Capital LP put the whole Ingham property portfolio up for sale & leaseback in March, 9 months after buying Inghams Enterprises Pty Ltd for $A880 million ($NZ933 million).

Link: Charter Hall

Earlier story, 12 March 2014: TPG puts Inghams properties up for sale & leaseback 9 months after acquisition

Attribution: Crown Group, Property Observer, Charter Hall

Regular leads: Europe Real Estate, Mingtiandi, Planetizen, World Property Channel

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Tough times forecast to continue for Australian apartment investors

Published 17 April 2006

Investors in Australia’s 3 main inner-city apartment markets will face challenges for some time as Sydney & Melbourne struggle to absorb an oversupply of stock and Brisbane comes out of a long shortage of rental apartments, says analysis & forecasting firm BIS Shrapnel.

The BIS Shrapnel reports indicate price & rental growth in the inner-Sydney apartment market will be constrained out to 2007-08 until the current oversupply is absorbed.

In Melbourne, it’s forecasting the market will move through a period of recovery during the next 2 years as excess rental stock is absorbed and the market moves back towards balance.

It says Brisbane is a different story, with rental growth likely to slow after 5 years of strong rises as a record number of apartment projects is completed, providing relief to pent-up rental demand.”The story to watch over the next 12 months will be the rental market,” BIS Shrapnel analyst and author of the apartment reports Angie Zigomanis said.

“Melbourne rental growth has been stagnant, the Sydney vacancy rate has peaked and the Brisbane market is experiencing a record number of completions. Investors will want to know when they will see evidence of improving rents in Sydney & Melbourne, and whether the tight rental market in Brisbane will be affected by the completion of the current round of apartment projects.

“While rental growth will return sooner, BIS Shrapnel does not foresee a substantial improvement in prices for Sydney & Melbourne until 2008-09, when the current low yields strengthen to become more attractive to investors. Although rents in the Brisbane market are expected to continue to show improvement over this financial year, BIS Shrapnel expects to see this drop off in 2007-08.”While Mr Zigomanis said investors had been spooked by flat rents, low rental yields & little prospect for short-term capital gain, owner-occupiers had generally held up better than the investor market. Although demand from this segment was also below peak levels, owner-occupiers had responded to low unemployment, solid job prospects & strong wages growth and had remained in the market in greater numbers.”Across all 3 cities, those apartment developments that rely on investor purchasers will continue to be impacted by weak investor sentiment, with more limited price growth, or even declines forecast to continue in the short term. Price prospects for apartments that are more conducive to the owner-occupier market will be more positive over the next 5 years, as price performance will be more connected to affordability rather than rental & investment returns.

“BIS Shrapnel expects to see the first stages of the subsequent upturn begin from 2007-08, although significant price growth is not expected to re-emerge until 2008-09.”

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Attribution: Company statement, story written by Bob Dey for this website.

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BIS Shrapnel says Sydney apartment vacancies peak, supply dwindling, real growth 4 years away

Leading Australian research firm BIS Shrapnel Pty Ltd has concluded that vacancy rates in the Sydney inner-city apartment market have peaked.

BIS Shrapnel released the 5th edition of its Inner Sydney Apartments, 2004 -08 report today.

Senior project manager Angie Zigomanis said the conclusion that vacancies had peaked was based on 2003-04 being the peak year for completions.

Rents had become static or weakened and investor demand for off-the-plan apartments declined as the prospects of capital gains similar to recent years diminished.

Mr Zigomanis expected rental growth to remain nonexistent in the short-term, until vacancy rates fall to more balanced levels.

He said BIS Shrapnel anticipated the existing excess of rental apartments would be fully absorbed within 18-24 months. The city would continue to have a strong foreign student population and the inner-city workforce would continue to grow, attracting young professionals to the inner-city rental market.

“This will underpin strong rental growth beginning to emerge in 2005-06,” he said.

Mr Zigomanis anticipated that a weakening economy & rising interest rates would further damage investor sentiment & kill off any recovery in prices, despite investor fundamentals improving with low vacancy rates & the re-emergence of rental growth.

“In this environment, prices are still expected to fall 10% over 2006-07 & 2007-08,” he said.

Investors make up 60% of market

Analysis carried out for the study showed 60% of owners were investors, 21% owner-occupiers under 45 & 19% owner-occupiers over 45, and the drivers of each group were different.

“While investor owners will closely watch the movements of vacancies & prices before purchasing, younger owner-occupiers, who are typically comprised of professionals on relatively high salaries, will make a decision to purchase independent of the stage of the economic cycle.

“On the other hand, older owner-occupiers are more likely to be empty nesters downgrading to an inner-city apartment and will be driven by the price they can get for their detached home. Consequently, they will make a decision to purchase during an upturn in the Sydney residential cycle, when they are most likely to find a ready market for their existing property.”

The stock of inner-Sydney dwellings in apartment buildings 3 storeys or greater has doubled during the past 7 years to an estimated 43,300 dwellings at June 2004.

3800 dwellings were completed in 2003-04, and the research indicated new apartment supply was declining – 3000 apartments to be completed in 2004-05, then 2850 in 2005-06. “These completions are largely the result of solid off-the-plan sales made up to 2002-03, as investors avoided the weaker equities market and placed their funds into the more strongly performing residential property market.

“However, pre-sales of apartments began easing in 2003-04 as vacancy rates rose and investors found the prospect for rental returns & capital gains diminished. This will translate into a sharper decline in apartment completions after 2005-06. A continued weakening in the off-the-plan purchaser market will see new apartment completions continue to decline up to 2007-08.”

Mr Zigomanis said tenant demand in 2003-04 was unable to absorb the additional rental stock of inner-Sydney apartments completed during the period, causing vacancy rates to peak. However, the expected fall in new apartment completions and improving tenant demand would see the vacancy rate start to decline & approach balance during 2005-06, followed by a deficiency of rental stock emerging in 2007-08.

He expected the current oversupply would prevent rental growth until then, but tightening of the market after that would underpin strong rental growth. Overall, rents are forecast to rise by an average 3.6%/year over the 4 years to June 2008, although little growth would be apparent in the first 2 years of this period.

However, high interest rates (forecast to exceed 9% during 2006) & the subsequent economic downturn from 2006-07 would prevent the rental growth translating into stronger prices.

Mr Zigomanis predicted real growth in the inner-Sydney apartment market wouldn’t resume until 2008-09, when emerging strong rental growth, receding interest rates & returning investor confidence would set the scene for a very strong upturn in inner-city apartment sales and prices.

The lag between off-the-plan purchasing, recovering in 2009, meant new supply wouldn’t be seen for another year or 2. Economic, rental & price growth should have gathered momentum that new supply began moderating prices, he said.

Website: BIS Shrapnel

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