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Ben covers the property industry and has a keen interest in entrepreneurship and travel writing. He speaks Mandarin and previously covered housing and urban affairs for The Australian Financial Review.

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Housing developers optimistic about 2013

Published 11 January 2013 12:35, Updated 14 January 2013 07:00

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Housing developers optimistic about 2013

There was a 10 per cent increase in dwelling approvals in the year to November 2012 compared with the previous year, according to the ABS figures. Photo: Tamara Voninski

Demand for new homes remains sluggish despite policymakers’ best efforts to kick-start the sector, but housing developers are expecting better business in 2013.

Building approvals figures released on Thursday by the Australian Bureau of Statistics, which are considered a leading measurement of future building activity, showed there was little improvement over 2012. But apartments in NSW and houses in Western Australia were notable exceptions.

“I would say 2012 was a very challenging year for a range of reasons,” says Mark Henesey-Smith, executive general manager of home builder AVJennings for Queensland, South Australia and New Zealand. “Consumers were very cautious in making purchasing decisions.”

He says he is optimistic about 2013 because of a range of strong market fundamentals: interest rates are low and probably heading lower; rental vacancies across the nation are down; there is strong demand for relatively affordable homes; but weak consumer sentiment is keeping a lid on demand.

“There are a lot of positive signs for residential,” Henesey-Smith says. “I don’t see a lot of upward price movement for the next 12 months but probably an improvement in the volume of sales.”

There was a 10 per cent increase in dwelling approvals in the year to November 2012 compared with the previous year, according to the ABS figures. But this was largely a story of apartments in NSW and detached houses in Western Australia. Nationally there was a 36.4 per cent increase in apartment approvals, seasonally adjusted, over the year to November. But detached houses rose only 0.5 per cent over the year.

Paul Braddick, head of property research at ANZ, says consumer nervousness has dampened the stimulatory effect of interest rate cuts.

“There are so many people losing their jobs,” Braddick says. “Making the decision to commit to a big mortgage is not particularly attractive at this point in time. We are in for a period of unusually low interest rates and you could argue it’s actually quite a good time to go into the market. But the community hasn’t really come around to that view just yet.”

“If we get what we’re expecting, which is another 100 basis points of cuts this year, the market will start to pick up. You would have to expect this year for home builders will be better than the last couple, which have been particularly tough.”

But not everyone is downbeat, particularly with a range of government incentives on offer. State governments in Queensland, NSW and South Australia are offering targeted incentives that encourage buyers to purchase new homes. The federal government’s National Rental Affordability Scheme, which gives tax rebates in exchange for a commitment to rent a property below the market rate, has also brought more investors into the sector and was responsible for a lot of AVJennings’ sales last year.

Apartment mogul Harry Triguboff purchased six prominent inner-Sydney building sites in 2012 that have the capacity for more than 2000 apartments worth $1.5 billion in total. His company Meriton made more than $600 million in sales in 2012, and increased its apartment pipeline by 50 per cent.

“The market has shown positive signs recently and we believe that now is the time to make use of the opportunities the market changes have opened,” says James Sialepis, national sales director for Meriton. “Government incentives are assisting first-home buyers and purchasers of new apartments, while lower interest rates will help everyone.”

David Taylor, general manager for western Sydney developer Dart West Developments, says he has sold 613 housing lots, as part of a 2500-lot joint venture in Gregory Hills with land owners the Marist Brothers, since July 2010. “We thought it would take 15 years and it’s probably going to take 10, the way it’s going,” he says.

Taylor puts it down to consumer demand for relatively affordable homes, as well as state government investment in infrastructure projects such as the north-west rail link and the Camden Valley Way upgrade.

“We’re not seeing people queuing out the door, but we’re seeing consistent activity,” Taylor says. “We’re among the most affordable land in Sydney, and yet we’re offering a sense of community and the infrastructure is improving so the travel times are reducing. We’re $100,000 a block cheaper than north-west Sydney and that’s a pretty powerful message.”

Brisbane-based developer David Devine, executive chairman of developer Metro, sold more than 600 apartments in the past year. He said the key to his success was selling to investors and self-managed super funds at a relatively low price point.

“Ninety per cent of our sales are to investors,” Devine says. “The price is very important because they have to get a return that meets their repayments. With our rental returns and the NRAS scheme, they get a cash flow-positive investment once they make the deposit.”

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