RESIDENTIAL RESEARCH

Greater higher density residential development site sales tallied $213.36 million in the year ending 31 August 2015. Despite a slowdown in residential $20.50 million; both projects being development sites sales across Greater marketed in 2015. Other recent major site In the past year, by value, 64.6% Perth, the construction phase is active sales, with potential for higher density in of Greater Perth development with many projects kicking-off earlier Greater Perth, have been listed in Table 1 sites were sold to foreign than scheduled due to the majority of on page 4. investors. apartments selling off-the-plan in the Inner and Middle Suburbs regions. Over the two years to the end of August 2015, the Inner Suburbs region recorded Foreign investors have a the highest volume of residential proposed $1.32 billion Sales Volume worth of development site sales at $275.79 million, residential developments in the whilst the Perth CBD saw $32.90 million pipeline in WA. Sales turnover of major sites, likely for higher density development in Greater in sales. The Middle Suburbs region, Perth, grew substantially over the three resulted in sales in the order of $147.11 Lone person households are years to 31 August 2014 to stand at million over the same time. projected to have the highest $322.23 million, as shown in Figure 1. growth at 3.0% per annum over However, the twelve months to the end There are significant infrastructure the next twenty years of August 2015, recorded $213.36 million projects currently under construction that worth of transacted sales, reflecting the will greatly benefit not only these regions, weaker buyer sentiment in the wider but the Greater Perth area, including Strong pipeline of committed Perth property market. Perth City Link, Elizabeth Quay and the major infrastructure projects new Perth Stadium. The Outer Suburbs across Greater Perth The sales volume achieved in the year to region, which covers both Perth and 31 August 2014 was a distinct Jandakot airports, will also see the Gateway WA project delivered in 2016. Currently there are 4,395 benchmark given the large volume of The region recorded $79.80 million worth apartments under construction sales transacting in that year. The most of development site sales over the same in Greater Perth—led by the CBD notable being the Finbar purchase of the & Inner Suburbs regions. Civic Heart site in South Perth for $27.31 two year timeframe. million and the Mirvac purchase of the Claremont On The Park in Claremont for Average Rates

As at the end of August 2015, sites suitable for higher density development Total Residential Site Sales Volume averaged $64,500 (ranging from $35,000 Greater Perth to $120,000) per apartment across Potential Higher Density Development, $2M+ Greater Perth, trending slightly down by 5.1% when compared to the previous Million year. $400

As the Perth CBD becomes a more

$300 vibrant place to live and work, inner city apartment living has become a more acceptable and suitable solution for those

$200 wanting to be close to the City. Residential development site sales rates as at the end of August 2015 averaged

$100 between $90,000 and $120,000 per apartment in the Perth CBD.

$0 At the same time, the Inner Suburbs YEAR TO YEAR TO YEAR TO YEAR TO YEAR TO 31-AUG-11 31-AUG-12 31-AUG-13 31-AUG-14 31-AUG-15 region trended from $50,000 to $120,000 per apartment, whilst the Middle Suburbs Director—Residential Research region ranged from $35,000 to $60,000

2 PERTH RESIDENTIAL DEVELOPMENT H2 2015 RESEARCH

MIDDLE SUBURBS $147.11 MILLION $35,000-$60,000

CBD $32.90 MILLION $90,000-$120,000

INNER SUBURBS* $275.79 MILLION $50,000-$120,000

OUTER SUBURBS $79.80 MILLION $20,000-$35,000

ANNUAL SALES VOLUME FOR PAST TWO YEARS^ AVERAGE SALES RATE PER APARTMENT^

per apartment. This region includes the JV with HostPlus and Pindan) of 54 suburbs of Rivervale and Burswood Proposed Investment in Residential Bracks Street in North for $59 which are earmarked for new apartments Developments million, as well as the sale of 374-396 to come on-line over the next three years. Distribution by Foreign Investors, when Murray Street in the Perth CBD for $30 In the Outer Suburbs region, applications submitted in 2013/14 million to the Fragrance Group, both Billion development sites with potential for $12.0 Singapore based. higher density residential trended from $20,000 to $35,000 per apartment. $10.0 Foreign investors propose to invest $1.32 billion in residential Type of Purchasers $8.0 developments, according to the Foreign Investment Review Board (FIRB). As $6.0 An analysis of purchaser nationalities shown in Figure 2, the distribution of across all development sites suitable for foreign investment into residential $4.0 higher density development in Greater developments continues to be dominated Perth, indicated that 35.4% of sales, by by Victoria ($10.41 billion) and New South $2.0 value, were to Perth based developers, Wales ($10.39 billion). Queensland dominated by Pindan, Finbar and The $0.0 follows with $2.81 billion of investment, VICTORIA NEW QUEENSLAND WESTERN Match Group, in the year to August 2015. SOUTH AUSTRALIA ahead of Western Australia which The 64.6% portion of foreign purchasers, WALES comprises a share of approximately 5% included the purchase by Roxy-Pacific (in of total investment across the country.

3

Major Sales—Development Sites With Potential For Higher Density Apartments, Greater Perth

Sale Site No. Price Price Sale Address Price Area Vendor Purchaser Apts~ $/Apt~ $/m² Date $ mill m²

54 Bracks St Roxy-Pacific (40%) JV North Fremantle^ 59.00 45,456 N/A N/A 902 Caltex Australia HostPlus (60%) Mar -15 & Pindan Milligan Square 374-396 Murray St & 30.00 3,560 286 104,895 8,427 Georgiou Fragrance Group Dec-14 47-59 Milligan St, Perth^ Claremont on the Park Graylands Rd 20.50 6,555 234 87,607 3,127 WA Land Authority Mirvac Group Aug-14 Claremont^

Civic Heart Mills Point Rd, Mends St & 27.31 7,206 294 92,891 3,790 City of South Perth Finbar Aug-14 Labouchere Rd, South Perth^

Fmr Schweppes HQ Danzone Pty Ltd & 363 Scarborough Beach Rd 23.00 24,500 N/A N/A 939 Asahi Group Jun-14 thru Walters Dr, Osborne Park* Stockhome Pty Ltd

Fmr Matilda Bay Brewery Undisclosed 130 Stirling St 39.60 29,170 400 99,000 1,358 McGilvray Family Jun-14 North Fremantle^ Developer

The Economy after cutting the rate by 25 bps in May steady erosion of credit quality in home 2015. loan portfolios as investor lending (and The Western Australian economy the rate of growth) rises with interest-only continues to endure the aftermath of a Lending Environment loans and increased use of third-party declining mining sector, a slowing originated lending. The tightened lending Chinese economy and the weaker price With two years of significant capital environment is expected to have some of iron ore, all contributing to the sluggish growth, dominated by the investor market impact on investors, although the Australian economy. Although the in the Sydney and Melbourne property measures endorsed by APRA could be Australian Dollar (AUD) remains low, there markets, a reduced and more responsible negated should any further cuts to the has been good opportunity to attract local lending target was endorsed by cash rate occur. tourism and promote foreign investors Australian Prudential Regulatory Authority into buying new housing stock. According (APRA) in May 2015. Since this time, Employment Growth to the Australian Bureau of Statistics banks have started to reduce their (ABS), growth in Western Australian State maximum LVR’s, introducing new In the Greater Perth region, Final Demand in the quarter to June 2015 variable rates and requiring customers to unemployment stood at 6.4% as at June grew 1.5%, after recording –1.6% in the provide evidence of existing loan 2015, trending 100 bps higher than previous quarter; to a total decline in repayments before being accepted. This recorded twelve months earlier. The growth of 1.8% over the past year. is in addition to applying serviceability Department of Employment have repayment loading buffers to existing projected employment growth in Greater Interest Rates mortgage repayments as part of Perth, by SA4 ABS regions, over the next borrowers serviceability assessment in a five years to November 2019. As more Sustained lower interest rates have higher interest rate environment. These people are trending towards living closer encouraged property investment over overall housing lending standards are to where they work, this longer term recent years, and for the time being, are only part of the concern, with APRA, projection helps to understand where supporting continued appeal into the more recently, commenting on the growth in employment could be mirrored market for those seeking longer term current lending environment; where with new apartment opportunities. Within gains. The Reserve Bank of Australia house prices are high, interest rates are Greater Perth, the North West is (RBA), in September 2015, left the cash low and income growth is subdued. In expected to grow the most (13.7%) and rate at an all-time historic low of 2.00%, addition, the potential for a slow but with the most amount of jobs (42,370). In

4 PERTH RESIDENTIAL DEVELOPMENT H2 2015 RESEARCH

$680,000 per apartment) to build, Employment Growth Projections exclusive of GST. Greater Perth, SA4 level Five years to November 2019 Projected Population

15% PIPELINE OF The population of Greater Perth has been North 14% West projected to reach 3.6 million persons by MAJOR PROPOSED 2036, according to the ABS long term 13% INFRASTRUCTURE South West series. This would equate to an annual South PROJECTS— 12% East growth projection of 2.5% and far outstrip

North the Australian average of 1.4% per GREATER PERTH 11% East

annum. The assumptions are based on % GROWTH % 10% net overseas and net interstate migration

9% remaining relatively strong. As mining 2015 Inner has eased since the base date of these Kwinana Freeway upgrade 8% projections, this ambitious target may not

7% be reached. In saying this, in the year to 0 10,000 20,000 30,000 40,000 50,000 2016 June 2014, Greater Perth experienced NUMBER PROJECTED Gateway WA population growth of 2.5%, led by Forrestdale-Harrisdale-Piara Waters SA2 Perth City Link (21.8%), (20.7%) and

Anketell-Wandi (17.9%); therefore the south, the South East is likely to gain 2018 matching the longer term projection. 31,790 jobs (growing 11.9%) whilst the Elizabeth Quay

South West could grow as much as New Perth Stadium 12.6% with an additional 26,345 jobs in Projected Households the region. The Inner region is not expected to be as strong over the five The number of households in Greater 2019 year projection, with 9,385 new jobs Perth have been projected by the ABS to NorthLink WA

expected to come on line, with growth of reach 1.37 million by 2036—growing annually by 2.8%. Analysing the Waterbank, Riverside 8.7%, as shown in Figure 3. configuration of these households, it was Belmont Racecourse re- found that ‘Lone Person’ Households development Cost of Construction would grow the most over this time, at 3.0% per annum to total an additional Claremont on the Park, There has been much focus on increasing Claremont re-development 172,465 households required to be cost of construction with demand for suitable for this type of dweller. The products and services being sustained, ‘Family’ composition still dominates 2020 due to the solid pipeline of apartment household structure as highlighted in Forrestfield-Airport Link projects already underway. Figure 4.

Over the year to 30 June 2015, Greater 2025+ Perth building costs have increased an Metro Area Express (MAX) Light Rail estimated 2.5%, according to Household Projections By Type Rawlinsons, trending higher than the Greater Perth annual average growth recorded over the past five years of 1.2%. An increase in Total Number

construction costs is projected by 2036 Rawlinsons to be sustained with another 1.0% rise in the second half of 2015, in 2031 total rising a projected 4.5% over the year to 31 December 2015. Rawlinsons 2026 estimate a standard high-density, multi- storey apartment project in Greater Perth 2021 would now on average cost $2,200/m² to $3,250/m² for a basic finish (or equivalent 2016

to a range of $114,400—$123,300 per 0 300,000 600,000 900,000 1,200,000 1,500,000 apartment) to build, plus GST. A project FAMILY - 2.8% GROWTH PER ANNUM with a prime finish would be closer to an GROUP - 2.4% GROWTH PER ANNUM average of $3,320/m² to $4,650/m² (or LONE PERSON - 3.0% GROWTH PER ANNUM equivalent to a range of $631,000—

5

The Apartment Market New Apartment Price Range The Greater Perth mainstream apartment Greater Perth 2 KEY SUBURBS market has remained steady with 0.2% Average rate per m

FOR APARTMENT capital growth over the past twelve months to June 2015. Sales transactions AVERAGE PROJECTS DUE NEW were down 10.4%, to 11,774 apartments, APARTMENT - BY END 2018— over the same time. As at June 2015, the STANDARD

GREATER PERTH total residential vacancy in Greater Perth AVERAGE NEW was at 4.7% and gross rental yields APARTMENT - PRIME stood at 4.72%. CBD & INNER SUBURBS $0 $5,000 $10,000 $15,000 $20,000 $25,000 Perth CBD East Perth Subiaco Projected New Apartment Pipeline MIDDLE SUBURBS Apartment numbers in Greater Perth Rivervale Since January 2011, 5,145 new could grow further when approval is Burswood granted for the additional 1,770 Maylands apartments have been added to the Greater Perth residential stock, led by the apartments currently submitted. OUTER SUBURBS CBD & Inner Suburbs region, as detailed As determined by pre-sales, the market Cockburn Central in Figure 6. In total across Greater Perth, dictates when new apartment projects North Coogee there are currently 4,395 apartments get underway, so for most local Rockingham developers, there is a strong chance that under construction, with another 6,490 with DA approval which are expected on- these projects may be pushed beyond line by the end of 2018. Over this time, this timeframe. taking into consideration higher density apartment projects under construction New Apartment Price and DA approved, the CBD & Inner Suburbs region is forecast to see an Range additional 4,765 apartments, an extra New apartment prices across Greater 80% on the prior 2011-2014 period. The Perth can vary according to the quality of Middle Suburbs and Outer Suburbs finish, those with views of the Swan River region are forecast to add another 4,425 and the distance and ease of transport and 1,695 apartments, respectively, by into the city, to beaches as well as food the end of 2018. This is an extra 363% in and entertainment precincts. As shown in the Middle Suburbs and 147% more built Figure 5, an average new apartment of in the Outer Suburbs than over the standard finish can range from $6,000/m2 previous 4 years in each region.

New Apartment* Pipeline Greater Perth Number of Apartments

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 2011-14 2015-18 2011-14 2015-18 2011-14 2015-18 CBD & INNER SUBURBS MIDDLE SUBURBS OUTER SUBURBS

COMPLETED UNDER CONSTRUCTION DA APPROVED DA SUBMITTED

6 PERTH RESIDENTIAL DEVELOPMENT H2 2015 RESEARCH

through to $12,500/m2 whilst an average measures. Given Victoria has previously prime apartment currently trends held one of the lowest stamp duty taxes between $14,500/m2 and $20,000/m2. payable for off-the-plan properties, this will now increase the relative  The next twelve months is likely to see competitiveness of the other states Foreign Investors interest rates remain low, with the around the country. possibly of another 25bps cut; before

The Federal government has confirmed it potentially being lifted later in 2016. will proceed with an initial fee of at least The proposed changes may have an $5,000 for all foreigner investors impact on those marketing to foreign  Major WA government infrastructure purchasing into the Australian property investors as there has already been projects are now underway, which is market, with an additional $10,000 increased enquiry from offshore, but expected to take-up some of the slack payable for every million dollar increment mostly surrounding the new penalties of the mining industry over the next in the value of the property; slated from 1 being introduced. While these additional few years, with more employment fees may deter some foreign investors, opportunities created as a result. December 2015. The Victorian they are not likely to significantly impact government has also introduced an  The Greater Perth population is the current level of foreign investment additional two taxes: A 3% surcharge on projected by the ABS to significantly activity within Australia, as foreign the purchase price for a foreign investor outpace the Australian average, at investors are looking for a longer term and an on-going land tax fee for 2.5% per annum. As mining has return – the lifestyle, good education absentee owners. As yet, no other eased since the base date of these facilities and a transparent ownership Australian states and territories have projections, this ambitious target may structure. indicated they plan to introduce similar not be reached within this timeframe.

 It is very likely that the average

timeframe between the project launch, to site works, will widen over the next Key Development Drivers—One Year Outlook Greater Perth twelve months as minimum pre-sales may not be achieved as hastily as in

the past.

Residential  As new supply comes on-line, the development site Interest rates total vacancy is expected to move sales turnover higher remain low than previous year further away from equilibrium. Rents Residential are likely to become more development site competitive, therefore resulting in More employment values exceed lower gross rental yields. previous year opportunities  For apartments due to kick-off, an increase in construction costs is Foreign buyers Increased projected by Rawlinsons to be continue to expenditure on invest in sustained with another 1.0% rise in infrastructure residential the second half of 2015, in total rising projects development a projected 4.5% over the year to 31 sites December 2015.

 The increase in construction costs Growth in Population could result in upward pressure on construction growth in line apartment prices as developers pass costs trend with projection the cost onto purchasers. lower then inflation  While the AUD remains low, it is likely offshore interest for Perth residential Gross rental Building activity development sites suitable for higher yields supports projected density located close to the City and strengthen demand infrastructure hubs will continue; as an

Total vacancy to Apartments alternative to heated east coast HIGHLY LIKELY trend lower than annual capital markets, being priced significantly market equilibrium growth exceeds lower. (3 per cent) previous year

 Greater Perth will continue to attract Asian investors, being located closer UNLIKELY than Sydney and Melbourne, and for most Asian cities, Perth is within the same time zone.

7

RESIDENTIAL RESEARCH Michelle Ciesielski Director +61 2 9036 6659 [email protected]

Matt Whitby Head of Research and Consulting +61 2 9036 6616 [email protected]

RESIDENTIAL PROJECT MARKETING Neil Kay Senior Director, Perth (WA) +61 8 6210 0112 [email protected]

Erin Van Tuil Director, International Project Marketing +61 2 9036 6699 [email protected]

Michael Robinson Head of Project Marketing, Australia +61 3 9604 4775 [email protected]

VALUATIONS RESIDENTIAL DEVELOPMENT Chris Murphy Associate Director +61 8 9225 2422 [email protected]

COMMERCIAL SALES Todd Schaffer Director, Commercial Sales, Perth (WA) +61 8 9225 2402 [email protected]

Neil Brookes Head of Capital Markets, Asia Pacific +65 6429 3585 [email protected] Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, WESTERN AUSTRALIA funding organisations, corporate institutions and the public sector. All our clients John Corbett Managing Director recognise the need for expert independent advice customised to their specific needs. +61 8 9225 2561 [email protected]

Perth Residential Global House Price Australian Office Asia-Pacific Update Index Q2 2015 Withdrawals Residential Review August 2015 July 2015 June 2015

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