The residential projects set to flourish as the market returns to optimism
In the wake of recent market conditions that brought prices down in Australia’s biggest cities and regional centres, the nation’s top regulators have continued to initiate significant change as the market swings back into optimism – creating new opportunities for residential developers delivering the right projects for the market.
At the start of this month, the Reserve Bank dropped interest rates to a historic low of 1.00 per cent, in an effort to combat the twin issues of rising unemployment and a slowing economy – a move that has also opened up the housing market for buyers.
This coincided with APRA’s announcement confirming its updated guidance on residential mortgage lending, which will allow authorised deposit-taking institutions (ADIs) to review and set their own minimum interest rate floor for serviceability assessments.
On top of interest rate cuts and regulation reviews, the Morrison Government’s pre-election tax cuts were successfully passed through Parliament, which will put cash in the pockets of middle income earners and encourage them to spend more to stimulate the economy.
For developers, these long awaited changes signal a triumphant return to optimism, as different demographics of buyers begin to re-enter the property market. Market conditions will continue to evolve, but some residential projects will be better placed to make the most of new opportunities.
Here is an overview of three residential project types that are expected to flourish in a more optimistic market.
Manufactured Housing Estates
A manufactured home is a self-contained dwelling, also known as a relocatable or mobile home, that is typically built off-site and transported to an estate for installation. Manufactured Housing Estates (MHEs) are land or estates that are developed for manufactured homes but can also include a smaller proportion of caravan or camping sites.
Modern MHEs provide an increasingly diversified mix of affordable permanent housing that is designed to reflect trends in the broader housing market, while still remaining affordable.
Permanent residents of MHEs own the manufactured home and lease the dwelling site, which includes management of the MHE and use of community facilities. If a manufactured home owner chooses to leave the community, they can sell their house to an incoming purchaser who takes on the land rental.
Thanks to housing affordability and Australia’s ageing population, MHEs are tipped to emerge as a significant property growth market over the next few years, with their affordability and simplicity driving their popularity throughout the country.
MHEs aren’t just limited to retirees, either – with some projects positioning themselves as an affordable and permanent solution for Australia’s younger demographics who are coming back into the market.
Once MHE sites are leased, they can offer stable, ongoing income streams for developers, investors and operators. As the market evolves, more developers are looking to MHEs as a low-risk and low capital investment that can receive government rental assistance in addition to consistent cashflow.
Demand for MHE dwellings is forecast to increase by almost 30,000 additional units by 2026, which represents almost a 40 per cent rise on the 2011 level, with these projects also able to access
Townhouses have remained a popular investment for seasoned buyers who want to downsize, or are priced out of a freestanding home but still seek more privacy and space than an apartment can offer. Australia’s supply of townhouses has also increased year on year, which supports townhouses as a popular alternative for buyers.
Townhouse living also aligns more with the economic reality of strong rental demand, especially in large markets like Sydney and Melbourne. The number of people flocking to Australia’s major cities has shown no sign of slowing down and demand for inner-city living, particularly from younger demographics, will likely continue as townhouses offer a more sought-after lifestyle than traditional apartments.
Baby-boomers are also driving demand for townhouses as they look to sell their family homes and downsize to an easy to maintain, spacious and luxurious offering – something that is easily found within boutique townhouse developments throughout major cities.
From 2011 to 2016, according to the ABS, townhouses, semi-detached, row housing, flats and apartments increased to make up just over one-quarter of Australia’s housing. Affordability and a more realistic entry point into the property market have driven this growth.
DFP has secured finance for a number of townhouse projects, including 5 two-storey attached dwellings near the University of Newcastle, with projects such as this demonstrating the strength townhouses have in current market conditions.
High demand and limited availability have meant that public housing for Australians in need has become restricted in recent years. Affordable housing now presents a unique opportunity for developers to tackle the deficit and attract investors.
The Federal Government recommitted to pledging $1.7 billion towards affordable housing in this year’s budget, signalling that state projects are a priority. This momentum has already carried over into several projects nationwide, including the Hobart City deal that will provide more than 100 new social housing dwellings, and an affordable housing project in Sydney’s Sutherland Shire, which successfully secured $2.2 million in construction finance.
APRA’s recent changes to residential mortgage lending will ultimately boost the impact of the cash rate cuts to create renewed optimism in the property market. For developers pursuing the right projects, the opportunities are there for the taking.
DFP work with developers across all different project types and have the experience and the flexibility to advise clients on the best investment. To know more about emerging market sectors and how you can benefit from expert advice, subscribe to DFP updates.
Could your next project benefit from some expert development finance? Get in touch.
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