The API NSW celebrated its 51st annual Kiparra Day conference on Friday, hosted at the Hilton Hotel in Sydney with a range of engaging speakers and topics.
The event attracted a broad range of property workers who came to network and learn the latest outlooks, predictions and trends across the industry.
Welcome and API updates
The day was opened by MC, Michelle Ciesielski, associate director of Knight Frank. Ms Ciesielski welcomed all attendees and thanked the event sponsors, Jones Lang LaSalle, before inviting API National President Tyrone Hodge onto the stage to share the latest updates from the Australian Property Institute.
Mr Hodge detailed the latest big changes within the industry, including the key findings of the structure and governance review, the EY audit that identified risks and duplication of services that needed to be addressed, and the latest AGM in May where members endorsed the recommendations from these two documents and voted in the new ‘members first’ strategy.
In implementation of this strategy, the API has done an organisational structure review, the Institute has moved to a shared services model with back office functions and member services spread across the country, and seen a shift in staff with some people coming in and others moving on, he said.
“This structure means we’re able to deliver really good services to members efficiently and economically,” said Mr Hodge.
He also discussed the ongoing review of the API constitution, with legal advisers now providing discussion papers about proposed changes following feedback from members, available on the API website.
“If you can, please take the time to read those discussion papers. It’s your institute and those discussion papers talk about the benefits and risks that are presented by some of the changes we’re proposing to make,” he concluded.
Presentations were kicked off with the event keynote speaker, NAB group chief economist Alan Oster, who shared his outlook for the Australian economy.
Mr Oster said upfront that despite much speculation, he doesn’t believe there is a property bubble, and even though Sydney is hot right now, the biggest issue at the moment is actually the oversupply of apartments being built in Melbourne, driven mostly by foreign investors and developers.
He said apartment provision in Melbourne was 30% higher than necessary, along with 15% in Sydney, meaning there was in fact danger of an apartment-specific bubble emerging.
Even so, construction and development is not doing enough to make up for the shortfall in mining, however he noted that domestic demand was better than expected, and unemployment is on a stable level (around 6.75) and will stay there for the rest of the year.
Based on the unemployment outlook and growth inflation, Mr Oster predicted the Reserve Bank was unlikely to cut rates again until late 2016, after which rates should rise at a moderate pace (to 3.5%).
“If the economy does better and continues doing what we’ve seen recently then they could be increasing rates by the middle of next year.
“There’s still the risk that something blows up in the rest of the world and then they’d have to cut again, but increasingly I think the RBA is getting nervous about not having much ammunition.”
On the topic of investment, Mr Oster said it was “factually inaccurate” that investor housing was riskier than owner-occupiers. When asked about the effect of the investor cap enforced by APRA earlier this year, Mr Oster said it was difficult to tell if there was much difference in the market yet, though he deduced it would “probably cause a slowdown in housing prices”.
Globally, he said there was no real sign of the economy improving in the near term, though Australian economic data was slightly encouraging with some green shoots starting to appear.
Commercial property outlook
Providing the commercial property outlook was John Talbot, managing director of investment and advisory group with JLL. Mr Talbot said CBD offices were way up right now, along with retail and industrial, with flow-on effects from each sector driving growth in another (for e.g. retail growth drives need for industrial growth).
The boom in CBD offices has been greatly driven by the impact of the technology sector, Mr Talbot said, while Chinese investment is also “huge right now” with a strong demand for core and core+ assets.
Mr Talbot said he predicts A-grade vacancy rates are set to tighten, and asset values have further to rise, especially with the continued economic growth in NSW. He also said that despite a hot CBD market, Sydney suburbs are quite healthy and “put the Sydney CBD boom into perspective”.
When considering the potential for rising interest rates, Mr Talbot questioned how this might affect commercial property yields and cap rates.
“Certainly improvement in the physical markets and the ongoing weight of capital coming into the sector would suggest that irrespective of what happens with interest rates, cap rates will stay at current levels and perhaps may even firm a little further,” said Mr Talbot.
“Investors in a rising interest rate environment may start to expect property returns to increase commensurately, and a lot of the models will be rebalanced to affect a slight increase in yield expectations, particularly assets that present a significant amount of risk.”
Developing Sydney/the APAC markets
Following a brief morning tea, the audience was treated to a talk by Matthew Beggs, acting head of retail transition for UrbanGrowth NSW, on the challenges UrbanGrowth undertake in transforming Sydney. The government-led development operation is charged with wholesaling government land and building a pipeline of major projects throughout the NSW capital.
Beggs cited the currently underway 20,000 new home sites program, which is set to supercharge Sydney housing supply over the next four years, with 10,000 homes already delivered.
He also discussed major changes planned for Sydney’s Bays Precinct as part of a large urban transformation program. The project has far involved community and stakeholder engagement, new planning and urban design investigations, preparing social impact and needs assessment and analyses of transport, infrastructure and economy.
Before lunch, Anthony De Francesco, executive director with MSCI Real Estate, gave a detailed presentation on current trends in investment performance across the Australasian and Asian property markets.
Anthony De Francesco
Mr De Francesco found that Australian investors hold bias for core properties, as well as local properties, while Asian investors preferred none-core property assets offshore.
Though there’s currently a variable return profile across the Asia Pacific property markets, Mr De Francesco found that the APAC region’s investment activity is generally in sync with the whole global property market cycle, and revealed that cap rates for the APAC property markets were gradually trending downward.
Lunch presented ample opportunity for attendees to enjoy some good food and mingling with fellow conference goers, with much discussion about the morning’s presentations.
Commercial valuations/urban renewal
Kyle Richardson, national director of commercial mortgage valuations with CBRE, drew the short straw in having to present to a post-lunch audience, but kept everyone very engaged with his discussion on the changing landscape of commercial valuations.
Key changes Mr Richardson cited included restrictions on home lending, competition from non-bank lenders, technological improvements and the use of Valex to create a more generic, quick and concise valuation style. He also noted that firms are taking advantage of the new scale and volume across the industry after a new wave of nation-wide consolidation.
There was a lot of discussion spurred from Mr Richardson’s presentation, with a particular focus on why generic and quick reporting styles are problematic for precise valuations, and the desire for valuers to control the direction of their own industry rather than leaving in the hands of lenders and their preferences with regards to report length and presentation.
Next Adrian Checchin, project director of apartments, residential development at Mirvac gave an update on Mirvac’s work in Sydney’s Harold Park as part of a creative development and urban renewal project.
Since taking over what was essentially a rundown old horse track founded in 1902, Mirvac has since developed the area to contain hundreds of different sized residential apartments, blended attractions in with the local community, and has adapted historic tram sheds onsite to become a vibrant community hub with shops, markets and cafes.
Residential development – Will it end in tears?
Sandra Peachey and Tim Holtsbaum
The final feature for the day was a very engaging panel session that attracted a lot of audience participation on the topic of the current residential development boom across NSW and beyond, and the ongoing effects of rising prices and foreign investment.
Mr Hodge returned to the stage to moderate the panel, which featured Sandra Peachey FAPI as the valuer’s perspective, Graeme Ross - MD and global head of real estate, Commonwealth Bank – as the banker’s perspective, Tim Holtsbaum - residential site sales director NSW for Knight Frank – as the agent’s perspective, and in the developer’s perspective there was Bernard Chiu, principal of Bernard Chiu Legal and Business Solutions.
“How will it end? Will it have a soft stable landing or will the industry fall off a cliff?” asked Mr Hodge, kicking off the discussion.
The general view across the board was that the current focus on Sydney and Melbourne was based on a response to many years of pent-up demand, and painted an incomplete picture of a largely healthy and stable residential sector across the states and territories.
One particular highlight of the panel was when Mr Chiu shared some insight into the mentality of his clients in China, namely their urgency to make multi-million dollar settlements on large assets, without waiting on legal due diligence.
“Last month I facilitated a $100 million transaction on a shopping centre for [one of my Chinese clients] and the instructions were simply to secure the purchase and to not do any legal due diligence,” he said.
“He told me that by the time the due diligence would be completed, someone else will have bought the property already, so what’s the point? If there are any problems, we’ll solve it later –so that is the current mentality.”
Bernard Chiu and Graeme Ross
Mr Chiu also detailed how the foreign investment review board (FIRB) works with his clients, and expressed concerns over the lack of resources available to them to monitor applications Australia-wide. He said that though foreign investment is a great driver for the Australian economy, the FIRB’s ability to ensure Chinese investors are compliant with Australian laws must be stronger.
Mr Hodge joked that Ms Peachey was baking a cake, Mt Chiu’s clients don’t care what it tastes like, but the ingredients of the cake include supply and demand, interest rates, employment, foreign investors and tax issues.
“With regards to those ingredients, thinking forward in the next 12-24 months, where are the risks around those dimensions?” he asked panellists.
Growing risks across the board
All panellists expressed concern over the risk born from growing construction costs, leading to a potential shortfall in labour, delays in delivery and reduced quality. Ms Peachey also discussed settlement risk moving forward in terms of any fall off in pricing, particular for longer term projects.
“Are those values going to still be sustainable in three years?” she asked.
Mr Holtsbaum said an interesting risk from his POV is the swing towards mixed-use development sites, such as apartments built over shopping centres.
“Zoning is pushing developers into this area without adequate experience, just to get around some solar access guidelines, which is pushing them out of their comfort zone,” he said.
Mr Chiu added DA risk was a problem for developers, where non-developers are now buying sites without formal development applications and marketing off-the-plan, when they should be subject to DA approval.
“Some big players, though very experienced in China, have acquired offices and shopping centres in Australia only to discover the council doesn’t allow them to develop as they had intended,” he said.
Lastly, Mr Ross said as far as speculated risks go, the Commonwealth Bank was quite comfortable with the hot Sydney market, but less comfortable with the Melbourne CBD market, while feeling that Brisbane is a market to watch.
“One thing on the demand side is we are in a time of global capital flows, which probably increases volatility, but we remain quite positive based on the benefits of foreign investment.”
Mr Hodge thanked the panellists and summarised the key points from the discussion before handing the floor back to Ms Ciesielski to officially close the event.
Attendees were then able to mingle over networking drinks to discuss the presentations, digest all the information, share their own issues and ideas and get another chance to meet and get to know their fellow property workers and API members across the state, and beyond.