Australia is experiencing an incredible change in the population of its central business districts. Our Asian neighbours, who are making radical long-term assumptions about the growth of the total Australian population and where they will live, are orchestrating that change.
Our second largest city, Melbourne, has been chosen to lead the way.
Melbourne has approved the construction of over 20,000 apartments to be built in the central business district over the next four years -- five times the ‘normal’ level of around 1,000 a year. Construction has already started on some 7,800 apartments.
In addition, there are a vast number of apartments being built in the Melbourne suburbs and many more are planned on the city’s fringe in areas like Fisherman’s Bend.
In Sydney, some 5,500 have obtained approval in the CBD -- less than 30 per cent of the Melbourne level. A greater number of apartments are being built in the suburbs, particularly around Alexandria (4km from the CBD) and Parramatta, which is emerging as a ‘second CBD’.
The number of CBD apartments approved or under construction in Brisbane is around 3,000, Adelaide 2,300 and Perth 1,700. These are all huge increases on previous levels.
I am grateful to Colliers International for the figures, which were part of a wider CBD property presentation by Simon Hunt and John Marasco. I have attached their residential research on Melbourne and Sydney. The maps of development locations are amazing:
Source: Colliers International
Source: Colliers International
The vast bulk of Melbourne CBD developers and most of the buyers in Sydney and Melbourne CBD apartments are Asian, led by the Chinese.
Chinese banks fund many of the Asian developers and most of the apartments under construction have been bought on low deposits. The fall in the Australian dollar plus lower interest rates has effectively lowered the purchase prices for Asian buyers of all Australian property.
Accordingly, indirect beneficiaries of the Reserve Bank actions have been overseas apartment buyers who have not yet invested here, including the bulk of the CBD apartment purchasers who have paid small deposits. Further falls in the dollar will again lower the purchase prices for Asian investors and boost demand.
Some of the money coming to Australia stems from corruption but large fortunes have also been legitimately built up in Chinese and Asian property markets and the investors are diversifying.
The two most obvious reasons why Melbourne has been chosen are the education facilities in Melbourne, which are set to attract much larger numbers of Asian students, particularly given the fall in the dollar.
The second is that under the former Victorian Coalition government, permission to develop a site was much easier to obtain than in Sydney.
But Sydney’s largest apartment developer, Harry Triguboff, while bemoaning the difficulties in gaining approval all over Sydney, puts forward another reason for the much higher levels of Asian investment in our residential property.
Asians believe the Australian population is set to grow much faster than Australians anticipate.
Triguboff is in very close touch with the Asian community because they are major buyers of his apartments and they almost purchased his business. Triguboff says this:
“When Mr Rudd became Prime Minister, he forecast the growth of the Australian population and many people thought the number was too high. This would never happen and couldn’t happen.
I was one of those that thought that Mr Rudd was too conservative and that the population would grow even faster. The new figures show the population will grow twice as quickly as the Rudd estimates.
I still say their estimate is too conservative and the population will grow even faster. I was recently overseas and saw how many people would love to come and live in Australia. We make all kinds of rules to make it difficult for them to come. But if they are intent on coming, they will find a way. They will either come as students, investors or workers, so the population will continue grow”.
Most of Harry Triguboff’s investment is in Sydney but it is Melbourne rather than Sydney that is to be the city changed most by the higher population forecasts. There is little doubt that the current apartment building boom is one of the reasons why unemployment in Victoria fell last month.
My Asian friends say that the Melbourne CBD is set to be a Hong Kong style 24-hour city. The new government is set to be more cautious in giving approvals but as there are already vast amounts in the pipeline and irrespective of the long term population trends, the market is likely to be flooded in the short term -- especially as all the developers mostly aim at the same market -- one or two bedrooms apartments.
This means that young professionals working in the Melbourne CBD are set to be able to rent or buy reasonably priced accommodation close to their jobs.
Sydney rents are already starting to rise and constraints on supply are part of the reason why the city is in boom mode.
Source: Colliers International