HA Housing Insights: Housing market overview with Jesse Radisich, JLL
“the widely recognised imbalance in housing supply and projected long-term housing shortage is attracting global capital on a fundamental basis”
The housing crisis remains a critical issue in Australia.
A coordinated effort between all levels of government, the private sector and community housing organisations is required to tackle the crisis and boost supply.
In this HA Housing Insights series, our social and affordable housing team speak with key industry experts – including developers, builders, community housing providers, investors and property and tax specialists – to gain a well-rounded perspective on the challenges faced in delivering housing outcomes and potential solutions.
In our first instalment, Mike Myers, QLD Chair of Housing All Australians, provided an interesting perspective into the current housing crisis, in particular the role of State and Federal Government in addressing the housing crisis.
Today we speak with Jesse Radisich, Director of the Victorian JLL Capital Markets – Development Team, to provide us with insight into what is happening in the current market, trends and opportunities in the affordable housing and build-to-rent sector.
Jesse has been working in commercial real estate for 14 years and has developed a strong track record of success in managing complex development site/project transactions and delivering creative solutions and exceptional results for his clients. The experienced JLL team focuses on unlocking value in the development sector, handling the divestment of major landholdings and leading capital structuring for significant projects.
Jesse Radisich
Director of the Victorian JLL Capital Markets - Development Team
jll.com.au
Q. What are your observations of the current property market and what market trends are you seeing emerge?
A. We are emerging from one of the most challenging periods for property development and investment in recent history. Construction costs have escalated to such an extent that the majority of development projects have become economically unfeasible, as housing prices and achievable project revenues have failed to keep pace. Encouragingly, we have observed a moderation in cost escalations; however, annual growth of 3-5% is still projected over the coming years, further compounding an already significantly elevated baseline rate.
Melbourne's residential market has remained subdued since the brief economic surge following the pandemic in 2021, while other major Australian cities have experienced greater positivity and price growth. Consequently, Melbourne's property values are now notably lower than those in Sydney (at a differential unseen for many years) and Brisbane, with even Adelaide and Perth demonstrating strong market performance.
A new dynamic is emerging wherein Melbourne is increasingly perceived as an 'affordable' option compared to other major Australian cities. This perception is attracting residential investment from interstate through wealth and advisory channels, resulting in several recent success stories of major Melbourne projects achieving impressive levels of off-the-plan pre-sales through these interstate channels. Additionally, we are witnessing increases in project revenues, not only in premium locations (where sales rates now regularly range from $20,000 to $30,000 per square metre) but also in large-scale inner-city and CBD projects. These developments are now achieving blended rates of $15,000 to $16,000 per square metre, marking a substantial increase from the pre-COVID norm of $8,000 to $10,000 per square metre.
In the Build-to-Rent (BTR) and Purpose-Built Student Accommodation (PBSA) sectors, development and acquisitions have remained subdued since 2022, primarily due to the retreat of institutional capital in response to rising interest rates and elevated return hurdles. However, we are now observing an increase in capital appetite following the recent initial step towards monetary policy easing in Australia, which has been preceded by substantial easing in other countries.
Q. What factors are influencing development decisions and buyer activity? In your opinion, what would give developers confidence to deliver projects?
A. Developers and their financial backers require a stable environment to make informed decisions and invest in projects with 3-10 year horizons. This fundamental need for certainty has been lacking in recent years, particularly from a government policy and tax framework perspective.
It is a well-established principle that developers will only proceed with projects when there is an adequate risk-adjusted return available. To achieve such returns, developers must navigate a complex series of challenges, including site acquisition, planning, pre-sales, construction, and settlement. Each stage presents significant risks. Governments at all levels have the capacity to provide a more certain framework to facilitate the delivery of much-needed housing. It is encouraging to note that the Victorian Government has taken steps to enhance and streamline the planning process.
The most effective measure to attract increased investment to our city and state (considering that we are competing globally for capital) would be the removal of recently implemented additional taxes and duties on development and investment. Most notably, the Absentee Owner Surcharge and the Foreign Purchaser Additional Duty, which significantly impact the investment in established BTR assets. Given that the return profiles for BTR and PBSA are already aligned with core-style returns, these seemingly minor additional imposts can have a substantial impact on the investment case and ultimate returns.
It is crucial to foster and support foreign investment, particularly as we aim to bolster the BTR sector, an ambition clearly articulated by our current government. Foreign investment also encompasses off-the-plan purchasers for Build-to-Sell projects. This vital component is essential for developers to meet project pre-sale hurdle rates, secure construction funding, and ultimately deliver housing that will accommodate a significant proportion of local buyers as well. The biggest impact of these recent changes to the taxation framework has been creating an environment of uncertainty and negative sentiment.
Q. Do you see opportunities with your current portfolio of clients in affordable housing and the build-to-rent sector?
A. In recent years, we have witnessed a notable trend among our Build-to-Sell focused clients: a strategic pivot towards the affordable housing sector. This shift is primarily driven by the challenges and constraints faced in their core business, rather than being a proactive or long-term decision. The necessity to pursue appropriate returns has been the catalyst for this change. The Government's HAFF Program has attracted numerous site owners with Build-to-Sell permits, who have viewed the program as a potential lifeline for unfeasible Build-to-Sell projects. However, given the limited commitments made through this program, many developers and site owners are now compelled to reassess their options.
The BTR sector continues to be a highly institutionalised space, demanding substantial equity commitments. Nevertheless, its return profiles are increasingly appealing to a broader market. The primary challenge in the BTR sector lies in securing prime sites in desirable locations where rental underwriting supports development. As Melbourne's rental market in suburban areas becomes more conducive to BTR outcomes, significant opportunities are emerging on the horizon.
Q. From your experience dealing with foreign investors, what is the current appetite of foreign investors to invest in Australia?
A. In recent years, operating primarily in Melbourne has presented significant challenges, particularly regarding the global perception of the city in the aftermath of the world's longest COVID-19 lockdowns. This situation has led to considerable uncertainty, both domestically and internationally, concerning Victoria's taxation framework and the extensive array of taxes and charges imposed on the development and property sector.
For the first time in my professional career, we are having to “pitch” Melbourne as an investment destination on a fundamental level before engaging in asset-specific discussions. However, there is a silver lining: the widely recognised imbalance in housing supply and projected long-term housing shortage is attracting global capital on a fundamental basis. Within the APAC region, the limited options beyond Japan and Australia work to our advantage in securing regional capital allocation.
Looking ahead, we anticipate an increased capital inflow into Australia and Victoria in 2025. To capitalise on this opportunity, our team is currently spending time in Singapore, Kuala Lumpur, and Hong Kong with a number of existing clients and potential new entrants into the Australian market. We are scheduled to meet with numerous groups expressing keen interest in investing in Victoria, with a particular focus on the living sectors, namely BTR and PBSA and larger-scale Build-to-Sell projects.
The information provided in this article is for general informational and conversational purposes only. While we strive to ensure the accuracy and relevance of all content, we make no guarantees about the completeness, reliability, or suitability of the information for any particular purpose. The views and opinions expressed in this article or associated materials are those of the respective contributors and do not necessarily reflect the views of Harwood Andrews or any of its affiliates.
This article is the second in a series of Housing Insights. Follow us to be notified when the next instalments are released.
See our previous and first instalment in the series: HA Housing Insights: A Policy Perspective - Q&A with Mike Myers, QLD Chair of Housing All Australians
Continue reading:
3rd instalment: HA Housing Insights: A builder perspective on the housing crisis - Q&A with Jess Jones, Balmain & Co
4th instalment: HA Housing Insights: A lender’s perspective on the housing crisis - Q&A with Bruce Wan, MaxCap Group
5th instalment: Brian HA Housing Insights: Tax Considerations for tackling the housing crisis - Q&A with Brian Farrelly, Pitcher Partners
6th instalment: HA Housing Insights: A developer’s perspective on housing solutions - Q&A with Tim Copley, McNab
7th instalment: HA Housing Insights: Innovative ways to change the housing landscape - Q&A with Brad Hosking, National Affordable Housing
For more information or to be featured in our HA Housing Insights series please contact:
Briget O’Callaghan
Principal Lawyer
0457 117 925
bocallaghan@ha.legal
Evelyn Zeglinas
Associate
03 5225 5245
ezeglinas@ha.legal
