Sydney Property Bubble

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Property heavyweights circle $1bn Sydney block
THE AUSTRALIAN NOVEMBER 13, 2014 12:00AM

Greg Brown

Property Reporter
Sydney
Gold Fields House office tower © at Circular Quay in Sydney. The building was recently sold by Multiplex to Valad for $274...
Gold Fields House is part of the block under discussion with city planners Source: News Corp Australia
MIRVAC Group, Lend Lease and other property heavyweights are in talks with the City of Sydney to create a single plan over one of Australia’s most valuable pieces of real estate — a block facing Circular Quay that could house more than $1 billion of apartments, a hotel and offices.

Plans for the block, bounded by Alfred, Pitt, Dalley and George Streets, could see Mirvac, Lend Lease, Richard Gu’s AXF and a potential buyer of Gold Fields House — currently controlled by Blackstone and pension funds — join forces in the design of a new precinct.

Mirvac Group executive of commercial development David Rolls said that a collaboration in the development of the precinct would be better for Sydney.

“We are working very closely with council to allow for the broader precinct view to happen. We are very much a net supporter of a bigger picture for that area,” Mr Rolls said.

“We are working with the council to make sure that laneways are activated and that buildings talk to each other,” Mr Rolls said.

“Post-Barangaroo, it is the next precinct to really transform the city; it’s a great opportunity.”

Mirvac is developing an office building on the block at 200 George Street which will house the future headquarters of accounting firm EY. It also owns an ageing building at 55 Pitt Street which it aims to redevelop into an A Grade office tower.

The Australian understands that a masterplanned development of the block is an option being mulled by the major property owners and the council. While sources said that this is a favoured option for the existing parties, it was not an assured outcome. Lend Lease and Richard Gu’s AXF have been in talks to form their own joint venture development on the block.

Lend Lease owns the two old Westpac buildings, at 182 George Street and 33-35 Pitt Street, as well as the Jacksons on George pub. The group last month submitted a development application to build a 40,000sq m to 60,000sq m office building on the site.

AXF owns the The Rugby Club and Fairfax House office building with aspirations for a hotel and apartment project.

The most prominent building, Gold Fields House, is on the market, with local and offshore developers running the ruler over the building with a price rumoured to be up to $400m.

Mr Rolls acknowledged that it would be more difficult for the stakeholders to work collaboratively on the site.

“To do it collaboratively needs a lot more work and a lot more give and take, the easiest thing is to have a block that is sitting on its own and to play with it (each bit at a time),”

“(But) if everyone starts turning their backs on adjoining sites and it becomes an (unco-operative) approach then the thing that is going to miss out is the outcome for the city.”

Mirvac picked up the 55 Pitt Street building as part of the portfolio of seven buildings it bought from GE Capital last year for $584m. The group is in talks with potential tenants to anchor a revamped office tower on the block.

Mr Rolls said that the tower would not be built speculatively but that it was in discussions with the council for its plans.

“We are progressing with pre-DA discussions presently and will be lodging a DA when we get enough certainty around what it needs to look like rather than doing something premature,” Mr Rolls said.

“We will get the site ready, we will make sure all the leases line up for that to happen and when the right tenant comes along we’ll go. We are not going to do anything speculative.”

He rejects that there is too much competition for anchor tenants in new office towers in Sydney. “There actually aren’t that many options compared to 10 years ago when there would have been half a dozen options that were very similar in locations in the core of the CBD,” Mr Rolls said.

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Sydney property prices too hot for IMF chief to handle

John Kehoe
467 words
14 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Washington | Christine Lagarde enjoyed her last trip to Australia so much she flirted with the idea of buying a holiday getaway in Sydney.

There was one big problem for the managing director of the International Monetary Fund: sticker shock.

"It's very expensive," she said in an interview on the eve of her arrival for the G20 summit in Brisbane.

Ms Lagarde is paid a tax-free salary of $US467,940 ($537,572). That even a high-flying executive like Ms Lagarde was put off by Sydney's house prices indicates how expensive Australian prices are compared with the rest of the world, raising concerns a sudden loss of confidence could trigger a big price fall.

The IMF supports using lending ­controls known as "macro-economic policy" to deflate potential asset ­bubbles, rather than interest rate rises that could choke the economy.

"We think macroprudential tools, properly adjusted to the characteristics of the local market and to where the authorities want to tighten, is the way to go and should be the first line of defence," Ms Lagarde said.

Australia's average capital city house prices jumped 9.1 per cent to $536,000 in the year ended September 30, according to the Australian Bureau of Statistics. Sydney values surged 14.6 per cent, taking the city's average home price to above $700,000.

Even before the recent price surge, the IMF concluded in 2012 that high house prices and high household debt made Australia vulnerable to a ­financial shock, particularly because local banks are so heavily skewed towards residential property. "These are long-standing structural issues that will remain key sources of risk over the medium-term," the IMF said.

The Reserve Bank of Australia is mindful of the risks associated with high property prices. The RBA wants to test new tools to try and cool the market, particularly among speculative ­investors. Potential measures include limits on loan-to-valuation ratios and increased bank capital requirements for certain loans.

Until recently, senior RBA officials were sceptical of using such untested tools and were conscious there was ­little evidence of whether they were effective or not.

The Bank for International Settlements, the organisation that represents the world's central bankers, prefers raising interest rates to address asset bubbles. Last year, New Zealand imposed lending restrictions to stunt run-away house price growth in ­Auckland. The UK and China also ­introduced lending restrictions to temper price growth and overinvestment.

Ms Lagarde said the early evidence was that such tools were working. "I'm not sure there is final and definitive judgment about its efficiency, but we see more and more authorities around the world considering them and using such tools," she said.


Fairfax Media Management Pty Limited

Document AFNR000020141113eabe00021

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Sydney auction fever may break soon
PUBLISHED: 9 HOURS 31 MINUTES AGO | UPDATE: 3 HOURS 25 MINUTES AGO

Sydney auction fever may break soon
Almost 60 per cent of the 336 apartments in Country Garden’s latest development in Sydney were sold on Saturday. 
SU-LIN TAN AND NICK LENAGHAN
KEY POINTS

Australian Property Monitors says, anecdotally, auctions in Sydney appear to be drawing fewer bidders.
Some real estate agents dispute the Melbourne market is patchy, with record prices set in Elwood.
Buyers flocked to snap up off-the-plan apartments from Chinese property giant Country Garden’s latest release at North Ryde in Sydney on the weekend.

It was the second stage launched in the $550 million project. Almost 60 per cent of the 336 apartments were sold on Saturday, including two penthouses, which went for $1.45 million each.

“It is a very successful launch. The first launch we used a different approach. We used a more Chinese style of launching it in a five-star hotel,” Country Garden’s Australian chief executive Johnson Zhang told The Australian Financial Review on Saturday.

“But the second one, we had it here in the showroom to bring in more local buyers. I was experimenting with the marketing and found both approaches just as good.”

“At 8.30am, it was full, and there was a lot of excitement. We will keep a few apartments, as one hour into the sales, we are about 60 per cent sold.”

One-bedroom apartment prices started at $498,000, the two-bedders began at $685,000, while three-bedders were sold from $950,000. A Chinese student, funded by his parents, bought his second Country Garden two-bedroom apartment on Saturday.

He planned to rent out the unit to students, with Macquarie ­University nearby.

“Country Garden is famous in China. I like their developments. There is a bit of a bubble in China right now and so it is good idea to buy here rather in than in China. We are investing overseas, just in case,” he said.

“I don’t see foreign investment as a problem. It is a good idea to increase local economy. If you have development and no one to buy, then it will be like a zombie city.”

“In my opinion, property prices in Sydney will continue to increase ­especially here, which is near [the] ­university and a business park.”

Elsewhere in Sydney, eager buyers helped push the clearance rate to 75.2 per cent from 1333 auctions, according to preliminary figures from RP Data.

In Melbourne, the turnover has slowed in recent weeks. The clearance rate was 66.7 per cent on a massive 1446 auctions.

Andrew Wilson, senior economist at Fairfax-owned Australian Property Monitors, said the market was weakening in Sydney and more so in Melbourne, as demand catches up with supply. “Anecdotal evidence from ­auctioneers is that there is no longer the amount of people at each auction as there was. It is a bit more a struggle to get over the reserve, as it has been previously de rigueur to go 10 per cent over in the Sydney market for the past year.”

More than 5000 listings are expected to go to the market in Sydney for November, with November 29 possibly surpassing the record of 1111 listings. High volumes are expected all the way through to December 20.

“There is a sense of ‘let’s get in now. Is the market turning?’ ,” Dr Wilson said.

In Melbourne, the market may have already turned, with flattish price growth overall in 2014.

“It’s very patchy. It’s the eastern ­suburbs markets in Melbourne that have been pushing prices up. A lot of those markets are the popular Australian Chinese suburbs. It’s certainly weaker than Sydney.”

Melbourne agent Jock Langley, at Abercromby’s Real Estate, has reason to be bullish after selling Melbourne’s highest price home at $6.55 million.

The five-bedroom 1890s home at 6 Dickens Street in Elwood set on 1335 square metres went $1.45 million above expectations.

“It set a new benchmark for Elwood. There’s plenty of buyers around for good quality real estate.”

The Australian Financial Review

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Holdmark keen to bolster Sydney pipeline
THE AUSTRALIAN NOVEMBER 20, 2014 12:00AM

Greg Brown

Property Reporter
Sydney
Holdmark keen to bolster pipeline
Holdmark founder Sarkis Nassif says the building approval process in NSW needs to be more efficient. Picture: John Feder Source: News Corp Australia
HOLDMARK Property Group managing director Sarkis Nassif says the company is eyeing more development sites in Sydney’s inner west to bolster its 3000-strong apartment pipeline, while waiting for council approval to start its biggest project yet.

Mr Nassif, who founded Holdmark in the late 1980s, says the group hopes to start its $1 billion Shepherds Bay project at Meadowbank after Christmas.

Holdmark bought the industrial site nearly 15 years ago and has had protracted negotiations with the council to build on the land, which fronts Parramatta River. The project is likely to have about 2000 units in buildings ranging from four to 15 storeys.

“Construction will start on the day I get approval,” Mr Nassif said. “You can’t control the approval, but probably after Christmas we will start laying the concrete.”

He said the approval process in NSW needs to be more efficient.

“The planning system needs to perform better and red tape needs to be cut — the lazy approval process impacts heavily on the state economy.”

Mr Nassif founded Holdmark 27 years ago when he emigrated from his native Lebanon. His ­father was in the construction industry in Lebanon and financially supported Mr Nassif in his early local ventures.

Like a number of NSW developers, Holdmark has been caught up in the controversies over ­political donations and dealings with local councils.

In 2008, Holdmark was named in a NSW Department of Local Government investigation into buying council land in Sydney’s Auburn well below valuation. Mr Nassif says there was nothing to the allegations.

The group started with small townhouse projects in Burwood and Parramatta and has since grown into a diversified developer that has completed major Sydney apartment developments.

It also has a foot in the office, industrial and retail space. Its project­s include the $200 million Air St Leonard’s apartment project, and a three-tower apartment, office and retail complex in Elsire Street, Burwood.

“We have got a wider experience than just apartments; where there is an opportunity we will grab it” he said.

In June, the group paid $80m for an office building at 2-60 Railway Parade, Burwood, which was sold by Tony Pitt’s 360 Capital Group. The building has a net income of more than $6.5m but has potential to be converted into an apartment complex when the leases run out in about five years.

Mr Nassif was coy on long- term plans on the site.

“It will depend on the market in five years time,” he said.

Holdmark was one of the few local players to buy a commercial building with residential conversion potential this year with Asian groups the most prominent.

The Australian reported last week that Hong Kong-listed group Shimao Property Holdings bought a Sydney CBD office building at 175 Liverpool Street for about $400m, while Hong Kong-based Golden Horse Holdings recently bought an ageing industrial property in Erskineville from Good­man Group for about $350m.

Mr Nassif said the increased presence of Asian developers in the past two years has been a game-changer for developers. Asian developers are willing to pay more for sites so they can get a foothold in the market, he said.

“They’ve got a different feasibility,’’ he said. “It hasn’t prevented us from buying sites but has made us think more carefully about ­expanding. They have just come into the market so let’s test (how many are left) in a few years time.”

Mr Nassif has no plans to expand out of Sydney, saying that a ­decade-long drought in supply has left the market in good stead for ­future housing demand.

On location, he likes the inner west and areas close to the water.

“Water always makes you relax and we deserve it as we work so hard,” he said. “I believe if you sit on the balcony and have your barbecue, and have your beer it can help you relax after a long day.”

Mr Nassif said he hoped to pass on the business to one of his children. His son Kevin and daughter Kristy work for the company.

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China Poly Group wants crack at units
THE AUSTRALIAN NOVEMBER 20, 2014 12:00AM

Greg Brown

Property Reporter
Sydney
Lisa Allen

Property & Tourism Reporter
Sydney
CHINESE developer China Poly Group has swept into Australia’s apartment market planning an aggressive $110 million acquisition of a site in Sydney’s northwest.

Backed by assets of more than $75 billion, the group follows other major Chinese and Hong Kong-based behemoths that have recently entered the market, including Greenland Holding Group, Country Garden, Shimao Holdings and Golden Horse Holdings.

Poly is believed to be the frontrunner on Goodman Group’s Cambridge Office Park in Epping after outbidding rival Chinese developer Greenland.

The 8314sq m site fronting 20-28 Cambridge Street can accommodate up to 500 apartments plus commercial space.

Poly Group, Goodman and the agents on the deal, JLL’s Sam Brewer and Ben Hunter, declined to comment last night.

The state-owned China Poly Group has a Shanghai-listed commercial property arm, Poly Real Estate, and a Hong Kong-listed arm, Poly Property.

Founded in 1992, the China Poly Group is one of the biggest companies in China, specialising in international trade, real estate and art. The group reported a profit in 2012 of about $3.5bn, according to its website, which says it and subsidiaries operate in 60 ­cities across 10 countries.

Poly was scouring the Australian market for more than a year in the hope of cashing in on the Australian apartment boom. The group was reportedly in north Queensland in August for an investment roadshow for Hong Kong billionaire Tony Fung’s $8bn Aquis mega-resort and ­casino near Cairns.

It also looked at several Sydney housing sites.

Meanwhile, Goodman is cashing in on the demand for Sydney apartments by selling ageing city sites to residential developers. The group reaped more than $350m for the sale of a site in Erskineville in Sydney’s inner west to Golden Horse, as flagged by The Australian recently. The 7ha Erskineville site has the potential for about 1765 residential dwellings.

Goodman has said it has $500m of urban renewal sites on the market, under due diligence or sold in Australia and Britain. It holds industrial parks with the potential to be converted into more than 35,000 unit blocks in inner-city locations across Australia and has been selling since last year.

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Little to learn from Kiwi lesson

Clancy Yeates
499 words
19 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

As Sydney experiences its biggest ­housing boom in more than 10 years, there is a growing expectation ­regulators will soon introduce lending restrictions, known as "macroprudential" policies.

But how much difference would such a move really make?

A report from Moody's Analytics tries to shed some light on the issue by modelling the impact of following New Zealand's lead, and capping the share of bank loans with a loan-to-valuation ratio above 80 per cent.

Buyers hoping this type of response would significantly cool the market, may be disappointed.

The modelling, based on work done by the Reserve Bank of New Zealand when it introduced its "LVR speed limit" in October last year, found ­adopting New Zealand's policies would "barely" affect the local market.

National house prices would be only 1 per cent lower than they would have been without the intervention, it found.

NSW – which is driving the surge in prices – would be slightly more affected, with prices 1.4 per cent lower than ­otherwise.

Significantly, most experts say Australia will not follow New Zealand because it would have a disproportionate impact on first-home buyers, who are most reliant on high-LVR loans.

All the same, Moody's economist Glenn Levine says trying to gauge how the New Zealand policies would play out in Australia, provides a "useful benchmark".

Mr Levine said the model found NZ would be more sensitive to the LVR speed limit than Australia, because NZ's market was overvalued when the rules were introduced. In contrast, he believes local house prices are close to "fair value" when assessed against interest rates, rents and incomes.

"The results suggest that Australia's market may be more resilient to similar restrictions, possibly because New Zealand house prices were overvalued when the restrictions were ­introduced," the report says.

The Reserve Bank and Australian Prudential Regulation Authority have not specified what macroprudential policies they may choose for Australia, but economists say they will probably include brakes on lending to investors.

Capital city house prices rose 8.9 per cent in the year to October 31, led by 13.1 per cent growth in Sydney, RP Data said this month.

In September RBA governor Glenn Stevens said the central bank was ­looking at "tools" to lean on the surge in lending to investors, who accounted for about 50 per cent of all new lending in NSW.

Moody's Mr Levine stressed the modelling results should be taken "as a guide, rather than gospel", noting that New Zealand house price growth had slowed significantly since the rules were introduced last year.

The Reserve Bank of New Zealand last week said the national pace of house price inflation has fallen from 9.4 per cent to 5 per cent since the LVR speed limit was introduced.

During this time, the RBNZ had also raised its cash rate from 2.5 per cent to 3.5 per cent.


Fairfax Media Management Pty Limited

Document AFNR000020141118eabj00021

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Protest vote overshadows Brickworks’ good news
THE AUSTRALIAN NOVEMBER 26, 2014 12:00AM

AUSTRALIA’S biggest brickmaker narrowly avoided a ‘strike’ at its annual meeting yesterday, as key investors continue to rail against the company’s relationship with Washington H Soul ­Pattinson.

Just under 20 per cent of shareholders voted against the company’s remuneration report.

It is the second year running that Brickworks has been the target of a protest vote against its remuneration report, with a tally of 24.4 per cent registering their disapproval in 2013. That was just short of the 25 per cent mark required for a ‘first strike’, which could lead to a board spill.

The latest vote came as the company revealed its building products unit was on track to deliver its best first-half result in six years.

Despite the rosy first quarter, the company did not give any formal guidance for the year at its meeting in Sydney yesterday.

Addressing investors, Brickworks managing director Lindsay Partridge said the building product group had posted a 38 per cent rise in earnings before interest and tax to $13.2 million.

“With a good first quarter result and a strong order book, the Building Products Group is on track to deliver its best first-half result since 2008,” he said.

However, Brickworks rich-lister chairman Robert Millner, who is also chairman of investment house Washington H Soul Pattinson, blasted the NSW government for not releasing enough land to satisfy the state’s housing boom.

“It is very unfortunate that a number of states, in particular an otherwise competent government in NSW, have failed to deliver adequate land supply to meet growing housing demand,” Mr Millner told the meeting. “This follows the inept response to the looming gas shortage, resulting in NSW having the potential to soon become a state with no gas and no land.”

But it was the shareholder protest that stole the show yesterday, after major proxy advisory house CGI Glass Lewis recommended that shareholders vote against the remuneration report.

Brickworks has been the centre of a legal battle led by 12 per cent shareholder Perpetual and Mark Carnegie’s private investment vehicle M.H. Carnegie & Co, which also holds a significant stake in the company.

Brickworks’ long-time cross shareholding with Washington H Soul Pattinson, which sees both groups holding 44 per cent stakes in each other, is at the centre of the matter, which is before the Federal Court in NSW.

Perpetual and Mr Carnegie object to the cross-shareholding, arguing that up to $1 billion in value has been sucked out the company through the arrangement.

Both investors have jointly requisitioned a meeting on the matter and, after several delays, a date has been set for April 17 next year.

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Chinese Sydney eye CBD blocks for residential conversion
THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM

Greg Brown

Property Reporter
Sydney
CHINESE groups are leading the way to take out Sydney CBD office towers with apartment conversion potential, with Dalian Wanda Group eyeing Gold Fields House while Visionary Investment Group is circling 338 Pitt Street.

Dalian Wanda Group, one of China’s largest developers, is thought to be entering due diligence to buy Gold Fields House at 1 Alfred Street, with sources indicating the group has made an offer of more than $410m.

The harbourside building, currently controlled by Blackstone and a group of pension funds, is being marketed by JLL and CBRE, which declined to comment.

Wanda could not be reached last night and Blackstone was coy last night.

The building could be converted into a $1 billion luxury apartment tower. Other owners on the same block as Gold Fields House, including Lend Lease and Mirvac, are understood to want to develop the precinct under a single masterplan.

On 338 Pitt Street, Chinese-backed investment firm VIG is firming as the front runner to buy the property from the AMP Wholesale Office Fund for about $100m, although a deal has not yet been done.

The property was at one stage favoured to fall into the hands of an entity associated with syndicator China Investment Options.

VIG earlier in the month agreed to pay $156m on an office tower on the same block, at 233 Castlereagh Street.

The group is believed to be planning a large development on the block in joint venture with Melbourne-based Richard Gu’s AXF Group.

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Sydney won’t mirror Melbourne’s apartment glut
BUSINESS SPECTATOR DECEMBER 06, 2014 12:00AM

Robert Gottliebsen

Business Spectator Columnist
Melbourne

AUSTRALIA’S two largest inner city apartment markets are dev­eloping in vastly different directions.

Melbourne has achieved what Sydney has always wanted to achieve, but Melbourne is about to discover what actually happens when a city gets what it wants. While in Sydney, market moves are making it increasingly less likely that Harry Triguboff’s Meriton will be sold to the Chinese.

In Sydney, the complex web of councils, government bodies and various other organisations has always made gaining approval to undertake economic apartment developments in the inner city and suburbs very difficult.

The advent of the Coalition government and other changes has made it easier to get approvals and undertake developments but it is still an extremely difficult process — a bureaucratic nightmare.

As a result, although there are many developments that have managed to get through, the bureaucracy that makes approvals difficult has stopped a glut of new developments. Demand is strong, driven by the combination of Chinese/Asian buyers, Australian investors and those wanting to own an apartment to reside. Chinese and Australian banks are providing the funding.

As a result of the Sydney scarcity factor, the low interest rates and the abundance of funds, the price of inner city apartments has risen by about 15-20 per cent over the last 18 months.

In Melbourne, the combination of Chinese/Asian buyers, Australian investors and those wanting to own an apartment in which to reside is also fuelling very strong demand. Chinese and Australian banks also have cash at the ready. But again, similar to Sydney, gaining approval has historically been a nightmare.

But that’s where the similarity ends. In the last two years the combination of a Coalition planning minister Matthew Guy (now Opposition Leader) and a refining of the approval process to encourage developments has seen the number of new high-rise apartment approvals explode.

So in Melbourne, while demand is strong, the market is being flooded with one- and two-bedroom apartments. You don’t need to be a Rhodes Scholar to know what will happen in a couple of years. The looming high vacancy rates are likely to depress prices and that will have an effect on overall dwelling values. That is unless Chinese investors are happy to keep buying apartments that are vacant.

It is ironic that Melbourne achieved what Sydney has always hoped for — a relatively smooth approval process — but that process coincided with an abundance of capital in the market and it has caused a flood.

That said, Sydney also has some underlying problems. While the price of apartments has risen by 15-20 per cent, rents have not risen. A $1 million apartment in, say, Alexandria, would probably be leased for about $700 a week, or $36,400 a year, providing a 3.6 per cent gross yield. Take out rates and other outgoings plus periods of vacancy, and the yield is below 3 per cent: not a level that can sustain continued increases in value.

The Chinese came very close to buying out Sydney’s largest apartment owner and developer Harry Triguboff and his Meriton empire. But the rising apartment values and his extensive land holdings caused him to lift the price. A sale might still happen but the odds are now against it.

It was always big a bite for the Chinese and part of Meriton’s value is in Triguboff’s personal ability to convert his Sydney land holdings to approvals. If the large Meriton portfolio of apartments were sold up it would trigger a huge tax bill. Triguboff prefers to collect the rent, albeit the yields on market values are low.

If Sydney rents don’t increase, eventually apartment buyers will think twice about bidding up prices. But at least there is no looming glut as is happening in Melbourne.

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Bumper year ahead for Sydney CBD office conversion market
THE AUSTRALIAN DECEMBER 12, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney

SYDNEY could be facing another bumper year of office to residential conversions, with more than 7 per cent of CBD office stock identified for redevelopment to apartments, according to a Macquarie Research analysis.

The research comes as a private Chinese group emerged as the buyer of a conversion possibility at 299 Elizabeth Street on the city’s eastern flank.

Conversion rate

The 12-storey building was sold by Burcher Property Group earlier this year, with Sydney-based Xinhua Zhong and Jingru Lin taking a half-stake each for a total price of $45 million.

The building, completed in 1989, has 385sq m of ground floor retail and 5943sq m of office space, with a top-floor penthouse.

At the time of the sale, co-­selling agent John Bowie Wilson of Knight Frank, who handled the sale with CBRE, said the building sat in a part of the CBD where ­office buildings were being replaced by luxurious residential apartment complexes.

“There is much more residential development planned within 500 metres of 299 Elizabeth Street, and it is forecast that the ratio of office space to residential space will be very different within the next 10 years,” he said.

Nearby office towers slated for other uses include Cbus Property’s 130 Elizabeth Street that could have a 36-level apartment tower on Hyde Park.

Chinese group Shimao could also convert its recently acquired 175 Liverpool Street, and 233 ­Castlereagh Street, which China’s VIG has under option, is also slated for an apartment tower.

Close by, Coronation Property is planning for a 31-storey apartment and hotel tower in Commonwealth Street on the southern fringe of the Sydney CBD, with a design by architects FJMT.

About 365,000sq m of Sydney’s total CBD office stock has been purchased or identified as conversion opportunities with some impact on the office market, according to the Macquarie Research.

“While eventual conversion of this stock will depend on a number of factors including demand for apartments, DA approval and net absorption in the office market, such stock withdrawals will support a reduction in the office vacancy rate,” analysts Paul Checchin and Rob Freeman wrote.

But despite the level of stock withdrawal, “an elevated level of supply will sustain an above average level of vacancy in the Sydney CBD office market, making it difficult to see effective rental growth exceed expectations in the near term,” they wrote.

Despite significant new supply putting upward pressure on ­vacancy rates, Macquarie retained an outperform rating on GPT Group, Investa Office and Charter Hall Office, while it downgraded Dexus to neutral due to a strong share price performance in recent months, and maintained an underperform ­rating on Cromwell Property Group, given its low exposure to the Sydney CBD market.