Foreign investment underpins inner city residential development boom

Growing foreign investor demand is driving an inner city residential development boom in three of Australia'a major cities



Developers pounced on close to $4 billion in inner city residential sites in Sydney, Brisbane and Melbourne in the 12 months to April 2015, as growing foreign investor demand for inner city apartments has driven a dramatic increase in sales.

This finding comes from a new CBRE report, which analysed sales within a five kilometre radius of the CBDs of Sydney, Melbourne and Brisbane.

According to the report, in Sydney, the combined value of inner city site sales exceeded $2.5 billion in the 12 months to April 2015 – up 880% by value on the corresponding period in 2012. 

Brisbane sales totalled $499 million, an increase of 635%, while inner city Melbourne sales totalled $1.0 billion, reflecting a 312% rise.

“The increase in turnover across these markets is a clear indication of the increasingly strong demand for residential development sites, largely being driven by foreign investment. The buyer demand has transformed the inner city real estate markets in all three cities, where the highest and best use for sites has traditionally been commercial,” CBRE senior research analyst, Jacob Fong, said.

CBRE's ViewPoint report highlights that Chinese inbound capital has played a key role in the surge in sales activity, with Chinese developers accounting for 58.4% of the total sales in inner city Sydney, Melbourne and Brisbane in the 12 months to April 2015.

Another driver has been rapid growth in investor demand, with 16.6% per annum growth in investor activity recorded nationally in the five years to Q1 2015.

More recently, foreign investment inflows have targeted Australia's inner city new unit sector, triggering even greater development activity. This has been highlighted by an unprecedented escalation in foreign investor activity, with $24.1 billion in Foreign Investment Review Board ('FIRB') approvals in 2014, compared to $8.6 billion in 2013.

“A further factor in the increased level of inner city construction has been a demographic shift across Australia towards smaller households. The traditional preference for detached homes is being challenged, with greater acceptance emerging for smaller units in inner city areas,” Fong said.

He also pointed to the fact that inner city unit living was being viewed as a solution for high house prices in capital cities, with the added benefits of reduced commuting times to employment hubs, proximity to public transport and access to high levels of retail amenities.

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