First Home Buyers and Lifestyle Investors bolstering the Residential Market - with Dennis Vertzayias
First Home Buyers and Lifestyle Investors bolstering the Residential Market
Energised ‘lifestyle investors’ and savvy first home buyers (FHB), who are finally seeing affordability, are having the strongest impact on local “owner occupier” driven residential markets, helping to bolster current demand, but also reshaping developers thoughts on future developments.
According to Dennis Vertzayias, National Director and Head of NSW Residential Project Marketing, these two key “Owner Occupier” groups are amongst the most active and will be a big influence in Sydney’s residential market for the next 1 - 2 years, while completion of the Hayne Royal Commission has now been eliminated as a market distraction.
“We have seen strong activity from both these buyer groups, and I expect it will become far more dominant in the residential market while the completion of the Hayne Royal Commission has cleared the air of a big question mark. The prospect of possible credit-crunch that was hanging over the market has now gone.” said Mr Vertzayias.
Lifestyle investors and FHB will also fuel a shift in the demand and raise the bar in terms of quality of new developments. With limited new supply coming to the market, eventually, this should influence prices and according to Mr Vertzayias, will also lead to tighter integration of the demand for new apartments and the location and size of prime development sites.
“Buyer aspirations and development viability alongside the ability to secure finance are more co-dependent than ever. However, even though the two groups of buyers have different needs, this trend is positive for developers as they scramble to quickly maximise the potential of new product to match buyer expectations.
“Another important fact is that in the current market speculative buyers are not active and speculative development is far less likely.” added Dennis.
For the first time in many election cycles, direct property policies and infrastructure delivery are looking like central issues, and that’s going to extend beyond any possible changes to negative gearing.
The completion of the Hayne Royal Commission has acted to remove the suggestion of a possible credit-crunch although, now we need to wait and move through the NSW State Election (March 2019) and then the Federal Election (Expected May 2019) as buyers traditionally remain sensitive to the election cycle. As such, the outlook is more promising for the second half of the year!
New Stock Slows
Today’s market is also being influenced by the fact that the demand for big development sites is stagnated and that has already contributed to a big slowdown in new construction and supply until 2020-22.
In terms of current available stock being committed to construction, the bottom of the market will not be reached until the end of 2019 to early 2020 although, it’s reasonable to expect the market will continue to jump around, and in Dennis’s view we should remember that weekly ups and downs will always be evident. But the chocking of supply is a big factor!
“As the demand for development sites shifts, we will see a more fractured and site specific development cycle,” he said.
This should drive a change in values, the demand for quality increases (across all markets regardless of price) and the almost complete withdrawal of buyers who are only interested in short-term speculation.
First Time Buyers
The first group we need to consider is the newly empowered FHB. There was an influx of FHB activity and demand evident towards the end of 2018.
In today’s market, it appears that first time buyers are among the winners as prices adjust to a variety of current headwinds. As a result, there’s been a big increase in FHB activity over the last six months, and I expect that to gain pace over the balance of 2019.
It is, however, worth keeping in mind that the FHB can be singles, couples (combined incomes) and family buyers (brother & sister/mum & dad) and developments should cater for this demographic mix. Catering to one group alone is not a good idea; diversity is important. Believe it or not, the current average age of a FHB is above 30 years of age!
“For the FHB market, developers need to deliver suitable projects that will satisfy the varied wish-lists of this group and product cater for the wide spectrum of buyers but also within an affordable price band.” A big ask, albeit we are seeing it in increasing volume in various projects across Sydney as the price of land adjusts accordingly.
For FHB’s, price is an obvious driving factor and traditionally needs to be under $750,000 because of the importance of access to any available government assistance and grants. Albeit from a market perspective, that sweet spot has now shifted to under $700,000.
“Meeting that price point is being helped along by the fact that current prices are down by between 10% - 15% from the peak of 2016, there will also be isolated cases where even more value can be extracted when combined with developer incentives.”
“None-the-less prices need to be relative to market conditions and are still very much interest rate driven. While the official cash rate has been stable for longer than most anticipated, there’s still a degree of competition among lenders to attract qualified first-time buyers.”
This dynamic in the market begs the question: How do developers attract first-time buyers? It’s clear that the FHB is very price sensitive and while there’s lots of evidence of increased enquiry levels, they cannot be taken for granted.
“There’s a need for value and prices and quality to align; it’s not good enough to develop substandard product. It’s a matter of balance, homes or apartments can be smaller but still deliver quality, bearing in mind the FHB can always access a big pool of established homes in the outer ring.”
“The first fact I would like to establish is that investors have not completely deserted the market, activity is certainly much slower, but the big shift is the classification of the traditional investor to what I’ll call “lifestyle investors.”
“That’s a very different buyer moving away from the short-term speculative investors we’ve seen dominating the market over the past 3-5 years who were primarily driven by yield, tax breaks or short-term gains,” said Dennis Vertzayias.
Our new lifestyle investors want the property for their or their family’s own personal use first and foremost and over yield, with a strong focus to quality, this is influencing the types of apartments they are looking to buy, which in turn is clearly impacting which development sites and locations are now in favour by developers.
The retail market is more localised, and owner occupier focused, so developers are looking at smaller, more boutique higher quality opportunities.
“Lifestyle investors buy with the intention to use the apartment they purchase in the future, either for their own occupation or for varied family members mainly their kids or possibly parents,” said Dennis.
“When buying for their kids to use either now or in the future, lifestyle investors act as a new style of the bank of mum and dad, although they do not actually hand over the cash, but give their kids ‘free’ housing whilst they attend University nearby.”
Above all according to Dennis, these buyers are property savvy and astute, they are alert to size, aspect, room layouts, orientation, views and the quality of common areas, they want an attractive foyer, they understand thoughtful planning. They want a beautiful place to call ‘home’.
Many of these qualities are driving the demand for smaller boutique buildings that offer a point of difference, such as a coastal aspect or being opposite a park. Many of these sites tend to be located in popular well-established suburbs often where older established homes are grouped together for new developments.
“Because of the location of these new developments, sought-after features should include a living room that faces the view, seamless indoor-outdoor connections that give a true alfresco area in terms of size and shape, not just ticking the box with a mean little balcony facing a busy street. That’s not going to appeal to a lifestyle buyer/investor.”
According to Dennis other important features for lifestyle buyers include apartments that offer different living spaces such as a study or flexible guest-room, quality security, master bedrooms that are at least 4m x 4m and comfortable bathrooms.
“This is an exciting part of the market and developers have responded quickly to the shift in demand away from larger scale, basic or even speculative stock. A few years ago, where we had highly experienced developers traditionally delivering 100 - 200 units a year in one tower on one site, are now looking at purchasing several smaller sites to make up the same annual volumes. The developer spreads their risk by buying these sites in differing locations; the key being smaller, boutique scale, high-quality locations and designing relevant product type focused on the owner occupier market.