The biggest players in Newcastle’s unit boom say their high-profile inner-city projects will go ahead despite a national downturn in the apartment market.
The Australian Performance of Construction Index industry report shows unit building across Australia fell for the sixth month in a row in August and more sharply that month than at any time in the past six years.
House prices dropped 5.6 per cent in Sydney and two per cent nationally in the year to August 31, according to CoreLogic data.
The Newcastle market remained resilient, rising 7.9 per cent in the year to June 30, but has flattened out in recent months.
The national downturn, driven by tighter lending and lower demand, has raised questions about whether some of Newcastle’s major residential redevelopments will proceed as planned.
“I still think you’ll see the cranes go up, but I wouldn’t be surprised to see more than one development stall,” one developer told the Newcastle Herald.
“Newcastle’s in a little bit of a bubble, but we’re not immune from everything.”
Doma Group managing director Jure Domazet said none of his firm’s five inner-city projects was in doubt.
The Canberra firm has started building the Lume apartments on the Honeysuckle waterfront and has plans for a residential development next door, a hotel and unit complex across the road, an apartment project in Merewether Street and twin 90-metre towers on the Store site in Newcastle West.
Mr Domazet said the University of Newcastle’s planned campus at Honeysuckle and other economic activity in the city centre would make Doma’s projects viable, notwithstanding the housing downturn.
“There are different dynamics at play in Newcastle. It’s a smaller market. It was under-supplied for a while, from what we can see. It’s still a growth story,” he said.
Iris Capital has begun building stage one of the 560-unit Hunter Street mall redevelopment, one of many other large projects which will boost inner-city housing stocks in the next few years.
Australian Property Monitors figures show the median unit price rose 9.7 per cent in the Newcastle local government area last financial year while dipping from $764,00 to $737,000 (-3.5 per cent) in Sydney.
Lake Macquarie’s median unit price rose 1.8 per cent in the year.
Newcastle unit prices have risen 54.9 per cent in five years, compared with 51.8 per cent for Newcastle houses, 46.5 per cent for Lake Macquarie houses and 33.5 per cent for Lake Macquarie units.
In the corresponding period, Sydney unit prices have risen 43 per cent and house prices 60 per cent.
In the decade since the global financial crisis, Newcastle’s median price for units has risen 74 per cent and house price 91 per cent, almost matching Sydney’s growth of 85 per cent (units) and 98 per cent (houses), albeit from a lower base.
Newcastle’s median house price at June 30, $631,500, was substantially below the Sydney median of $1.114 million. The Newcastle unit price of $550,000 was below Sydney’s $737,000.
A BIS Oxford Economics report in June predicted house prices in Newcastle would rise only six per cent in the next three years, and prices in the first two months of 2018-19 have already flattened out.
Newcastle City Council’s online DA tracker shows developers have withdrawn plans for two mid-size projects, a six-storey, 54-unit building on the site of the Kingsgrove sports store in Islington and a 51-unit project at Elermore Vale.
But Mr Domazet said Newcastle’s economic fundamentals justified his firm’s continued investment in the city.
We have seen probably the biggest development boom that we’re ever going to see in our lives, and it’s coming to a close. If we get 2000 more units in town, rents will have to fall.Newcastle developer
“The reason we like Newcastle is there’s so many economic streams that are going well, and that bodes well for the city,” he said.
You’ve got defence contracts, you’ve got mining, which is nice and steady now, the port, general tourism, agriculture.
“Property’s driven by sentiment, by all means, but it’s also driven by economic activity and population growth, and we just see there’s a lot of reasons for people to want to come to Newcastle.
“The biggest thing for us, I’d have to say, is the Uni of Newcastle, the influx of students and university staff as well as downsizers moving out from larger houses.
“You get a nice mix of young and old, rich and hopefully in-the-future rich. That’s why we like the CBD. We’re not active at all outside the CBD.”
Doma, which has started demolishing the Store building, is finalising a master plan for the site and a development application for office space which will form part of the two 30-storey towers.
It lodged plans last month for a car park and bus interchange which will sit under the units and offices.
Hunter developer Hilton Grugeon, whose company, GWH, plans to build an 18-storey residential tower near the civic precinct, said Newcastle’s property market was not as volatile as Sydney’s and Melbourne’s and less reliant on investors.
“Where it has got ridiculously overheated, yes, there will be correction, but the market here did not get ridiculously overheated,” he said. “Frankly, a bit of slowdown gives us a bit of time to catch our breath, because it’s been pretty breathless in the uptake.”
Mr Grugeon said the 180-unit Sky Residences project was not in doubt.
“I can see the effect of the downturn in market prices and auction clearance rates in the capital [Sydney] up here as negligible,” he said.
“There’s no reasons for projects not to be started yet. We haven’t put a hold on anything based on the current evidence.”
The APM figures show Newcastle and Lake Macquarie median house prices have risen every year in the decade since the GFC, when interest rates plummeted.
Newcastle unit prices have been more variable, falling twice, in 2012-13 and 2014-15. Lake Macquarie unit prices have risen steadily for the past 10 years except for a small dip in 2011-12.
This year was the first in a decade that Sydney unit prices have fallen.
Is this the end?
One Newcastle developer and investor who did not want to be named predicted an oversupply of units in coming years.
“We have seen probably the biggest development boom that we’re ever going to see in our lives, and it’s coming to a close,” he said.
“If we get 2000 more units in town, rents will have to fall. They haven’t been built yet, really. They’re in the pipeline. Once they get done in three or fours years, I think you will see a surplus of stock and some rental adjustments, or the price.
“I’ve heard conditions are still OK, but it has softened a bit.
“Everything that’s been approved is under construction or on the way. Some of the investors are thinking, ‘Yes, there’s a market for this. There’s an opening.’ But maybe that’s the end.”
CoreLogic data issued in June showed unit prices in parts of Brisbane and north-west Sydney have dropped 20 per cent from their peak.