Elite AgentOpinion

No bursting of the development bubble in 2018, tips Investorist

2018 will see no “bursting of the development bubble”, but will see the market shift steadily to the buyer’s favour, while short-term accommodation options like Airbnb will be factored into new developments, according to Investorist Founder and CEO Jon Ellis.

As the new year dawned, Mr Ellis outlined his predictions for off-the-plan developments in the year ahead. Here’s an insight into his top tips.

No bursting bubble

As the head of a global property investment marketplace, Mr Ellis features a unique insight into off-the-plan property sales and believes 2018 will “certainly be a buyer’s market”, with things having returned to a “more normal market dynamic in the second half of this year”.

“Off-the-plan sales will require hard work from sellers and project marketers alike and certainly projects have a longer selling cycle, but there will be no ‘bursting bubble’,” he tips.

OTP meets Airbnb

Meanwhile, the rising trend of short-term accommodation will enter the mainstream development marketplace, with developers actively factoring in options like Airbnb with a short stay/build-to-let “hybrid model”.

“There has been a lot of talk of build-to-let but ‘hybrid’ will be the theme for 2018,” Mr Ellis said.

“Developers will add failed-to-settle stock to apartment hotel offerings, new project launches will likely have apartment hotel offerings included, possibly a hybrid model of some developer-owned and some purchaser-owned hotel apartments which would use Airbnb to promote short stay rentals.

“In addition, this new category will also likely drive a resurgence of investors who had backed away from the market in 2017.

“Economists and analysts may even start to wake up and start including (or more accurately excluding) these short-stay dwellings from their rental stock demand analysis. More companies will be founded to capitalise on this market, including not only operators but sales companies.”

New feature inclusions

Not only will a hybrid model be factored into development sales, but developers will start including features in some new developments to service this hotel apartment/short-stay market.

“These might include features such as separate entrances, building segregation with floors that allow short stays and those that don’t, bag storage, smart key access, lockers and more,” Mr Ellis predicted.

“Developers will wish to appease owner-occupiers and avoid complaints about accommodating short-stay guests, so will try to plan this type of integration at the design stage as cleverly as possible.”

Increased incentives 

Fuelling the buyer’s market, there will be a range of property coming to market with added incentives from the developer, he tips, including stamp duty-equivalent benefits and possibly discounted prices.

“This will be especially prevalent in Victoria where stamp duty changes from this year have had the greatest impact on investment buyers.”

The rise of nominations 

Where purchasers have failed to settle, there will a rise in ‘nomination’ properties which allows the developer to re-sell those properties once completed.

“Given the retained deposit and other savings, these units (still classified as new) should be able to out-compete both the re-sale market and comparable off-the-plan properties, but they will not be publicly advertised.

“Nomination property sales will likely occur within a finite window up until December 2018, given most projects have a build time of around 18 months and were sold before Victoria’s stamp duty exemption removal came into effect on 1 July 2017.”

Funding for foreigners 

After a year of funding changes and altering legislation in 2017, Mr Ellis notes the funding environment will shift again in 2018.

“In 2017 we saw short-term funding products enter the market and expensive longer-term options appear.

“There will be more of these, however a new raft of better value options will emerge. Current funders will close their books or at least limit their offers as they become full and their caps are reached.  The new wave of entrants in this space will most likely include US equity and hedge funds and established global banking organisations.”

Greater product mix

Meanwhile, the type of projects available to investors will also increase, Mr Ellis believes.

“The days of developers trying to cram as many tiny apartments as possible into a project and selling them largely to investors are over.

“We are seeing more townhouses, more boutique projects, more design changes to existing plans to accommodate larger owner-occupier custom designs, resulting in increased prices as sizes increase.

He continued, as a global marketplace, Investorist was ideally positioned for sellers and buyers to navigate these coming trends.

“When attracting a wider buyer pool is necessary, or demand for a city/country/product type is declining, it will likely be increasing in another part of the world, and our strong growth in listed stock on the platform has demonstrated this.”

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