Are offshore groups on the move in Sydney?

October 2, 2017 / By  

Offshore residential developers in Sydney, including Chinese, Singaporean and Japanese groups, have started to push into Sydney’s outer suburbs as their expansion strategy matures beyond inner city locations.

We are seeing offshore groups trade Ashfield for Austral, Cammeray for Cherrybrook and Bankstown for Bringelly; all more than 30 kilometres from the Sydney CBD.

How did this come about?

At the start of the current residential cycle between 2012 and 2014, investment by offshore groups was limited to Sydney’s inner city area. Parramatta, 20km West of the CBD, was as far as most were willing to go.

However, since 2015 these groups have become more familiar with Sydney’s planning laws and the strong Western Sydney growth story. We expect this trend to continue beyond 2017 as densification spreads to Sydney’s outer boundary.

Residential development sites purchased by offshore groups (2012-2014 vs 2015-2017)
Source: JLL Research, RCA. As at July 2017

A number of factors determine how keen the interest will be going forward:

  • The investment case: “Where is Edmondson Park? Are there even any parks there?”
    Initially, offshore groups are unlikely to entertain development in Sydney’s lesser-known outer suburbs if the investment committee in their home country is not comfortable with the growth story of an unfamiliar location.

Edmondson Park, 40km south-west of Sydney, is a prime example. It is close to the future Badgery’s Creek airport, but is a much harder sell than somewhere like Bondi Beach. It takes a group with some local experience to know that Edmondson Park is not as leafy as the name suggests, and instead has a substantial industrial presence. This is why we are seeing more established offshore groups who have already achieved success in Sydney being first-movers into outer-lying growth areas.

  • Follow the infrastructure
    In addition to the future airport, Sydney is building a heavy rail, light rail and road network, all of which help make the investment case in Outer areas more convincing. Transport infrastructure is a longer-term impact and works well with the slower, more-measured approach of institutional offshore developers as opposed to smaller more agile local privates.
  • The deal size: “Show me the money!”
    Most large parcels of land in Outer Sydney sell for over AUD100 million, which is more suited to offshore groups with larger balance sheets. Similarly, the scale of project is also much larger – typical developments are 1,000 – 5,000 dwellings in master planned communities. This size is rare for Sydney, but more commonplace overseas.

The Chinese government’s recent crackdown on multinational corporations’ offshore investment programmes may have some impact on offshore property developers. We will have to wait until after China’s national congress on 18th October to find out. However, our recent experience has been that there are plenty of Japanese, Singaporeans and other investor groups willing to participate in the market.

Sydney’s population is ever-shifting and it seems that offshore groups are moving with it. With Sydney geographically constrained by mountains and sea on either side, the question now is: where to from here?

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