SP Setia moves Down Under

View of Fulton LN from Franklin Street

Malaysia's largest property developer aims to expand its footprint in Melbourne, Sydney.

PROPERTY developer SP Setia Bhd is yet another Malaysian developer to make its presence Down Under, having purchased a piece of prime land in Melbourne, Australia and looking to capitalise on the growing apartment demand in the city.

The developer picked up the largest undeveloped site in the central spine of Melbourne's central business district (CBD) last year and will turn it into a mixed-use development dubbed Fulton LN by 2014.

Having tasted the opportunities in Australia, the developer aims to increase its property footprint in Australia, more so in popular cities such as Melbourne and Sydney.

The plan for the first few years is to buy up land and execute projects that will provide quick turnaround and are easy to sell, says Setia (Melbourne) Development Co Pty Ltd chief executive officer Choong Kai Wai.

Subsequently, the company will look at greenfield developments and execute township developments, as it has successfully done in Malaysia with prominent townships like Setia Alam in Shah Alam.

Developers with the financial ability will take on such property projects with ease, considering that they now need to be able to partially cover development cost before banks agree to finance developers for these projects.

“Traditionally, banks will lend to the property developer when roughly 60% of the development has been sold. But post financial crisis, not only must they secure that sales amount but the developer must be able to cover 30% of the construction cost before a bank lends,” he told Malaysian reporters last week in Melbourne on the company's Fulton LN site familiarisation trip.

Choong adds that many developers are finding it tough to meet the latter condition imposed by banks, thus giving SP Setia an added opportunity to consider buying over projects that have already received the relevant approvals but have yet to be executed due to the existing developer's inability to finance the construction costs.

He adds that Setia (Melbourne) is close to finalising its own financing facility for the Fulton LN project.

Robust growth

Among the factors driving the Melbourne apartment market include the city's population growth, governmental policies and low apartment vacancy rates as well as strong rental demand.

“Melbourne has demonstrated strong population growth compared with other Australian cities, with immigration driving the population growth a quarter of the people in Melbourne are born overseas. The city's population stood at 4 million in 2009 and is forecast to have 5 million people by 2026,” says Australian property consulting firm Charter Keck Cramer director of residential projects Sam Nathan.

The local government is also pushing for long term inner urban development through policies with the hopes that 55% will be inner urban development and the balance will be fringe development.

“The market is responding to government targets through natural maturity of the city. Melbourne's vibrant inner urban lifestyle precincts continue to strengthen, driving established housing to the point beyond affordability, creating opportunities for medium density development to be the conduit to future supply,” adds Nathan, who was present at the briefing.

Since 1990, Melbourne has seen some 60,500 new apartments as at last year.

“About 45,000 of those new apartments have come about over the last 10 years, with the Melbourne apartment market recording 16,850 new apartments as at year 2000,” says Nathan.

The Melbourne apartment market has seen a consolidation of the CBD and central city region with a progressive market expansion into the middle suburbs.

“The apartment supply at all Metro areas have historically been a small proportion of underlying dwelling demand and this dwelling representation is likely to rise as Melbourne consolidates, becomes more dense and affordability pressures mount on conventional housing forms,” he says.

Another reason for the rise in apartment demand is individuals finding the fringe of the city being too removed from core activities.

Over the past year, the underlying demand for apartments was some 26,500 units while the actual supply was 6,000, Nathan adds.

Meanwhile, vacancy rates for apartments have been less than 3% since 2005 and rental growth is higher than inflation.

“Vacancy rates have fallen under two percent over the last few years so this is a great market for owners and landlords,” says Nathan.

For instance, an average apartment rental value in Melbourne's CBD stretching to St Kilda Road can fetch above A$350 for a single bedroom unit per week or A$500 for a two bedroom unit per week.

Nathan adds that the Melbourne property market has not been a speculative market and should see long term stability.

“There were a record number of apartments completed last year at some 8,000. We don't expect a spike in the property market as inevitably there will be some projects that get delayed, possibly due to tougher financing requirements,” he says.

Melbourne, just as with other Australian cities, has seen demand for the apartment market grow due to changes in lifestyle and housing preferences.

“The overall market has seen an increased acceptance of apartment living, due to changing household mix where singles and couples without kids are on the rise - as well as living costs are forcing people closer to work and social activity centres,” says Nathan.

He adds that there has been a housing shortage in all Australian capital cities, giving rise to an affordability issue. However, this works in favour of the property developers over the medium to long term.

Reaping benefits

With Melbourne's apartment market ripe for the plucking, SP Setia is well positioned to benefit from its first Australian development located in the northern edge of the CBD in Melbourne.

The company, through its unit, Setia (Melbourne) plans to develop a mixed-use development that will not only offer apartments but also retail outlets.

The one-acre site earmarked for this development was purchased at A$30mil and has a proposed gross development value of A$470mil.

“The site is located within the education and market precincts of Melbourne's central business district. The apartment units target young Australian professionals, or double income individuals with no kids,” says real estate firm Hocking Stuart executive sales representative Paul Pfeiffer.

Pfeiffer adds that the percentage ratio of owner occupancy against investors for such a property development would be a 60:40.

Construction will commence next year and the development is expected to be ready by 2014.

There will be two towers offering apartment units one at 28 storeys (107m) with 300 units while the taller tower at 44 storeys (150m) has some 400 units.

The property has dual street frontage, with the first tower facing Franklin Street and two minutes away by foot from the Queen Victoria Market while the second tower faces A'Beckett Street and a five-minute walk from RMIT University.

Most of the apartments will be one or two bedroom units although there will be units offering three bedrooms as well. Apartments start from A$370,000 for one bedroom at 45 sq m, A$515,000 for a two bedroom starting at 60 sq m and A$1.05mil for three bedroom dwellings starting at 114 sq m.

Pfeiffer says that these are dual key apartment units, therefore the buyer can choose to live in the unit and also rent out the other room, which essentially serves as a unit within a unit with its own key and facilities like kitchens and bathrooms.

The apartment units in the first tower will be open for a preview to the Malaysia public next Sunday with the official launch to be held in September.

Sales for the apartment units in the second tower should start in six to 12 months.

Setia's Choong says that retail units will not be put on sale for now, as the developer would like to control the tenant mix in the development to ensure continued sustainability.

Fulton LN is within walking distance of several universities and colleges such as Melbourne University and RMIT University. It is also close to Melbourne's central shopping centre and can be easily accessed by public transportation.

The architectural design of the mixed development is by Karl Fender of Fender Katsalidis Architects, which happens to be the firm behind the proposed 100-storey tower Warisan Merdeka in Kuala Lumpur.

“The size of Fulton LN's ground plan gives us the opportunity to ignite activity movement around the laneway with retail, restaurants and cafes,” Fender said.

He adds that the design of Fulton LN incorporates one of Melbourne's most prominent features the laneway concept found all over the city.

The natural-light filled Fulton Laneway will weave through the heart of the site linking Franklin and A'Beckett Streets, providing access to the variety of commercial and retail spaces offering sunlit terraces to both residents and visitors alike.

Fender also says that Fulton LN will be aesthetically pleasing to the eye, with timber and green foliage used to conceal the building carpark's faade facing the streets.

Aside from this, the development will also have a number of ecologically sustainable development initiatives to achieve a Green 4 Star Certified Rating, including bicycle facilities, grey-water recycling, water tank, natural ventilation, green wall and an energy rating average of six.

By The Star