This article is from the Australian Property Journal archive
LEND Lease is reweighing and considering selling existing development projects in Australia because increasing land prices have made new projects less attractive compared to overseas markets.
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Lend Lease CFO Tony Lombardo told the Macquarie Australia Conference that Australia is following a similar trend to London.
Lombardo said Lend Lease has a modest 2% market share of the Australian apartment market, which recorded 91,500 total sales in the 12 months to March 31 2015. The group has a 3% market share in London, which reported 22,500 total sales over the same period.
He pointed out that Sydney`s average price of a presold unit as at December 31 2014 was $870,000 – higher than London`s $838,000.
Despite the strong demand in Australia, Lombardo said Lend Lease`s medium term focus is offshore markets. He added that in the medium term the group is particularly focussed on Asia and the Americas.
“Increasing land prices in Australia making new project origination less attractive relative to offshore opportunities.
“Immediate origination focus in Australia on select number of projects that offer strategic benefits (e.g. Barangaroo Central) or fill portfolio gaps (e.g. growth corridors in Communities / Retirement portfolios),” he continued.
Lombardo said Lend Lease is reweighing and considering sell development projects in Australia “subject to investment hurdle returns being achieved”.
The residential portfolio currently comprises over 20,000 built-form units, which are predominantly apartments and approximately 4,000 apartments are currently in delivery. The lion share of pipeline is in Australia, which accounts for approx 15,000 units, whereas the UK represents approx 5,000.
Currently Lend Lease is sitting on $3.6 billion in presales across its apartments and communities.
In the immediate future, Lend Lease is expecting a rise in pre-sales revenue with new apartment launches in Melbourne and London in the last six months, and further launches in Sydney and Brisbane in the next 3-12 months.
Lombardo said Lend Lease`s production capital has skyrocketed by 400% in the last two years – this is the most significant lift since 2012, reflecting the strong growth in apartment settlements and several commercial towers at major urban regeneration sites over the medium term.
He revealed that the group has $2.1 billion of capital deployed at 31 December 2014 versus $0.4 billion in 2012.
Redeployment capitals levels will peak in FY17 based on current buildings in delivery/conversion.
In FY15, Lend Lease is expecting to settle 8% of sales, followed by 31% in FY16, 27% in FY17 and 34% in FY18.
Lombardo said in Australia dwelling completions have not kept pace with housing demand since 2011, particularly in Sydney and Melbourne.
At the same time, he noted that foreign buyers represent between 30 and 35% of recent apartment sales, with the remaining domestic buyers split evenly between owner-occupiers and investors.
The rise of foreign buyers in the local residential real estate market prompted the Victorian government to announce two new taxes. Under the new rules, non-residents will pay an additional 3% stamp duty fee and 0.5% absentee surcharge, which is expected to raise $279.7 million and $53.5 million over four years.
It is also looking at new development opportunities in North America. Currently 60-70% of Lend Lease`s earnings come from Australia and 30-40% from offshore.
However, that will change over the medium term. Lend Lease has already started its expansion in Asia with a 60% JV stake in the TRX Lifestyle Quarter in Kuala Lumpur with an end value of $2.8 billion and a 30% stake in Paya Lebar Central in Singapore.
Australian Property Journal
