Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Monday, 15 August 2016

Building MOAR high-rise

Building trends

Relax everyone. 

I've been to China for a week, and I've got everything sussed.

Alright, only joshing, there are of those pieces doing the rounds already, and I don't have too many original insights today.

The trip did give me some food for thought, however, about the future of Australia's largest capital cities.

In my home country of England, the capital city London has never really embraced high-rise living.

But as the Asian Century progresses it seems likely that some Australian cities will increasingly do so. 

Here are five things that we might expect to see more of...

1 - Higher construction costs

Construction costs - and particularly land remediation costs - have become more expensive in Australia over time.

I looked here previously at some of the reasons why.  

Construction techniques and equipment are relatively cheap in China. And health and safety procedures are probably not as costly either.

It shows (oops-a-daisy!)...

2 - Reclaimed land?

In Hong Kong, over the past two decades about 60 square kilometres of additional land has been created, particularly in prime waterfront sites on Victoria Harbour.

However, legislation has been passed to protect the harbour from encroaching land into the precious and highly valued harbour space.

We could see some similar trends playing out in Australia.

Indeed, land reclamation and remediation on the Hungry Mile was an integral part of Lend Lease's flagship Barangaroo project.

Overall, though, land reclamation on a large scale would likely be opposed in Australia, I feel. 

3 - Lagged delivery of infrastsructure

One of the most noticeable things in China, particularly when you see the mainland, is that when something needs gets built!

China needs a bridge - a bridge gets built. China requires a highway or an airport - a highway or an airport gets constructed.

Perhaps this is one of the benefits of living in a surplus country.

By contrast the delivery of infrastructure in Australia always seems to lag, sometimes horribly so.

Left to its own devices, the market seems to focus on building residential dwellings, but not enough other infrastructure.

And when stuff does eventually get built, people still carp and complain anyway!

Look at the extremely successful Gold Coast Light Rail project, for example, which notched up a rip-snorting 14 million trips in the year to 30 June ahead of the forthcoming Olympic Games. And people are still whingeing about it!

Australia's 10 year bond yield recently hit its lowest level on reocrd, so it's potentially a great time to borrow and build.

But we'll have to wait and see what Prime Minister Turnbull thinks about that, and whether the electorate has the appetite for debt.

4 - Extreme inner city land prices

With a highly concentrated population, prime location development sites in Hong Kong can now be worth up to an extraordinary HK$5 million per square metre.

Inner Sydney has seen some breathtaking prices paid by Chinese investors and developers in recent years for development sites, but nothing remotely on this scale.

Sydney's population is only about 5 million today, but that number if projected to double over the course of this century. So, one day...

5 - Higher density living

We tend to think of Australia's capital cities as being 'dense', essentially because they aren't towns, and because employment tends to be centralised (and the peak hour traffic is therefore often so bad).

But with the exception of  handful of suburbs, in global terms Australia's urban populations are in fact anything but dense, as soon as you move away from their central cores. 

Even in the largest capital cities in Australia there are plenty of sites which can still be developed for residential dwellings. 

And if land supply is short, we can easily build up as well as out.

China has a number of large cities that provide example of how much denser city living can become over time. 

Blog readership

The last month has been the largest readership I've had on this blog at well over 46,000 hits.

Over the past year I've done quite a lot of work with a number of international hedgies, which has brought in some new non-Australian readers (welcome one and all, and sincere apologies for the idle slang, cobbers).

Thanks for reading, and for sharing. Cheers!