Hayball director, Eugene Chieng, who manages the company’s Asian developer clients, has noticed that a number of his traditional multi-residential clients are diversifying into new endeavours, such as agriculture and hospitality.
Why are developers diversifying and what areas are they diversifying into?
It’s no secret that the residential apartment market is slowing down, which is putting a lot of strain on international developers and investors. As a result, we’re seeing more investors looking to diversify and help manage risk.
The most common way we’ve seen developers do this over the past few years has been the transition from pure residential developments to mixed-use spaces. By combining residential and commercial elements they’re not solely relying on one type of buyer for a project to remain viable. For example, we’re seeing more mixed-use residential developments, such as apartment buildings with a retail, hotel or serviced apartments facet, which allows the developer to reduce the risk by introducing other types of buyers into the development.
There are many other different ways we’re seeing developers diversify their projects to help improve their viability. In the residential space, we’re also seeing increased demand for townhouse developments and there are a number of reasons for this – there’s less stock to sell, lower planning risks and construction costs, and a quicker construction period. In the right location, targeting the right demographic, these developments with only a handful of dwellings can be more viable – and profitable – than their ten-storey apartment counterparts.
In the commercial space, we’re seeing developers take a more creative approach to their planning by looking to design buildings with potential for office co-sharing or start-up incubators already built into the plan. Interestingly, we’ve recently also started to see more interest in agricultural sites, including both agriculture businesses and land and house packages. This shows that a lot of international investors are adapting to new regulatory controls and are thinking laterally when diversifying their projects.
What is the rationale for seeking agricultural sites?
When the recent tightening of restrictions by the Chinese government were announced to contain capital flight, we saw many international investors start looking for ways to diversify their offerings to allow them to continue developing in Australia, and to benefit from the Australian government’s lowering of the FIRB threshold on agricultural land, which may include lower fees than residential sites.
I think that there is also the potential for rezoning and redevelopment further down the track for agricultural sites as the population of Australia continues to spread out from the major cities and additional residential or hospitality developments are needed to keep up. Considering the longevity of potential projects and how it will evolve over time is just another method of risk management for investors.
Are there restrictions in terms of capital out flight from Asia to invest in this sector?
We work with investors from many countries to develop projects with their restrictions in mind. For example, a number of Asian countries, including China and Indonesia, have restrictions in place for their residents’ ability to invest in foreign industries and developments. Generally, agricultural sites are not included in the restrictions so depending on the site, the local zoning laws and the development plans, investing in these sites may be a way to work around the restrictions while still getting a project off the ground.
What role can Hayball play in these types of ventures?
We have become very nimble and mobile with the way we operate. Hayball is regarded as a market leader in a wide range of disciplines, especially in the residential, education, hospitality and commercial realms, which makes us uniquely positioned to understand the changing needs of the market and provide our clients with insight into all types of ventures. While we have a preference for local work, we do look offshore for projects, and have worked with clients based in China, Indonesia, Singapore and Malaysia.
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