Bloomberg News

Frasers Bets on Australia Housing With $3.6 Billion Projects

October 20, 2011

(Updates with Infrastructure Australia report in sixth paragraph.)

Oct. 20 (Bloomberg) -- Frasers Property Australia, a unit of Fraser & Neave Ltd., said it has A$3.5 billion ($3.6 billion) in developments under way, betting on a revival in a housing market that has fallen 3.2 percent in the past year.

The group, building a A$2 billion development in Sydney’s center that will create about 2,000 apartments by 2015, is counting on economic growth driven by Chinese resources demand and a shift in preference for apartment living to drive sales, said Chief Executive Officer Guy Pahor.

“There are short-term issues we need to deal with in the housing market, but these have more to do with consumer sentiment than underlying fundamentals,” Sydney-based Pahor said in an interview. “Over the medium to long term, the affordability factor is going to be key in more people choosing apartment living over owning a house on a quarter-acre lot of land, as will people prioritizing lifestyle and proximity to social amenities and employment over a larger backyard in outer suburban estates.”

Having a detached house was fifth on a list of factors that influence housing choice, and most single and older people are likely to find the location of their home more important than other aspects, according to a survey of 706 people across Sydney and Melbourne’s metropolitan areas conducted by the Grattan Institute.

Apartment prices fell 0.9 percent in the year to Aug. 31, faring better than house prices, which declined 3.6 percent, according to real estate researcher RP Data. The central bank raised interest rates seven times from October 2009 to November 2010.

Sydney Focus

An ageing population, shrinking household sizes, lifestyle choices and government policies are moving Australians more toward inner-city living, Infrastructure Australia said in its State of Australian Cities 2011 report released today.

Sydney, where Frasers is building 80 percent of its projects, has outperformed the rest of the country, with home prices rising 0.3 percent, while all other cities had declines, according to RP Data. Almost a quarter of Sydney residents lived in apartments, compared with 7.1 percent in Perth and 8.4 percent in Adelaide, the Infrastructure Australia report said.

“It’s obviously on people’s minds that global economic situations can impact the growth in Australia,” Pahor said. “But we have a shortage of housing in Australia, and that shortage is most acute in Sydney.”

Central Park

Frasers is building Central Park, a project that’s expected to create 255,000 square meters (2.7 million square feet) of floor space at the former Kent Brewery site in the inner suburb of Chippendale. The development, in partnership with Sekisui House Ltd., Japan’s second-largest home builder, includes 16,000 square meters of retail space, 70,000 square meters of office space, student housing and possibly a hotel in addition to its residential component, Pahor said.

Frasers has sold about 80 percent of the units in the first of its 11 buildings a year after starting sales, he said.

The companies signed a four-part loan worth A$550 million expiring in September 2014 from Australia & New Zealand Banking Group Ltd. and Bank of Tokyo-Mitsubishi UFJ Ltd. last month to fund the project.

Frasers will hold off acquiring new development sites, focusing instead on its existing pipeline, and selling buildings as they are completed to finance subsequent stages and projects, Pahor said.

Frasers is a division of Frasers Centrepoint, which was acquired by Fraser & Neave, Singapore’s third-biggest developer by assets, 2001.

--Editors: Malcolm Scott, Andreea Papuc

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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