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Melbourne development site prices surprisingly strong, Paul Little says

Michael Bleby
Michael BlebyDeputy property editor
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Slowing apartment sales in Melbourne have not dented the demand for development sites, to the surprise of developer Paul Little who has been hoping to capitalise on distress sales.

Mr Little, outbid to the tune of $8 million by local businessman Solomon Lew in the $55 million November sale of an eight-storey tower at 457 St Kilda Road, says he is not sure why the prices of sites have stayed so strong.

"I don't think there's any doubt that sales have softened," Mr Little told The Australian Financial Review on Tuesday. "There's still quite significant demand for sites. That's been the surprising part. [For] the sites that are ready to go with permits in place, there's been still quite serious competition."

'There's still quite significant demand for sites. That's been the surprising part': developer Paul Little. Paul Jeffers

He had expected to start seeing sites recycled into the market by receivers last year, but that hadn't happened, he said.

"Halfway through last year we thought we'd start to see them," he said. "There have been the odd ones come through, but not a lot."

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Credit curbs

New apartment projects in the Victorian capital are slowing as developers respond to regulator-driven credit curbs for buyers and construction financing constraints tighten. In the state and nationally, new unit, townhouse and apartment construction starts dipped to their lowest level in a year and a half in September, adding to the picture of a sector taking a breather.

But even so, appetite for sites remains unchecked. Chinese developers roared back into Melbourne in the final five months of 2016, snapping up three-quarters of development sites – in contrast to the first seven months of the year, when they accounted for less than one in five sales – sales figures from commercial agency CBRE show.

Mr Little, who changed his focus 18 months ago from large apartment developments to smaller ones of about 200 units, said he was still looking for sites in "trendy" locations that would attract a market of young renters.

"The way to determine whether a location is trendy is how easy it is to rent the apartments that are held by investors," he said.

"The hot areas are still hot, in terms of South Yarra, Port Melbourne, St Kilda, Richmond. But when you go outside of those areas ... you really need to know what you're doing."

Savills national head of research Tony Crabb said that despite reports of a slowdown, the housing market was still strong and not all developers had financing problems. Even those who couldn't sell completed stock didn't necessarily have to offload it, Mr Crabb said.

"I have heard a developer with unsold product saying 'I'll just keep it and put it on Airbnb'," Mr Crabb said. "That took me a bit by surprise."

Michael Bleby covers commercial and residential property, with a focus on housing and finance, construction, design & architecture. He also dabbles in the business of sport. Michael is based in Melbourne. Connect with Michael on Twitter. Email Michael at mbleby@afr.com

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