New South Wales property developers are following a trend started in Europe to “build and hold” residential projects rather than selling them off.

The new approach comes as rental yields increase and apartment blocks prove to be an attractive investment opportunity.

Colliers International director of residential site development Curtis Field says as super funds and large listed property trusts look for diverse investments to balance their investment portfolios, holding large projects will become more attractive.

“‘weLive’ recently purchased a site at Zetland in South Sydney with the purpose of building apartments and holding them as a long-term investment,” he said.

The development of 307 apartments, a mix of studios, one-, two- and three-bedroom apartments, is specifically designed for the rental market.

“This development is an example of a new approach to development in Sydney and a direct response to the tightening rental market and the subdued sales market in this area,” he says.

“The benefits include the delivery of new rental stock in the CBD fringe market and the commencement of a project in an area that has had limited development activity.”

He says the Zetland development is a clear indication that the market is viewing long-term hold of residential property as an alternative to commercial, industrial and retail opportunities.

While the development could temporarily stagnate rents when it is completed – it would only be short lived.

“The underlying demand will fill the apartments,” he said.

Mr Field predicts there are several effects that this new trend could have on Sydney’s residential property market.

“The development of the apartments to hold will see an increase in housing stock in the area without the corresponding availability of stock to buy”, he said.

“The benefit of this type of development will be that it will show that there are people wanting to live in the area and ultimately renters become buyers.

“Therefore, it brings buyers to the area that may not have looked at the market if they hadn’t been able to rent there first.”

Mr Field predicts Sydney will see more of this type of development in the near future.

‘Should a developer choose not to sell units upon completion the GST can be effectively ‘washed out’ by holding for longer than 5 years,” he said.

“This naturally has an impact on the end sales price if the units are to be sold. In the case of weLive, we understand that there is no current intention to sell the units, rather it is a long term hold strategy.”

Charlotte Cossar