In 2007, the Australian property market was nothing short of booming. Investors were keen, demand was high and economic conditions were ideal. But when the global financial crisis (GFC) struck in 2008, things rapidly changed. For many lawyers, their deal flows were significantly impacted and the market wound down to a level from which it is yet to bounce back.

But property lawyers across the country are uniformly optimistic that fluidity in the market is resuming, albeit a little slower than anticipated, and with it new trends and considerations have surfaced.

The gentle curve of recovery

According to Freehills partner Greg Hing, one of the primary catalysts for the drop in real estate transactions during the GFC was the development of a significant expectation gap between vendors and purchasers. "Twelve to 18 months ago ... there were a lot of vendors thinking that their properties were still at the 2007 mark and there were a lot of purchasers who were somewhat unfairly thinking that it was bargain basement time," he says.

"That expectation gap meant that there wasn't much activity."

But Hing believes that this gap - which has stunted the acquisitions market for the last two years - is closing, and he points to the sale of Aurora Place in Sydney (which settled in March this year) as being indicative of this.

"That was a good transaction which illustrated that there is potential for vendor and purchaser to meet at the right price point," he says.

"It sent the right signal to the market."

Allens Arthur Robinson partner Mark Stubbings says the property market is definitely making headway, though he acknowledges that certain areas remained strong throughout the GFC, especially in the retirement villages' space.

"As I look back on the GFC, I wouldn't call it a healthy period, but we certainly remained quite busy ... but it is just now really starting to warm up," he says. And although market signs are positive across the country, the rate of recovery has not met expectations in most states.

"[The market] is probably six months behind where [we] hoped it would be. There was a veneer of confidence at the beginning of the year, amongst clients, that things were going to turn around quite quickly. It's lagging a little bit, but it is coming back," says Stubbings.

Hing agrees: "There's a slow improvement. There is definitely more of a positive outlook than there was 12 months ago but it's more of a gentle curve than any sort of major spike."

Macpherson + Kelley principal Lydia Arrico is unwaveringly positive, especially in relation to the Victorian residential market which she says remained very strong throughout the GFC. Though the commercial sector, she adds, definitely experienced a slump.

"I think that we never really had a recession in Victoria, if I can be as bold as that. We were all anticipating it and there was a big hype about it ... [but] I don't think the GFC has really affected the Victorian housing market. We have been quite fortunate to have been shielded," she says.

"Demand is really strong and unemployment remains low, so as long as that continues and interest rates don't go too crazy, we'll just expect the growth to continue from a development point of view. But on the commercial front, it is still recovering."

Overseas influences

According to Stubbings, one change thrown up by the GFC is a swathe of new and opportunistic players in the market, especially from Asia and, more specifically, Singapore.

"Clients have reawakened their interest and taken opportunities, or are new entrants to the market of large acquisitions of potential development sites. For example, we are acting for a Singaporean client for a very significant residential development in Sydney."

Arrico has also experienced a steady flow of Asian investment.

"Overseas investment is still quite high and we still have high levels of Asian involvement in development projects. They're drawn to the fundamentals here: demand, security, corporate governance. Things like that attract investors," she says.

"If you look at the volatility of the Asian market and even the US market, and you look at the stability of the Australian market, it is obviously quite exciting."

In contrast, Hing says there has been a marked drop-off in potential European investors, largely due to the ongoing instability of the European economy.

"Europe is an issue. We haven't seen a lot of sovereign European funds or European money coming into Australia. There were some German funds which were quite aggressive a few years ago and they haven't been as aggressive," he says.

"There are things like that which I didn't see six to 12 months ago as being an issue, but the fact that the EU countries have been a little bit on the knife edge has sent a ... message to the market."

Domestic roadblocks

As the recovery emerges, it is evident that some states are faring better than others. Leading the charge towards pre-GFC levels (which are still a long way away, if attainable at all) are Brisbane and Perth, which Stubbings describes as the "notional boom towns".

Hing agrees, though says that activity in Perth - which was generated off the back of the resources boom - has somewhat cooled.

Lagging behind the others, however, is Sydney. Hing says Sydney is simply not an attractive option for developers and investors compared to cities in other states in which development is being actively facilitated.

"Each of the states is a little bit hindered by government issues, and ... without wanting to create too much of a political slant on it, NSW is a difficult jurisdiction," he says.

"From a property perspective it is very expensive. You've got stamp duty issues, development [issues] and planning issues. Victoria, for example, has had a more streamlined planning process for the last few years and that has certainly made it easier for developers to successfully run a project."

A distinct shade of green

Aside from challenges emerging during the GFC, property lawyers also have to take into account the changing needs of clients, especially when it comes to sustainability and the environment. As landlords lease to new lessees and new developments arise, clients are under pressure to deliver a growing list of sustainability demands.

"[Sustainability] is something that clients are going to have to come to terms with and will be a new element to real estate transactions," says Stubbings.

"The positive aspect of energy efficiency and the sustainability of their buildings is a constant topic of discussion amongst our clients."

Hing agrees and says he is keeping an eye on imminent federal sustainability disclosure laws emerging from the National Strategy on Energy Efficiency.

"A lot of major multi-national tenants or professional services firms want to be able to say, 'here is a symbol of our commitment to sustainability. We don't want to be leasing space in a building which is less than 5 or 6 green stars'," he says.

"It is also actually a real way ... to reduce costs. In a lot of ways, everyone can win commercially out of these sustainable solutions."

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