Price drop to be stemmed as apartment supply set to plunge given COVID-19 pause

Price drop to be stemmed as apartment supply set to plunge given COVID-19 pause
Price drop to be stemmed as apartment supply set to plunge given COVID-19 pause

The supply of new capital city apartments is set to dry up over the next three years as completions plunge.

They are expected to plunge from their present levels in Sydney by 81 per cent and in Melbourne by 75 per cent.

New projects are tipped to be delayed or cancelled because of poor demand following the pandemic slowdown.

The forecasts were made in the State of the Market for Residential Apartments report by consultancy firm Charter Keck Cramer.

It also expects a sharp decline in the number of completed apartments in Brisbane, where supply is forecast to slump as much as 90 per cent by 2023.

Charter Keck Cramer director of residential research and strategy Angie Zigomanis said the expected drop in apartment completions could help stem the slide in apartment prices and rents.

"The apartment market could see a relief from lower supply and starts, which will place upward pressure on rents, yields and prices, and in turn should kick-start off-the-plan demand," Mr Zigomanis said.

"If a quick recovery in net overseas migration to pre-COVID levels occurs, the sharp reduction in new dwelling completions from FY2022 is likely to cause a significant dwelling deficiency to re-emerge.

"However, if net overseas migration inflows and population growth continue to remain weak, then the Melbourne and Sydney apartment markets could be subdued for some time."

The report noted Victoria's recent share of the national total suggested that its net inflow of overseas migrants will fall dramatically from a peak of 91,000 in FY2017, to 11,000 in FY2021.

"On these numbers, the requirement for new dwellings in Melbourne is expected to more than halve from a peak of 57,500 new dwellings in FY2017 to an estimated 27,200 in FY2021."

The supply of new apartments has continued to flow this year through the pandemic, the report noted.

A total of 17,100 apartments were being completed in Melbourne – the third highest on record.

In Sydney, 22,500 apartments were being finished.

It is 5000 in Brisbane.

But the pipeline is diminishing quickly, with project launches and commencement falling sharply.

Only 5300 apartments started marketing in Sydney – an 84 per cent drop from the 2016 high and its lowest level since 2010.

The number of apartments starting construction has tumbled by more than half (57 per cent) to 9200 – the lowest commencements in nine years.

In Melbourne, 12,500 new apartments began construction – a slight increase from a year ago. Only 5600 apartments were being released for sale, which was the lowest number of launches recorded over the past decade.

The time it took to deliver new apartments from launch has blown out as slower sales volumes and more onerous requirements to secure finance has held up projects.

The lag in Sydney has pushed out to an average of 18 months compared to eight months in 2011 and 2016. In Melbourne, the delay widened to an average of 20 months from nine months in 2009.

Historically, larger projects take longer to proceed from launch to construction, however the time frame has converged, highlighting the difficulties in achieving pre-sales and obtaining finance across the board, Mr Zigomanis said.

The report noted the Sydney owner occupier market is holding up, supported by low interest rates, which have improved affordability for those with jobs.

"First home-buyer demand is being encouraged by stamp duty concessions.

"In turn, this is supporting demand for affordable apartments that are suitable for owner occupiers. Both upgraders and downsizes remain active where they are transacting within the same market."

Tags: 
Apartment Supply COVID-19

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