Melbourne high-rise approvals to halve compared with last year as construction slows: Oliver Hume

The rate of construction of Melbourne apartment projects is expected to slow due to projects taking longer to transition from marketing to construction, according to the latest research by real estate group Oliver Hume.

The group also forecasts the number of high-rise building approvals to halve over 2011-12.

According to Oliver Hume, the high number of active projects in part suggests a softening in the sector, “as absorption rates slow with projects taking longer to move to construction”

March quarter figures in the Melbourne Apartment Market report show that the number of apartment projects being developed in the metropolitan region has fallen below 300 for the fourth successive quarter.

Although there are fewer active projects, the higher number of apartments in each project expected to be fully developed could mean more units being marketed off-the-plan than in the previous corresponding quarter.

In total there were 295 active projects in the March quarter (the highest since the June quarter 2011), which if fully developed ("and more will than will not") will deliver around 40,100 apartments: compared with around 321 projects and 37,230 apartments in the corresponding quarter 12 months ago.

Of these 40,100 apartments, more than half – 22,000 – are currently under construction or already completed.

Five local government areas – Boroondara, Melbourne, Port Phillip, Stonnington and Yarra – contain more than 55% of all metropolitan Melbourne apartment projects, compared with 80% of all apartment projects in 2008.

Over the quarter a total of 35 new projects were released, injecting close to 3,000 apartments into the pipeline. 

During the previous quarter there were 36 new projects released, containing approximately 3,030 apartments. 

The most active market is the City of Melbourne, with 17,650 apartments, followed by Stonnington and Yarra. Boroondara and Port Phillip make up the top five.

According to Oliver Hume, the median one- and two-bedroom entry prices for apartments are $366,750 and $502,000 respectively, with the price difference between one- and two-bedroom apartments continuing to drop. The difference is now only $135,500, down from around $151,000 six months ago.

Since 2008, the entry-level price of a one-bedroom apartment in metropolitan Melbourne has risen at an average rate of 2.4% a year, from $335,000 to $366,500. 

The entry-level price of a two-bedroom apartment has risen by 2.9% a year, from $450,000 to $520,000. 

The report found that only one in every five new projects contained some form of community facilities or amenities. 

Across all new releases, the median entry living area of both one and two-bedroom apartments is 44 and 64 square metres respectively. 

According to Oliver Hume, high-rise building approvals in Melbourne are expected to halve over 2011-12 compared with a year ago.

The real estate group says high-rise approvals will slip back to around 17% of all approvals, comprising a total of around 8,000 approvals. This is down from some 15,000 in 2010-11 and about the same as in 2009-10.

High-rise apartment approvals in Victoria peaked in 2010-11 to just over 60% of all multi-unit dwelling approvals and 41% of total approvals, with most of these developments occurring around the Melbourne CBD.

Andrew Perkins, national head of research at Oliver Hume, expects lower rates of approval for the rest of the year following the largest-ever spike in Melbourne apartment developments.

The drop in high-rise building approvals comes alongside an overall dip in multi-unit approvals with Oliver Hume forecasting multi-unit approvals in 2011-12 to slip back to 15,900 or 35% of all dwelling approvals compared to a dwelling approval peak of 24,400 in 2011-12.