Weaker price and rent growth will result in residential project delays: CBRE

Weaker price and rent growth will result in residential project delays: CBRE
Weaker price and rent growth will result in residential project delays: CBRE

After a sustained period of growth in residential construction activity over the past five years, 2016 represented a shift in the development cycle with historical undersupply being addressed in most markets, according to CBRE’s latest report.

Sydney remains the exception; low vacancy rates (sub 2 percent) and a nation-leading level of price growth make it likely that the construction cycle with extend for longer in Sydney than in other Australian markets.

Price and rent growth eased across all capital city unit markets in 2016.

Total dwelling approvals in 2016 were 4% lower than in 2015, but as a signpost for 2017 approvals for Q416 were 14% lower than the previous corresponding period.

Approvals are losing momentum.

In light of weaker price and rent growth comes the prospect that developers may delay commencement of projects.

This is especially in markets where demand conditions are less favourable (Brisbane, Perth) or with significant supply (Melbourne), although there was little evidence of this occurring during 2016.

“We expect that less-favourable conditions in mortgage markets (higher interest rates and stricter lending requirements for some types of mortgages) and lower levels of unit rent growth will likely soften buyer demand and reduce the amount of new supply being planned in 2017,” the report stated.

Dwelling approvals are expected to slow in 2017, but unit completions are expected to reach record levels (figure 19).

Click to enlarge

Weaker price and rent growth will result in residential project delays: CBRE

With apartments representing 50% of expected completions (up from a historical norm of -30%), inner-city markets, where most new apartments are being built, appear most likely to experience downward pressure on rent growth as a high proportion of the new stock becomes available for rent.

Pricing already shows a narrowing gap in median values between inner-city apartments and outer suburb houses as new supply slows price growth in areas of high building activity.

This is particularly in Brisbane and Melbourne due to the concetration of apartments in the inner-city area.

Tags: 
CBRE Residential Market

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?