City Beat October 2023: Buyer activity improves in Melbourne's off the plan apartment market
Melbourne unit value growth again outstripped houses for the fourth time in five months, according to CoreLogic's monthly Home Value Index.
Units, which incorporates both apartments and townhouses, saw values rise by 0.7 per cent over October, compared to 0.4 per cent for houses.
Over 2023 Melbourne unit values are now 3.7 per cent higher than they were at the start of the year, with the new median unit value now $615,000.
The housing market growth has tapered off since it turned a corner earlier this year. Sydney and Melbourne led the property market rebound, driven by low listing. Their growth has slowed the most however due to an increased level of supply most evident heading into spring and summer.
Where there's still a significant shortage in supply is in the off the plan apartment market, with developers continuing to battle the challenges of construction costs and the increased cost of land.
What's happening in the Melbourne off the plan market?
The aforementioned supply issue is still a critical issue in Melbourne, and looks like it will be for some time. There were a handful of projects go live o\ver October, but not enough to keep up with projected population forecasts.
Projects by Buxton Director Heath Thompson said the lack of supply is driving interest in stock which at one time or another has been overlooked.
“We’ve seen that residual stock is now starting to sell easily," Thompson says.
"Apartments that had been on the market for an extended period, having at one time, when supply was better, been viewed as being either expensive, compromised in outlook, or the floorpan wasn’t right, now an attractive purchase, given the lack of supply on the market."
Thompson is marketing Martin Brighton, a new boutique apartment development in Melbourne's Bayside. He's just sold a two-bedroom apartments to a Sydney investor, site unseen.
Thompson says Martin ticks the right boxes in the off the plan apartment market at the moment.
"The project is under construction, with a timeframe in which people can start to prepare for their next move. The move in date of early next year means those downsizers can start to look at selling their house and what their next move looks like. It's a little easier when the building is six months away from completion compared with a few years ago. The stage of which construction is at is also particularly attractive in the current climate. There's certainty the project will complete, and that's worth its weight in gold."
On the Sydney buyer, Thompson says the buyer was particularly attracted to the longer term capital growth Brighton, and in particular Martin, represents," Thompson says.
"Martin sits in a niche pocket where you don't have to win the lottery to afford one of the apartments, but nor is it typical investor-grade, first home buyer stock. It sits in the middle tier, and suits the downsizer who doesn't have, or doesn't want to spend, $3 million plus, which the majority of new apartments in Brighton cost."
Thompson has also seen renewed interest in a penthouse he's been marketing for a while, also in Brighton.
"A penthouse in Brighton we’ve been marketing has had no activity for months, but in the last week we’ve had three inspections for it.
No issues with interest rate rises at the moment as Thompson's main buyer demographic at the moment is downsizers.
Noorden Property agent David Lamond is seeing buyers cautiously await the RBA news, and the timing of the hike hasn't helped.
"It just speeds up the Christmas break for prospective buyers," Lamond says, where typically sales don't tend to occur. He says there will still be enquiry, but their timeline to purchase won't be until well into the new year once they've seen evidence of the RBA's willingness to hold rates for a prolonged period.
Lamond recently launched Marlu, a collection of just four townhouses in Hampton.
In a similar fashion to Thompson's Martin, Marlu bridges a gap, in this instance between a grand $5 million plus mansion and an apartment.
"The project resonates with those not wanting to downsize fully to an apartment, but don't want the maintenance of a large family home."
Lamond forecasts that August 2024 will be a key month where developers will start to be able to put their foot on the gas once more after a few years of status quo, which will help the Melbourne supply issues.
"When looking at the supply pipeline for buyers, developers are starting to look at site acquisitions in the new year, with the view that by August, a few current challenges in the build space might tip in their favour.
"Trades are expected to start running out of work, and they won’t be able to command exorbitant prices like they are now, and materials, while not coming down, will start to at least plateau which will make it easier for a developer to accurately price a project."