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Developers Still Face Headwinds in Apartment Market


Subdued investor demand in the apartment market will make it difficult for developers to commence new projects, particularly large ones, despite the recent turnaround in sentiment.

Ongoing market headwinds are making it hard for developers to meet pre-commitment hurdles required for finance — with fewer projects proceeding to construction, according to JLL’s second quarter apartment market report.

With Tuesday’s ABS figures revealing a 39.3 per cent slump in the number of high-rise approvals — buildings of more than 4-storeys — over the year to June, construction numbers also remain low.

“JLL data showed that the number of apartments under construction in Australia’s six major capital cities fell a further 12 per cent in the second quarter to 39,660 apartments and was down 21 per cent over the past year,” JLL head of residential research Leigh Warner said.

Warner noted that a 7 per cent uplift in apartments being marketed over the quarter showed some optimism, but it still remains 34 per cent lower of over the year.

“Further, the total number of apartments in the supply pipeline at all stages of development that JLL track is [a] massive 46 per cent below its late-2016 peak.”

Weak presale volumes, ongoing insurance concerns and increasing reports of high-rise building defects will also continue to put pressure on the market.

BIS managing director Robert Mellor said that the fiscal year 2019-20 should represent the trough for building.

“It is not until mid-2020 that a suite of stimulus measures are expected to [facilitate] credit availability, reducing barriers to entry and boosting confidence.”

Related: Sydney Developer Ralan Group Collapses


Sydney

▲ Sydney's apartment market trough is to settle in earlier than expected, according to JLL.
▲ Sydney's apartment market trough is to settle in earlier than expected, according to JLL.

LatestYear-on-Year % change
Apartment approvals6,433-30.5%
Sales volumes (units)25,293-21.5%
Median unit price$701,500-3.2%
Median rent (1 bed)$547.5/week-0.5%
Median rent (2 bed) $695/week-0.7%
Gross rental yields3.9%10bps

^ Inner Sydney key market indicators. Source: JLL, ABS, CL, DHHS rental report.

Strong auction clearance rates and a boost in confidence has bolstered dwelling prices in Sydney, with the market trough being reach earlier than expected.

Sydney’s supply pipeline tracked is just under half its peak level in late-2017, Warner said.

“Nevertheless, recent completions have been strong right across Sydney and not just in the inner city.

“And the rise in rental vacancy over the past year or so shows there is excess stock for the market to absorb in the near-term still and construction levels will continue to decline.”

The number of apartments under construction in inner-Sydney fell 17 per cent to 10,230 in the second quarter — 40 per cent lower than a year ago. While the number of apartments being marketed declined 57 per cent over the past year.


Melbourne

▲ Melbourne apartment market approvals slumped 62pc over the year.
▲ Melbourne apartment market approvals slumped 62pc over the year.

LatestY-o-Y % change
Apartment approvals3,562-62%
Sales volumes (units)3,884-22%
Median unit price$550,0000.0%
Median rent (1 bed)$400/week0.3%
Median rent (2 bed) $550/week0.0%
Median rent (3 bed) $775/week-3.2%
Gross rental yields4.0%+2bps

^Inner Melbourne key market indicators. Source: JLL, ABS, CL, DHHS rental report.

Melbourne’s inner city apartment supply pipeline is still relatively concentrated in and around the CBD. Supply under construction in inner Melbourne fell 3 per cent in the quarter to 17,630 apartments — down 9 per cent over the year.

Warner says that there are still a number of investor-focused projects in Melbourne that are struggling with settlements and selling residual stock.

“Nevertheless, unlike Sydney the rental market remains quite tight, in part reflecting the city’s extraordinarily strong population growth.

“Against the trend of the past year when a number of projects have stopped marketing and flipped to alternative uses, the number of apartments marketed in inner Melbourne rose slightly in the second quarter to 8,180.”


Brisbane

▲ The recovery of Brisbane’s apartment market is more advanced than in other cities.
▲ The recovery of Brisbane’s apartment market is more advanced than in other cities.

LatestY-o-Y % change
Apartment approvals1,734-51.7%
Sales volumes (units)2,994-4.6%
Median unit price$383,000-2.0%
Median rent (1 bed)$360/week-2.7%
Median rent (2 bed) $490/week0/0%
Median rent (3 bed)$625/week-3.8%
Gross rental yields5.2%+20bps

^Inner Brisbane key market indicators. Source: JLL, ABS, CL, DHHS rental report.

Brisbane’s apartment market supply pipeline still remains very low, with just 4,350 apartments under construction at the end of the 2019 second quarter.

JLL’s figures show a slight rise in the number of apartments being marketed across the quarter, but remaining 68 per cent lower over the past year and 85 per cent lower than the 2016 peak.

The recovery of Brisbane’s apartment market is more advanced than in other major cities, Warner says, due to the market peaking much earlier.

“Despite this, tight credit conditions and negative sentiment nationally saw renewed price falls in the first half of 2019 just when it looked like prices were stabilising.

“Nevertheless, we still believe the combination of now very low supply levels and increasing population growth will see Brisbane lead other markets into the next cycle.”

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Article originally posted at: https://theurbandeveloper.com/articles/developers-still-face-headwinds-in-apartment-market-jll-