Investors Return to Apartment Market ‘Bar Brawl’

The country’s apartment prices are likely to kick up a gear in the coming months with experts predicting that property investors—who have cautiously sat on the sidelines—are beginning to move back into the market.

Speaking at The Urban Developer’s Residential vSummit, Ironfish director Grant Ryan said that while house prices had boomed in recent months, prices for inner city apartments had languished due to a shift in preferences towards detached houses.

“In the affordable apartment segment at the moment it is a bar brawl between first-home buyers and owner-occupiers,” Ryan said.

“While investor demand isn’t quite there just yet, all three groups are propping up and increasing demand, which is currently being driven by low interest rates.”

According to figures from the Australian Bureau of Statistics, ultra-low interest rates are doing their job and triggering a sharp rebound in building approvals.

New dwelling approvals bounced back strongly across the year, with approvals for private sector houses hitting a new record high.

Apartment approvals, however, remained subdued compared to the levels of the past seven years.

Ryan said that in recent conversations with a number of high-profile developers, questions and concerns raised around “density”—brought about by the pandemic—remained heightened.

Many apartment builders have since switched to smaller owner-occupier products and remain “gun-shy” to push ahead with large-scale apartment projects.

“With the investor segment it all comes down to sentiment at the moment and it is as if everyone is at the party waiting nervously to see who walks out onto the dance floor first,” Ryan said.

“Once there is a little bit of confidence everyone realises that everything is actually okay.”

Apartment prices edged up 1.2 per cent in April to be up 4.2 per cent during the quarter and seem to be heading in the right direction.

“As we head into this next cycle, it is feeling very different to me to what we’ve experienced in previous cycles,” Ryan said.

“Apartment development and design has evolved rapidly in the past five to 10 years and what used to be an alternative, investor, owner-occupier tiers of apartment stock is now melding together into a more level and often higher quality of product.

“The ‘apartment by choice’ now has a wider market than it did maybe 10 or 20 years ago.

“My picks for the apartment market at the moment are Brisbane, the Gold Coast and Perth—but valuations remain tricky due to the heightened activity and lack of evidence in seeing transactions actually settling.

“I also believe there is a real play for investors looking to break into those markets to be looking at the second-hand apartment market, the backbone that helps lift new property prices.”

Maxcap chief investment officer Bill McWilliams shared these sentiments, pointing to high absorption rates for apartments being delivering in Brisbane and Perth during 2021.

“In this current environment we are needing a more bespoke funding solution for developers looking to be flexible with their funding and reinvigorate apartment projects,” he said.

“The pipeline is now looking particularly strong for construction facilities predominantly in the apartment space which is very different to 2020 when we were funding more land acquisitions and residual stock loans.”

McWilliams said the pipeline in Sydney had strengthened in recent months, despite products requiring longer lead times and planning requirements.

“Melbourne suffered during the pandemic and experienced a hiatus of six months in which very few projects were launched,” he said.

“We now expect to see those opportunities for apartment projects to hit in the third and fourth quarters of this year.”