As the industry prepares for the final report of the Hayne royal commission, tighter credit conditions and negative sentiment continues to affect the apartment market, with developers struggling to get projects off the ground.
Sydney’s apartment market is now well into a downturn, while Melbourne is slowing rapidly, JLL’s Apartment Market Report for the third quarter revealed.
The supply pipeline in the apartment market reduced slightly in the third quarter, as projects completed in the period far outweighed new project commencements.
JLL expects headwinds in the apartment market to remain strong in the short-term putting further pressure on prices and rents across the next 12 months due to credit constraints, but the report is optimistic about the outlook in two to three years.
“It is important to note that this is largely a credit-driven slowdown in the market,” JLL’s head of residential research Leigh Warner said.
There were 44,300 apartments under construction across the five major capital cities at the end of the September quarter, down by around 1,400 apartments since the end of last quarter, reveals the report.
The drop was most acute in Sydney where apartments under construction dropped by 2000, while the pipeline also shrunk in Melbourne.
However, this was somewhat offset by rises in construction recorded in Adelaide and Perth.
Restrictions to credit continue to dampen demand for apartments in Sydney.
JLL says many developers have shifted focus towards incentivising local buyers by offering stamp duty rebates, lower deposits, strata levy payments for up to two years or rental guarantees.
Strong completions were recorded during the third quarter with 3134 apartments entering the market for the period. This brings the total number of apartment completions, for the year to date, at 7502.
Victoria’s economic fundamentals remain strong, but slow price growth and declining sales volumes reflect its residential market has begun to cool.
Melbourne’s apartment supply pipeline continues to shrink as projects complete and fewer planning applications are made.
This year a total of 6100 are expected to complete, this figure almost 41 per cent lower than 2017 levels.
Currently, 19,100 apartments are under construction and a further 10,000 are at marketing stage.
“Many developers are likely to continue to seek alternative financing as major lenders remain hesitant to fund high-density apartment projects,” Warner said.
“Joint ventures and equity contributions is a trend that will likely continue as developers seek other means to get projects off the ground.
“We expect price growth to continue to stall for the remainder of 2018. Although annual supply is moderated the biggest threat to the apartment market is the slowdown in credit growth.”