The apartment market in any city – large or small – can be impacted by students. Urbis found this to be the case in a recent investigation of Newcastle, driven by the proposed CBD Campus of the University of Newcastle. Students rent small apartments, and share larger ones, thus creating a critical mass of residents in an area. This provides a “vibe” that then attracts other residents. However, while Newcastle will share the student factor along with other precincts that are dense with apartment living, it differs from other areas in important ways.
Regional cities have less market depth
A very important difference between Newcastle and Sydney is the lower income profile. This results in lower average affordability for properties, which means that the market for apartment stock is skewed to more affordable stock.
Lower income First Home Buyers are typically restricted to affordable product such as 1 Bed 1 Bath and 1 Car apartments. Recent developments have priced this type of product under $400,000.
Upper income First Home Buyers are typically limited to 2 Bed stock, however are unable to purchase 3 Bed units.
Lower income established home owners who have greater equity in existing assets can purchase 2 Bed product at some developments, although others have pitched their 2 Bed product above $500,000, which may be challenging to afford for this target group.
This leaves the 3 Bed product within the Newcastle CBD which is generally only affordable for upper income established home owners. However, according to local agents 3 bedroom units above $600,000 have not sold well recently, showing that for the bulk of the market, this is where the depth runs out.
Urbis has observed the same pattern across Australia in a number of regional locations. In some prestige regional areas the cap may be a little higher than $600,000, but the principle is the same, the depth is shallower in regional areas at the higher end of the price range.
Foreign investors are missing
One of the big news stories in apartment development is the increase in foreign investment. However, that has so far only been a capital city story.
In more developed infill markets and larger cities such as the Sydney Greater Metro Area, there is a long history of non-Australian born buyers and renters. This pattern doesn’t exist in Newcastle or other regional areas that gain less exposure to buyers from outside the local area.
Newcastle hasn’t developed the same ethnic diversity as Sydney as there has been limited overseas migration into the area.
Importantly, there is also very little foreign investment. In Melbourne and Sydney, there is very strong real estate investment by Singaporean and Chinese buyers. That is lacking in Newcastle, and most other regional cities.
Regional areas have potential, but they are not cities
It is important to understand the difference between inner city metropolitan areas of major cities versus regional locations. Cities like Newcastle, Wollongong, Ballarat and Geelong have significant apartment potential – but they should not be treated as if they were Sydney or Melbourne that have much greater depth and interest from buyers from beyond the local market.
This article first appeared in the Urbis Think Tank. Urbis is an interdisciplinary consulting firm offering services in planning, design, property, social planning, economics and research. Working with clients on integrated or standalone assignments, Urbis provides the social research, analysis and advice upon which major social, commercial and environmental decisions are made. With over 300 staff Urbis is uniquely positioned to handle projects from the simplest to the most complex.