Slow sales for off-the-plan apartments saw inner-city completions fall 21 per cent across Australian capital cities in 2019.
Sluggish pre-sales has led to a smaller amount of new projects starting in the short-term, and most markets moving into a position of undersupply over the next few years, according to JLL research.
All stages of the national supply pipeline continued to contract in the final quarter of 2019, despite the strong rebound seen in the existing housing market over the second half of the year.
The national apartment supply pipeline followed a downward trend from 2017 with 2019 falling 30 per cent below the peak.
National inner city supply pipeline
JLL Research as at fourth quarter 2019
JLL’s head of residential research Leigh Warner said market confidence in the existing housing market had clearly rebounded to strong levels, but the off-the-plan apartment market remained much more subdued.
“In part, this reflects the fact that local and offshore investors are a key source of demand for new apartments and this remains soft,” Warner said.
“There is also some residual unsold apartment stock in recently completed projects in many markets that is providing competition for the pre-sales market and keeping sales rates slow.
“Developers are definitely growing in confidence and looking to position themselves for the next cycle, but the reality is that it remains tough to get projects started at present.
“With the long lead-times for larger apartment projects, this means it will take several years for the apartment supply pipeline to really ramp up again.
“In the interim, continued strong population growth in our major cities will keep underlying demand growth robust and see conditions tighten up quite quickly.
“The timing of this will be slightly different in each market, but we believe this will quickly become apparent in the rental market.”
National apartment supply pipeline
Less than 2,900 apartments completed in inner Brisbane in 2019, which is around 60 per cent lower than the 7,000 apartments delivered in 2016 according to the research.
Sydney was at the other end of the spectrum—supply in inner Sydney only peaked towards the end of 2018 and across the entire city in 2019.
Recovery in the Melbourne market also relies on working through a little residual stock.
Somewhat elevated levels of new supply dampened the relatively small apartment markets in Adelaide and Canberra in the short-term.
However for Perth with recently introduced stamp duty incentives for off-the-plan purchases and very affordable prices should help demand “bounce back” after an extended period of weakness.