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Short-Term Oversupply Drags Apartment Market

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The apartment market rebound is under way with prices on the rise—but there are three things that could change all this.

The National Apartment Market Report by JLL showed while the housing market had exceeded expectations, apartments were lagging behind.

House prices increased 17.7 per cent in a year while unit prices were only up by 8 per cent, according to Corelogic making the most gains in the past quarter.

Despite the recent gains, JLL identified the three biggest risks that could flip the apartment market.

These were another major wave of Covid-19, regulatory failure causing a boom-bust scenario and escalating construction costs.

JLL national head of residential research Leigh Warner said developers were still waiting for foreign investment to pick up and support Melbourne and Sydney further.

“It is a strange situation right now,” Warner said.

“While it’s still difficult to get projects going, the general housing market confidence is expected to steadily flow into increased investor demand.

“Developers are growing more confident towards the next supply cycle and are steadily looking to position themselves for this cycle.

“However, with very long planning, marketing and construction lags involved in large apartment projects, this next wave of supply is still quite a few years’ away and the market will tighten significantly in the interim, particularly after borders re-open and migration resumes.”

Apartment supply forecasts

Completions in 2021 will likely exceed those of 2020 and reach around 18,500 apartments across the markets.

However, this is forecast to plummet to just more than 7500 in 2022, according to the JLL report, which would indicate low supply levels through 2023 and 2024.

Inner city apartment supply

StageNationalSydneyMelbourneBrisbanePerthAdelaideCanberra
Completed in 2021 so far7189156046889049-802
Under Construction24,90461209995277711905434279
Currently Marketing70791378142589314606131328
Plans Approved20,15273634455383113266112566
Plans Submitted930052715821266976424781
Total68,64221,69221,1458857500121919756

^Source: JLL Research, March 21

More than 40 per cent of apartments under construction are in Melbourne, concentrated in the inner-city areas.

Sydney’s apartment pipeline is spread around the city’s footprint where foreign investment is vital.

“Domestic and foreign investor demand remains much more subdued and this is keeping pre- sales demand for new apartments muted and seeing few new apartment projects commence,” Warner said.

“This is particularly the case in Sydney and Melbourne, where the population impact of Covid-19 has been greatest and where there is more residual unsold stock in recently completed projects.”

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Article originally posted at: https://www.theurbandeveloper.com/articles/three-biggest-risks-facing-the-apartment-market