The number of unit and apartment projects which will be deferred across major capital cities is likely to rise as requisite volumes of pre-sales become more difficult to obtain and fears about apartment oversupply gather momentum, a leading property industry analyst says.
In a recent interview, CoreLogic RP Data senior research analyst Cameron Kusher warned that due to a number of factors, the number of new multi-residential projects being pushed back is likely to rise going forward.
First, a pull-back in lending especially to foreign investors was making it more difficult to obtain the requisite number of pre-sales in order to enable projects to proceed, Kusher said.
In addition, whilst the number of new multi-residential buildings being approved for construction remains at elevated levels, we are now reaching the stage where a significant portion of this related to mum and dad type people who may not be looking to build on these sites themselves but rather seeking to on-sell them.
“We are seeing a lot of approvals at the moment but the reality is that we are probably at the stage of the cycle where it is people who are getting together with their neighbors or people who aren’t developers putting together sites and then looking to on-sell with a DA approval,” Kusher said. “And people who buy them may not necessarily be wanting to buy these properties with a view to building them straight away.”
Whilst demand for housing remains strong, a number of factors are clouding the short-term investment outlook within the multi-unit sector across a number of major cities throughout Australia at the moment.
For one thing, a boom in new construction activity is driving growing fears about the prospect of oversupply across a number of markets.
Partially as a response, and in light of encouragement from the Australian Prudential Regulatory Authority to pull back on their exposure to this area, banks are exercising greater levels of caution in terms of lending to developers.
In particular, banks are being especially stringent with regard to lending to foreign investors following the discovery of widespread forgery of bank income and spending statements provided by a number of such investors as part of mortgage applications.
Kusher says that whilst high rise apartments are obviously a higher risk proposition in terms of needing to get a higher number of units sold and settled, deferrals would not necessarily be limited to this segment of the market.
This is because lower rise stock often involves lesser known developers who can find stock difficult to sell where they do not enjoy strong brand awareness and whose activity tends to be more concentrated in suburban areas where stock can be more difficult to sell.
Given that purchaser demand in Sydney remains buoyant for now, Kusher says most of the deferrals will likely take place in markets such as Melbourne, Brisbane and Perth.