No Glut in Perth Apartments: Colliers 3

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Thursday, December 4th, 2014
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Claims about a glut in the Perth apartment sector are overstated and not based on fact, a leading real estate services firm says.

In a recent statement, Colliers International director of residential Jo-Anne Chin recognised that construction activity within the city’s higher density dwelling market had increased, but added that at least six in 10 new apartments being built had been pre-sold and said any assumptions about higher levels of building activity necessarily leading to a situation of oversupply were misleading.

“There certainly appear to be less fish in the apartment buyer sea than there were three months ago, and more fishermen in the form of developers – but it is very unlikely we’ll see a glut of completed apartments in Perth,” she said. “What many people don’t realise is that if you see a crane on a site constructing apartments, the chances are that around 70 per cent of that development is already sold.

“Most apartment developers require a high level of pre-sales to be achieved before their banks or financiers will provide the funds to proceed. At the moment that level is generally in excess of 60 per cent, so by the time you see the crane on the skyline most of the apartments will be sold.”

Her comments come as the Perth market is witnessing a flurry of new apartments go up at a time when population growth in the short term at least is expected to slow as resource investment drops back: throughout Western Australia (no specific information given for Perth), a total of 7,258 multi-residential units and apartments were approved for construction throughout the 12 months to September this year, up from 4,411 two years earlier.

Already, this has seen residential rents within the Perth metropolitan area drop 4.3 per cent and vacancy rates edge up, while Real Estate Institute of Western Australia executive general manager Stewart Darby warns of a ‘real possibility’ of oversupply once new stock comes onto the market in 2015/16.

Still, Chin noted projects for which approvals are in place will only proceed if developers can achieve the required pre-sales, and added that long term population forecasts for Perth remain strong notwithstanding the mining boom and the fact that the city’s off-the-plan apartment market has been underpinned by a broad spectrum of buyers including downsizers, first home buyers, owner-occupiers and investors.

“If we look at the next 12 to 24 months, the apartment market in Perth is not without its challenges and potential adjustments,” Chin said. “But the evidence for a glut, and an associated slump, does not add up.”

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Discussions
3
  1. Payam Forghani

    I think there is point missing in this argument that a lot of the demand is coming from investors' activity who have a medium to long term objective. I believe this is the main reason that demand side of the equation is "artificially" elevated against the supply. the actual problem occurs when investors face cash flow issues (caused by rising interest rates and declining rental yields) and will try to divest. The wave of that supply to new home buyers will be significantly higher than demand considering that much the demand has already been absorbed during the boom period (2012-15) and lower affordability pushed some buyers out of the market.

    • dave

      Prices will and have to drop. They barely made sense when crane operators were making $140K a year, they make no sense at all now. All the industry had left was the FOMO, but these kids don't appear to be that stupid.

  2. Dave

    Rents already falling, house prices on the way.
    Bubble-town meet needle.