Perth apartment market supply shortage looming, report finds
Perth has recorded a dismal third quarter of new apartment sales.
Original article from The Property Tribune
No new apartment developments - with 25 or more apartments - were officially launched during the last quarter
Since 2014, it has averaged 651 apartments and seven new developments
Comes as rental crisis is set to worsen
The supply of new apartments has slowed in Perth, with a report noting that no projects were formally launched to the market this quarter.
The Urbis Apartment Essentials report surveys all new apartment development – ones consisting of at least 25 apartments – and is used by many property commentators as an indicator of what is happening in the apartment market.
Running since 2014, Perth Apartment Essentials has reported a quarterly average of 651 apartments and seven new developments launched each quarter.
However, this quarter, none were formally launched.
This has led to significantly fewer apartments in pre-sales, which means before construction commences.
In Q3 2022, there were 543 apartments in buildings that are in the pre-sales stage. By comparison, two years ago, there 2,420 apartments during the same quarter. The lagged nature of this data means that there will be a significant fall in completions over the next few years, which could further impact the rental crisis.
In addition to the decline in the supply of new apartment projects, the availability of completed buildings has fallen significantly too, over the past two years.
In Q3 2022, there were 618 apartments available for sale, in apartment developments that had been built. During Q3 2020, there were 1,647 apartments available.
Sales slowing
This quarter’s sales were impacted by a trio of factors; the lack of new project launches, the declining amount of completed apartments and rising interest rates.
Sales during Q3 2022 were at the lowest level since Q2 2020, with 192 apartments sold. In the previous quarter (Q2 2022) 316 apartment sales were recorded. These sales follow the recent peak of 487 sales in Q4 2021.
The sales that occurred during the last quarter were led by the Inner City Precinct, representing a move away from the Fringe South Precinct which was the top-selling precinct in 2021.
“With a number of larger developments (some in excess of 300 apartments) available for sale and a weighted average sale price ($623,000) below the Perth average ($745,000), the Inner City has bounced back in the Perth apartment market providing affordable options for buyers,” said David Cresp, Urbis Director.
Rental crisis set to continue
With Perth continuing to face a shortage of rental stock, with the vacancy rate below 1%, fewer new apartments are being added to the rental market. Just 37% of apartments sold in 2022 were purchased by investors.
Although this is higher than the 28% figure recorded in 2021, it is well down from 2016 and 2017, where around 50% of new apartments were sold to investors.
Notably, the increase in investor activity from sales in 2022 mostly represents an increase in East Coast investors.
Foreign buyers make up a very low proportion of Perth sales, representing around 8% of total sales in 2022, compared to 6% in both 2020 and 2021 but well down during the 2015 and 2018 period where foreign buyers accounted for 13% to 19% of sales.
By comparison, foreign buyers represented 20% of apartment sales in Melbourne during 2022, and 40% back in 2017.
New apartment completions at low level
1,135 apartment completions are expected to occur this year, slightly down from 1,249 last year, but well down from 2,887 in 2017.
Mr Cresp said It is likely a sharp decline in apartment supply will occur in three year’s time.
“The fact that so few apartments are currently being launched will mean far fewer completions in three years, when we expect that Perth will be seeing strong population growth. This will only add to the housing shortage issues that we are currently seeing,” Urbis Director, David Cresp said.
“Whilst there is certainly still demand for apartments, developers are struggling to make apartment developments in many areas of Perth viable. Construction costs have increased far more quickly than sales prices.”
However, given the declining stock of available completed apartments, developers in the Perth market are likely to face less competition in coming years.
“When construction costs settle and supply slows, we expect new apartments to start selling at a price that makes development viable again,” Mr Cresp concluded.
