Developer Interest in High-Density Apartments Plummets
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Developer Interest in High-Density Apartments Plummets

With foreign buyers staying on their own shores, local residential development suffers.

By V. L Hendrickson
Wed, Jun 16, 2021 12:08pmGrey Clock 2 min

The market for residential developments in Australia is under duress.

Last year, total residential site sales in the country dropped to $4 billion, close to 65% lower than its 2014 peak of $11.3 billion, according to a report Tuesday from Knight Frank.

In addition, building approvals for new apartments sank below 40,000 in 2020 for the first time since 2013, the data showed. The pipeline for such units is set to plummet over the next three years, with 86,400 set to be completed by 2024, compared to the 135,300 that came online between 2018 and 2020.

Low-density developments are faring better, the data showed. Sales for those sites jumped 23.1% last year.

“Developers across the country are continuing to shift their focus and risk toward boutique apartment developments and diversifying their portfolios with low-density sites,” Shayne Harris, Knight Frank’s head of residential for Knight Frank’s Australia offices, said in the report.

Meanwhile, interest from foreign investors plunged in 2020, the data showed. There was less than $500 million of foreign investment last year, down more than 90% from its 2016 peak of $5.2 billion. It was the first time investment from foreign developers has dropped under $1 billion since 2012.

Because of the Covid-19 pandemic, Australia closed its borders to foreign travel, meaning investors were not able to scout sites as they normally would. That’s kept many from committing to new acquisitions.

“Although we’re in uncertain times, we can’t underestimate the impact investors will have on the apartment market as they start to return across the country,” Mr. Harris said. “It’s only time before they’re lured back to the new apartment market given the cheap finance, a thinning new supply pipeline and lowered residential vacancy rates.”

Some experts also expect Australia is on the precipice of a boom in pent-up foreign demand as soon as borders open and immigration normalises, Mansion Global has reported.

Close to half of sales of residential development sites last year were in New South Wales, which had nearly $2 billion in deals in 2020, according to the Knight Frank report. Victoria followed, with just under $1.3 billion in transactions.

The Gold Coast defied the trend away from high-density developments, registering a 238% increase in site sales in 2020, the report found. At the same time, sales of such sites in Brisbane itself dropped 86%.

Reprinted by permission of Mansion Global. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 15, 2021

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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