What’s the latest in Perth’s new apartment market?

Report reveals current issues in the rising market

What’s the latest in Perth’s new apartment market?

Perth’s population growth is driving demand in the new apartment market despite ongoing challenges for developers, town planning expert Urbis has reported.

Its Apartment Essentials reports indicated steady sales in early 2024, following a slowdown in 2023. In the first quarter of 2024, 248 sales were recorded despite low supply, the highest since the fourth quarter of 2022.

Currently, only 441 newly built apartments are available for sale, a significant drop from the 1,518 available in the third quarter of 2021.

Urbis director David Cresp (pictured) noted that the actual number of available apartments is even lower, as some developers are renting out units or holding back due to rising prices.

“We are still seeing a lot of demand for new apartments,” he said. However, the prices currently required to make apartments viable (generally over $850,000 for a two-bedroom apartment) are leading developers towards luxury apartments in more premium areas.

“While many of the buyers continue to be owner occupiers (accounting for 61% in Quarter 1 2024), we have seen a big increase in investor demand over the last six months. Investors are now realising the value that new apartments represent, particularly when buying off the plan in a rising market.

“We are seeing demand from all types of investors. There has been more demand from local investors, but eastern states investors and offshore investors are also recognising the value that the Perth apartment market is offering.”

Low levels of new approvals and launches have also impacted the market, the report found. In 2023, only 4% of new dwellings in Perth were apartments, the lowest since 2009, compared to 27% in Sydney, 23% in Brisbane, and 20% in Melbourne.

However, approvals are improving, with the first quarter of 2024 showing more building license approvals (508 apartments) than all of 2023.

“It has been very difficult to make new apartment developments viable over the past two years, leading to a low level of new project launches,” Cresp said. “Only one new development launched this quarter (with 48 apartments), and there are only 18 developments currently in pre-sales selling (before construction has commenced).

“Construction costs are still going up, but we are starting to see them stabilise. This is giving developers more certainty about what construction costs will look like, however, it is still challenging to find a builder for a larger development.”

Despite this, four projects with 569 apartments began construction in the first quarter of 2024, compared to eight projects with 600 apartments in all of 2023.

Perth’s rising house prices are making apartments more attractive. CoreLogic’s home value index recorded a 21% annual increase for the 12 months to May 15, 2024, compared to a 9.3% increase across five capital cities. In the most recent quarter, Perth home prices rose by 6%. The weighted average price for new and off-plan apartments in the first quarter of 2024 was just over $1 million.

“We are starting to see a more diverse range of product being sold this year compared to 2023,” Cresp said. “Though the weighted average sale price is still sitting over $1 million, over 50% of the projects we surveyed recorded an average sale price below $1 million.

“Additionally, the project that achieved the greatest number of sales (Finbar’s Gargen Towers) was positioned mid-market, proving that where developers were able to provide more affordable apartment product, there is strong buyer demand for this.”

According to Urbis, Perth is set to see one of the highest levels of apartment completions since 2017, with 2,649 apartments expected to be completed in 2024. However, 70% of these are already sold, so supply issues will persist and completions are expected to drop to 732 next year.

“Given the record level of population growth that we are now seeing, Perth’s apartment market supply over the next two years is low,” Cresp said. “With construction costs starting to stabilise and greater confidence in Perth’s apartment market, we should hopefully start seeing new project launches increasing.”

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