24/11/2021 - 12:09

Apartment market slows as building costs rise

24/11/2021 - 12:09

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Sales activity in Perth’s new apartment market has slowed, as developers flag concerns about rapidly increasing costs amid competition with the residential housing construction sector.

Apartment market slows as building costs rise
According to Urbis’ apartment index, sales activity over the past quarter to be at its lowest in more than a year. Photo: Gabriel Oliveira

Sales activity in Perth’s new apartment market has slowed over the past quarter, as developers flag concerns about rapidly increasing costs amid competition with the residential housing construction sector.

According to property consultant Urbis’ apartment index, sales activity over the past quarter was at its lowest in more than a year with 314 sales, but still higher than any quarter during 2019.

Activity was strongest in Perth’s southern fringe, including South Perth, Como and Applecross and Mount Pleasant, with 92 sales at a median price of $1.056 million.

Fragrance Group’s NV apartments and Edge Visionary Living’s Lumiere and Riviere developments, in South Perth and Applecross, were among the top selling projects for the quarter.

The sales activity recorded in the area fell just short of that recorded earlier in the year, but was still higher than that recorded in 2014 and 2015.

Supply in the area is expected to become an issue with only 51 apartments due for completion, however, with supply expected to peak in 2023 with 649 apartments.

The lower sales activity had corresponded with just three new projects being launched.

But developers are poised to launch 16 new projects over the summer period comprising more than 1,300 new apartments.

Demand may be strong, but Urbis director David Cresp said most developers were concerned about the rapidly increasing costs associated with apartment builds, with some reporting increases as high as 15 to 20 per cent.

“This is a big concern for developers as prices have certainly not increased this much over this period,” he said.

“Apartment prices for new projects being launched are going to have to increase and we are already seeing prices in projects that have launched start to increase.”

With the strong pipeline of works for the residential construction sector set to continue into 2022 and $8 billion worth of mining and energy projects due to begin, Mr Cresp said there was a lot of uncertainty about how much more costs would increase for apartment builders.

Meanwhile, owner occupiers continued to be the key purchasers in the market, accounting for 71 per cent of the sales for the quarter. 

Despite the low vacancy rate and increasing rents, Mr Cresp said the proportion of investors in the apartment market had continued to be at low levels, having almost halved since 2016.

He said the lack of investors in the apartment market was continuing to put pressure on the supply of new apartments available for rent, driving more upward pressure on rental prices.

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