22/12/2014 - 12:42

Apartment market turns in buyers’ favour

22/12/2014 - 12:42

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Apartment developers are increasingly being forced to sweeten their offering as increased supply turns the off-the-plan market largely in favour of prospective buyers.

FINAL PIECE: The 126-apartment Lily on Queens Riverside. Photo: Attila Csaszar

Apartment developers are increasingly being forced to sweeten their offering as increased supply turns the off-the-plan market largely in favour of prospective buyers.

It’s been well documented throughout 2014 that Perth’s apartment market is booming.

The latest figures from the Housing Industry Forecasting Group showed construction started on 5,805 multi-unit residential dwellings in 2013-14, up from 4,579 in the previous financial year and nearly doubling the 2,494 in 2011-12.

The upcoming development pipeline is similarly robust.

Property analytics firm Y Research’s examination of metropolitan area development assessment panels found there have been 3,513 apartments approved or awaiting approval since August.

The increased choice available to prospective buyers has resulted in developers either discounting their products or offering significant incentives, such as luxury fitouts and furniture, in order to achieve the pre-sales necessary to satisfy banks’ strict lending requirements.

The latest incentive offering to hit the apartment market is a luxury upgrade of floorboards, kitchen surfaces and appliances, worth $21,000, at all two-bedroom apartments at Frasers Property Australia’s Lily at Queens Riverside project in East Perth, which is currently being built by JAXON.

Frasers Property Australia sales director Paul Lowe said the upgrades, which were being offered until the end of the month, were designed to boost the viability of the project for off-the-plan purchasers.

“Typically, these would be considered a user-pays upgrade option, but given the time of year and the fact that we want to continue to provide suitable value-adds to our purchasers, we figured this was probably a better way of doing it than discounting our price,” Mr Lowe told Business News.

“We don’t what to compromise on our product when the market is dictating a lower investor base, and rather than using a discounting model we would rather add value through what we call customisation, which we think is a better long-term viable option anyway.”

Devwest Group executive director Damon Ferguson said the Subiaco-based developer had been forced to implement both incentives and discounts over the past few months to ensure pre-sales targets were met, largely because of a moderation in demand.

But Mr Ferguson said the company was loath to offer discounts, with incentive packages such as furniture or appliances preferable to slashing the price of apartments.

“Trying to maintain the price is critical for us because it comes around and bites you when it comes to valuation on completion at the end of the project,” he said.

“However in a lot of instances the purchaser’s preference is the discount given the fact that they may already have all the furniture they need for the apartment.”

Mr Ferguson said Devwest was aware of a number of substantial new projects set to be launched early in the New Year, but that the million-dollar question was how many of those 3,513 approved dwellings would actually go ahead.

“My view is there are a few developers out there at the moment that are going for approvals that are bigger than Ben Hur with the view to basically sell the site once the approval’s in place as opposed to going ahead and developing,” he said.

“That makes it hard to predict how many are going to get out of the ground.”

Psaros managing director Mike Enslin said he was also aware of a significant amount of discounting in the market.

“It’s happening out there, it’s just market forces at work and it’s part of the overall discussion about a lot of product being in the market and what developers have to do to move stock,” he said.

“But all the incentives in the world don’t work if you’ve got a product in a poor location. So it’s not a silver bullet to have a discount.”

Psaros chief executive Danny Psaros warned it was a dangerous game for developers to eat into their profit margins.

“There is only so much margin in projects before they become unfeasible and they don’t happen,” Mr Psaros said.

“We know of two developments that have gone out to get construction pricing and they can’t make it work, so that’s going to be an issue.

“We are going to start construction on three projects in the next three months, but they are boutique developments.” 

Match Group managing director Lloyd Clark shared the view that bespoke, smaller apartment projects were an easier proposition in the current sales environment.

Match recently began construction on its $7 million Sublime development in North Fremantle, which comprises just 11 one and two-bedroom apartments, following the completion of its Port Coogee apartment development, Helm, earlier this month.

“We’re very focused on boutique projects that are in unique locations so we’ve certainly had pretty strong take-up in terms of pre-sales,” Mr Clark said.

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