10/11/2014 - 12:56

Apartment sector maturing

10/11/2014 - 12:56

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Only time will tell if the sector has reached a point where it is unstoppable.

Apartment sector maturing

Only time will tell if the sector has reached a point where it is unstoppable.

Observers of history often look back at a particular moment in time and stamp that as the beginning of a new period.

Often missing from that necessarily simplistic viewpoint, however, are the failures, near misses or even the steady build up until a tipping point of success was reached. In reality, many big changes actually arrive in fits and starts rather than one-off revolution.

Globally, apartment living is not a new phenomenon; but in Perth there is a coming of age in terms of the acceptance of high-rise alternatives to a stand-alone home or other low-level equivalents.

There is no doubt that apartment construction in Perth has reached a scale that, if continued, would signal there is now serious choice for home buyers between house-and-land packages or owning a part of something much bigger.

But many places, including Perth, have experienced pain before as growth in supply outpaced demand.

Developers are right to say the financing structure requiring a big percentage of pre-commitments gives them a certain amount of faith that major collapses are unlikely. They also suggest it is hard to enter the apartment market without significant capital backing and scale.

However, that does not mean that there won’t be individuals caught out by a shift in market sentiment, which causes the value of their pre-committed property to fall after completion.

The flow-on effect of that would be to reduce demand; and that will hit developers, who are overstretched, no matter how optimistic market participants might be.

Perth experienced this in the land development sector after the GFC.

Learning from history as the crisis hit, the banks did not foreclose on too many developers too quickly, giving many a fair chance to exit gracefully.

Nevertheless, many smaller developers ended up losing out, especially at the smaller end of the market. A couple of big developers disappeared too, and several major players changed their business model.

Whether – due to the market’s structure – the same thing can happen in apartments is not clear, but few industries are immune to shifts in consumer sentiment.

Some high-rise developers in the commercial space are already feeling the pain of over-commitment, having completed buildings just as the mining sector downturn commenced.

Just how resilient they will be will depend of their balance sheets.

Capturing carbon

There is much debate over the future of energy in this state, as there is globally.

Premier Colin Barnett said on radio recently that 100 per cent reliance on renewable energy would not happen in his lifetime. He is right; technology limitations, the availability of alternatives, and public doubt about the urgency to shift from traditional sources are all reasons to bet he is right.

Of course, any one or all of those things could change, accelerating the take-up of renewables or other forms of energy that have a lower carbon footprint.

The same could be said for carbon capture and storage. At the moment it is hard to believe that this technology will make burning coal, gas or oil clean in the sense that the carbon-related emissions from energy generation will not end up in the atmosphere.

But at Harvey there is some hope, for WA at least.

The state’s industrial emissions are not enormous by global standards and Harvey is located relatively near to the key energy consumption and production areas of Kwinana, Collie and Kemerton as well as some stand-alone minerals processing operations.

This could give CCS a chance of working cost effectively.

Perhaps an associated hothouse horticulture industry might rise up in conjunction with such a development.

 


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