Perth falling behind in high-rise builds

PERTH’S residential high-rise construction market remains flat, lagging behind other states where the sector shows more promise for recovery than other parts of the construction industry, new research says.

International property and construction consulting firm Davis Langdon has forecast a 2 to 3 per cent national increase in tender prices for high-rise residential projects during the next 12 months.

Davis Langdon’s July 2010 Leading Indicator Index for high-rise residential showed apartment tender price levels had declined over the past four quarters as competition continued for a relatively small pool of projects.

The index is a measure of price movement in the building industry for metropolitan projects.

Davis Langdon managing director Mark Beattie said the latest index showed the residential construction sector’s vulnerability to interest rate movements and the restrictions in place regarding access to finance.

“Some cost increases are flowing through to tender prices, however construction costs remain at competitive levels, reflecting the relatively limited number of projects available and the uncertainty that exists with the wind back of the stimulus initiatives,” Mr Beattie said.

The tender index forecast is highest in Melbourne and Canberra, where there is currently a much higher amount of residential construction activity than markets in other states.

Davis Langdon’s WA director, Neil Dickson, said while there was significant underlying demand for dwellings in Perth, the high-rise residential sector remained fairly flat as interest rate rises and the availability of funds continued to compound a lack of interest by developers.

“Rather than high-rise commencements we are still seeing projects from the previous boom coming online for sale, with the net effect of an oversupply in a fairly unresponsive market,” Mr Dickson said.

“It will be some time yet before we see a return to activity in this sector.

“This lack of activity continues to suppress prices. Currently costs are stable and we are not anticipating an increase, until the latter part of this year at the earliest.”

Referring to the national statistics, Davis Langdon senior economist and national research and development manager, Andrew Wilson, said investors were attracted to the apartment sector by tight rental markets and the prospect for strong capital growth.

“With an existing shortfall in dwellings further exacerbated by above trend migration levels, demand remains strong for residential accommodation,” Dr Wilson said.

“Despite this promising demand, many developers continue to face the hurdle of securing finance, with banks often requiring high levels of pre-commitment and stringent loan-to-value ratios for a project to proceed.”