The number of apartments reaching completion in 2024 will be up on previous years, but concerns remain for future supply.
The year-to-date has produced some solid results for developers operating in Perth’s apartment market, with almost 30 projects having reached completion so far.
Finbar Group’s Civic Heart in South Perth and Blackburne’s The Grove are the most notable of the 28 apartment projects to finish in 2024.
Urbis analysis shows that 2,566 dwellings are expected to be completed this year, compared with 706 the year prior and 769 in 2022.
This represents the highest level of new supply since 2017, when 2,877 apartments were completed in Perth.
However, given most of these dwellings have been sold ahead of completion, this does not translate to the immediate availability of apartments.
Instead, it will add to housing stock, when the buyers of these apartments move out of their current dwellings.
Property Council of Australia WA Division executive director Nicola Brischetto recently called for Western Australia to build 55,000 new units or townhouses over the next five years.
This comes amid a federal government target of 1.2 million new homes nationally by 2029.
Industry groups have also raised concerns about the level of apartment supply in coming years, with Urbis figures showing apartment completions in WA are set to drop to 820 next year before rising slightly to 1,286, in 2026.
Conditions for building apartments have improved during the past 12 months, prompting some developers to ignite dormant projects.
However, industry experts say WA needs further price growth in apartments and reduction in construction costs to make more projects stack up.
While the Australian Bureau of Statistics’ construction cost index is set to increase to 152.7 points this financial year, the average sales price of new apartments has risen to $1.05 million (see p38).
ABS data shows construction costs have increased rapidly since 2021, but the rate of increase is slowing.
For developers and builders, this has created more certainty around the apartment market.
On the ground
Finbar Group managing director Darren Pateman summed up the significance of Finbar’s Civic Heart project at a recent event celebrating its opening.
The development was 10 years in the making, dating back to 2014 when ASX-listed Finbar bought the site from the City of South Perth.
“We’re all standing here much later than anticipated, having purchased this land a decade ago,” Mr Pateman said at the event.
“With early design and engineering and planning challenges, … [the] global pandemic … and the resulting inflation, labour shortages, just standing here on the podium of the largest residential project WA has produced [and] the tallest building outside the CBD, is a monument and testament to those who were closely involved in this project for extended period of time.”
Civic Heart was initially proposed as a single-tower structure with a higher proportion of commercial space. However, market conditions prompted Finbar to re-evaluate the development.
By that time, 152 buyers had bought into the project.
“We made the most painful corporate decision our life, and that was to pull the plug on it,” Mr Pateman said.
“We’ve never cancelled a project in our thirty years. This was the first time. It was still to this day my worst corporate experience to actually have to write that letter to all the buyers and say … ‘We’re not doing this, and here’s your deposit’.”
Finbar then argued that the site was eligible for its own town planning scheme, a move supported by the Western Australian Planning Commission.
The company then lodged a new proposal in the form of the two-tower structure visible today.
At the time of lodgment, the proposal comprised 294 apartments and was valued at $390 million. Today, it is valued at $446 million and has 308 dwellings.
This reflects the capital growth across most apartment projects during the past few years. However, higher building costs have meant this growth does not necessarily translate into windfall profits for developers. Finbar has sold $325 million of apartments in the project to date. “Since completion, we’re just selling on a steady basis per week,” Mr Pateman said.
“It’s not in our interest to sell them in a hurry. We’ve taken the risk, we finished the building, and we’ve got no debt.”
He said a slight improvement in market conditions had prompted Finbar to resurrect projects that had been dormant for some time.
These include the group’s $113.1 million Bel-Air project in Belmont, which has attracted strong interest from buyers since it launched in May.
“We’re dusting off feasibilities that we have been sitting on for a while,” Mr Pateman said.
He added that Finbar’s relative affordability compared with some other major players in the market provided the company a competitive advantage.
Finbar is hoping to finish its Aurora project in Applecross and The Point in Rivervale before the end of this year and has recently started construction on its 331-dwelling Garden Towers project in East Perth.
Meanwhile, Subiaco developer Blackburne has set its sights on a start at its West Village project in Karrinyup, following completion of the $400 million The Grove development in Claremont.
The company also has plans to add luxury apartments to City Beach and South Perth.
Business News can reveal that Blackburne is preparing to develop a $210 million, 75-dwelling project on Mill Point Road in South Perth, following its purchase of a site last year.
Additionally, tier one builder Roberts Co is in talks with Blackburne to build West Village.
Blackburne managing director Paul Blackburne confirmed that the business had $2.15 billion of projects under development, with $1 billion of these having settled during the past 15 months.
Paul Blackburne says many developers won’t be able to make projects viable for another few years. Photo: Michael O’Brien
Market dynamics
When it comes to market conditions, Mr Blackburne noted that most developers would not be able to make new projects viable for many years.
“There will be some projects that commence if there is a prime site with low supply, where the price point being achieved is high end [enough] to make it viable,” he said.
“These sites are rare in WA, and we are lucky enough to have a strong pipeline of four new projects that tick all the criteria for viable projects in this market.
“Developers that leverage highly or need to pay for external equity will most likely put projects on hold until construction prices drop further, interest rates decrease, and sales prices increase.”
Elsewhere, South Perth developer Erben is set to complete its Florin project in Jolimont and Cirque Duet development in Applecross this year, comprising 63 and 93 apartments, respectively.
Erben managing director Luke Reinecke said he felt upbeat about the state of the market but agreed apartment supply would be limited in the near future.
“I do think supply is still going to be constrained for a few years, because despite all developers’ best intentions there is only so much capacity in the market,” he said.
“While that’s improving, it’s not going to happen overnight.”
Mr Reinecke, who has engaged Henderson-based IDB (Infrastructure Development Builders) at Erben’s Port Coogee apartment project, and Windfall Residences and Icon Constructions on Cirque Duet, said he had embraced opportunities to bring new builders into the market.
A shortage of builders willing to take on apartment projects has been a challenge for developers in recent years, with some opting to take on the build themselves.
Edge Visionary Living, which currently has 575 apartments with an end value of $1.47 billion under construction, is a prime example of this.
The Subiaco-based developer launched its own construction arm last year to focus on its smaller projects, including its $80 million Broadway on the Bay in Crawley and $110 million Claytons Mindarie development.
Roberts Co is building Edge’s Scarbrough project The Dunes, while PACT Construction is working on its Applecross Riviere development.
Edge Visionary Living managing director Gavin Hawkins said he expected a shortage in apartment supply for the next few years and continued growth in apartment values.
“Construction costs, combined with generally higher development costs and interest rates, are rendering the majority of developments unviable,” he said.
“This will take some time to unwind … [and] … the challenges faced over the last couple of years, including uncertainty over construction timeframes, increased build costs and labour shortages, are set to continue.”
Edge is planning to start construction of a further 226 apartments to the value of $326 million before the end of the year.
Last year, the company received planning approval for a 12-storey apartment project at Cottesloe’s Ocean Beach Hotel.
Cottesloe-based developer ADC, or Australian Development Capital, recently launched its Mos Lane development in Mosman Park.
The $76 million, 68-dwelling, project was approved in August last year, following a drawn-out battle with parts of the community.
ADC is also preparing to build its 31-apartment Price Street development in Subiaco, and its 49-dwelling Lyric on Eighth project in Maylands, in the first quarter of next year.
ADC director Adam Zorzi told Business News he had observed a stabilisation in the construction market this year.
“There’s still some turmoil out there, there’s no denying that,” he said.
“There are still challenges in the construction market, but it’s certainly more stable than it was two years ago.
“Historically, in Perth, we seem to go through these cycles where you can either sell apartments or build them, but it’s rare that two things actually align.
“I wouldn’t say its 100 per cent alignment there, but it’s certainly getting stronger alignment.”
ADC also has a 742-dwelling development planned for the Perth Girls School site in East Perth but could not provide a date for when that would be build.
Adjustments
Celsius Property Group is preparing to build its $120 million apartment development in North Perth, dubbed Alma Square, within the next 12 months.
The 105-dwelling development has undergone several revisions since it was first proposed in 2021, with the building’s height scaled back from 16 to 13 then to nine storeys.
The process of getting the Fitzgerald Street project from inception to approval took six years, with community opposition and site constraints causing delays.
The developer initially purchased 2,522 square metres from the Tolcon family in 2018, who had held the land for three generations and founded the Tolcon Roman Bakery that occupied the site in the 1950s.
“While the Tolcons had a strong emotional attachment to the site, they acknowledged the existing buildings had reached the end of their useful life and they were keen to see the site become a focal point for the town centre once again,” Celsius managing director Richard Pappas said.
Celsius subsequently contracted 369 to 373 Fitzgerald Street from the Miasi family, whose multigenerational family home was at 369 Fitzgerald Street.
Mr Pappas said the family had intended to develop their landholding exclusively, however, when Celsius presented an opportunity to incorporate an office component that would allow them to retain an ongoing interest in the land, they agreed.
This enabled the Alma Square development to span 4,715sqm of land and multiple street frontages.
Celsius also recently gained planning approval for a $250 million development in Shenton Park’s DevelopmentWA precinct, Montario Quarter, comprising 226 build-to-rent (BTR) and 72 build-to-sell apartments.
BTR developments were touted as one solution to the state’s housing crisis a couple of years ago, given that they do not have the same reliance on pre-sales as build-to-sell apartment projects.
However, these projects have been far from immune to construction market volatility and cost increases, and their institutional ownership has made them vulnerable to capital markets.
Mr Pappas said BTR projects were not considered more viable than build-to-sell developments, generally speaking.
“Every project and every development in every suburb has its own challenges to why it may or may not be viable,” he said.
“The challenges that build-to-rent face is largely around interest rates escalating very significantly over the last two and a half years, which has meant that institutional investors have adjusted their return expectations.
“Equally, the federal government has come in and … put a lot of federal money on the table for affordable and social housing, and I think that’s quite attractive to the institutions.
“Then, the location will determine [how much] you can rent them out for [and if you can] cover the construction costs, the funding costs, and provide returns. We are fortunate that the location of Shenton Park can support relatively high rents and sale prices.”
Celsius’s $70 million Elysian project in Subiaco is one the few apartment projects BGC Australia is currently building. It is due for completion in November.
The Rokeby Road development, comprising 34 apartments, has increased in value significantly since it was proposed.
In 2021, the project had an anticipated end value of close to $50 million.
Mr Pappas said the Elysian project had a build cost 60 per cent higher than Celsius’s Lucent development in Claremont, which was completed in 2021.
The contrast is even more stark for Celsius Property Group’s East Victoria Park project, Vic Quarter, developed on behalf of the Fowler Group.
The Albany Highway project was built in 2019, before rapid cost escalations during COVID hit the sector.
“We are still at a situation where an apartment project like Vic Quarter, doesn’t stack up in Victoria Park,” Mr Pappas told Business News.
Richard Pappas says the apartment market presents opportunities for young professionals. Photo: Michael O’Brien
Wealth trail
Urbis director David Cresp said the high costs associated with building apartments meant developments were only stacking up in more affluent areas.
“It’s got a long way to go to get to where we were four years ago, of apartments being viable in more suburban areas,” he said.
“Traditionally, we’ve been selling apartments at $10,000 a square metre … [and]… a more affordable product you could be selling from $7,000 or $8,000 a square metre.
“Now the cost of building is probably about that … so what we traditionally used to be building and developing things for is now what you need to get as the sale price.”
For Mr Pappas, prohibitive construction costs have been a big contributor to a shortage of apartments.
“I think the market’s going to remain very tight for the next couple of years. We need a lot more supply,” he said.
While many developers are focused on waterfront areas, including those in the western suburbs, projects are taking shape further afield, Celsius’s North Perth project among them.
“We’re really excited [about] the opportunity [for an apartment project] to come out of the ground that’s not … in the western suburbs,” Mr Pappas said.
“It provides people who have lived in North Perth and surrounding suburbs the opportunity to right size.”
Mr Pappas added that while baby boomers downsizing from their family homes remained the dominant market, he was starting to see a shift in the demographics of apartment buyers.
“A lot more homes now have equity,” he said.
“Before, we were heavily reliant on right sizers who have been in the market for a very long time. But now … younger professionals will have the opportunity to come into the apartment space as well.”
Quality control
Questions have been raised about the quality of workmanship at Iris-PW’s Shenton Quarter project in Montario Quarter, which BGC was contracted to build.
The building giant walked off the job in late 2023 when the project was about 95 per cent complete amid a commercial dispute with the developer over the project’s engineering.
Gowdie Management Group was assigned to the development the following month, and the 157-dwelling project was due for completion last month.
The project garnered widespread media attention, as did Commerce Minister Sue Ellery’s nod to the introduction of reforms to increase consumer protections for apartment buyers.
Ms Ellery said the changes would provide buyers greater assurance that buildings were built to the required standards.
Mr Pappas said Celsius was happy with the build quality on its projects to date, and that the developer had procedures in place to ensure builds were up to standard.
“We’ve got a number of hold points through the construction phase where our expert consultants check that a development is being constructed in accordance with the documentation,” he said.
“We’ve always engaged independent consultants, including structural engineers, mechanical, acoustic and BCA (Building Code Australia) consultants and we ensure this team is responsible for inspections and quality assurance throughout the construction phase.
“I think every developer I deal with ... is proud of what they do and is working very hard to deliver good quality.”