Two-tiered market develops as apartment demand booms

By most people’s reckoning, a multi-million dollar bill for construction costs would be more appropriate for a commercial building than a single house.

Yet Subiaco-based luxury home builder Zorzi Builders currently has six Mandurah waterfront holiday homes on its books, each costing upwards of $5 million to build, according to the company’s general manager David Marks.

Such projects are indicative of the two-tiered market operating in Western Australia’s housing industry, sustained at the upper end by demand for apartments. 

While house prices in WA are tipped to fall anywhere between 5 per cent and 20 per cent this year, the high end of the market is poised for continued growth.

This is being driven by two factors, according to Pindan Group managing director George Allingame – strong economic conditions and a demographic shift.

“It’s the baby-boomers wanting to downsize from houses into secure apartments in good locations,” Mr Allingame said.

“In the upper end of the apartment market, some of the sales rates they’re getting are just unbelievable – $15,000 to $18,000 a square metre. Certainly that end of the market is still pretty strong.

“The sales rates are much higher than the developers were expecting originally. Maybe that’s just because there’s a lot of money flowing around.”

Ross Napier, general manager of Doric Group subsidiary Jaxon Pty Ltd, said apartment sales in the $750,000 to $1 million range were so strong that many developers were no longer mitigating their risk.

“We’re sitting back and thinking, where’s the money coming from? Some of the developers aren’t even doing pre-sales, they’re so confident in the market. They’re saying just build it and they will come’,” he said.

“Two of the developers we’re dealing with at the moment have said ‘we just want you to go to site’.”

Given the prominence of high-density living on the state government’s agenda, as set out in its Network City policy, the apartment model of development could be expected to meet demand at the lower end of the price spectrum.

Yet according to those in the industry, the cost of construction prohibits apartment living from being an affordable housing model.

This is partly due to the fact that labour rates for apartment projects are aligned with the commercial construction sector.

“We used to build a lot of (lower-end apartments), but I don’t think any developer can make them work. By the time you add the land costs to the building costs, you can’t sell them,” Mr Allingame said.