Colliers Perth Apartment Glut Fears Overstated

Colliers: Perth Apartment Glut Fears OverstatedClaims that the Perth apartment sector is headed for a glut are not supported by the facts, with supply and pricing set to adjust as part of the normal market cycle, according to Colliers International.An increased number of cranes on the horizon in the project residential sector of the market, together with a jump in the number of proposals from developers over the past 12 to 18 months, have fuelled speculation that the city is heading for an oversupply of apartments which would negatively impact on values.However, Colliers International Director Residential Jo-Anne Chin said basing such a prediction on those factors alone was misleading.”There certainly appear to be less fish in the apartment buyer sea than there were three months ago, and more fisherman in the form of developers – but it is very unlikely we’ll see a glut of completed apartments in Perth,” she said.”What many people don’t realise is that if you see a crane on a site constructing apartments, the chances are that around 70 per cent of that development is already sold.”Most apartment developers require a high level of pre-sales to be achieved before their banks or financiers will provide the funds to proceed. At the moment that level is generally in excess of 60 per cent, so by the time you see the crane on the skyline most of the apartments will be sold.”Looking at the number of development approvals achieved for apartment projects in Perth, Ms Chin said there was no doubt there were a considerable number of projects that could potentially hit the market in the next 12 months.”However, it’s unlikely that all of these will actually proceed to construction, as developers may not go ahead given the knowledge that they may not be able to achieve the required pre sales,” she said. If most of those projects did make it to market, Ms Chin said the competitive buyer market in combination with the amount of product available may see some correction in pricing.Activity and pricing had stabilised since the beginning of 2014, which in itself had slowed the number of projects being submitted for approval – suggesting the pace of development experienced through 2013 was unlikely to continue across 2014 and into 2015.”If that is the case, we’re not likely to experience any radical correction in prices – again, if a developer is unable to make the project stack up in the planning or off-the-plan marketing stage, then the project could be shelved until conditions are judged to be right,” she said.”It’s important to note too that the residential dwelling market is cyclical. While the market came off its peak in 2006 and 2007, we’ve seen quite a moderate and measured recovery in the years since despite a significant jump in population during that time.”Positive population forecasts for greater metropolitan Perth to 2030 suggested dwelling demand, while subject to the range of factors that influence property markets, would be sustained.”Finally, the Perth off-the-plan apartment market has been underpinned by a broad spectrum of buyers, including downsizers, first home buyers, owner-occupiers and investors to name a few, as the 30 per cent jump in population over the last decade has changed Perth’s demographics,” said Ms Chin.”To date, apartment projects in Perth have not been substantially purchased by just one segment of the buyer market, which spreads the eggs over several baskets and reduces the risk of a large number of ‘fall over’ sales at completion. “If we look at the next 12 to 24 months, the apartment market in Perth is not without its challenges and potential adjustments – but the evidence for a glut, and an associated slump, does not add up.”