Escalating costs led to a decrease in the construction of new apartments, with only 1,222 units launched in Q2 nationally, according to a new report from Urbis.
This is just a quarter of the volume seen in the preceding year.
Despite this, the average price reached $1,259,815 and the sqm rate increased to $13,140sqm on average, up from $12,200sqm the previous year.
The results this quarter were driven in large part by the high share of sales above $1 million. In fact, 51 per cent of projects had an average sale price above $1 million. This compares to 40 per cent being above $1 million in the previous year.
Another shift took place regarding which markets were driving sales growth.
The boost in sales in Sydney and Melbourne played a significant role in the perceived overall market upturn. In contrast, the markets in Queensland and Western Australia experienced a slowdown after a period of stronger uptake in recent quarters.
The medium to high-density sector has increasingly become an important part of Australia’s residential real estate market, with units
steadily making up a larger portion of Australia’s housing stock, CoreLogic Economist Kaytlin Ezzy said.
“In August, CoreLogic estimated that units made up 25 per cent of national
housing stock and around 30.4 per cent of Australia’s capital city housing stock, up from 19.6 per cent and 22.9 per cent at the start of 2010, respectively,” she said.
“The continued reliance on the unit sector to deliver fresh housing stock is particularly evident across some of Australia’s largest capitals, including Sydney and Melbourne, as well as the ACT, where limited land supply has made further development of low-density dwellings increasingly difficult.
“Despite surging demand, developers and consumers alike are exercising a more cautious approach in light of uncertain economic
conditions, weaker capital gains, high construction costs, a tight labour market for trades and rising interest rates. With fewer unit
projects set to move through the construction pipeline, it’s likely completions will continue to ease, with units making up a smaller
portion of new housing stock over the coming years.”
The Urbis report noted that the “trends of increasing sqm rates and rents are the product not only of demand, but also the realities in development economics and supply”.
The costs of building are pushing product to target markets that have the means to pay higher prices.
“The more affordable build-to-sell (BTS) stock is less well represented as it has not been viable to build at affordable price points,” the report said.
“This will continue to drive up rents unless more supply is unlocked. We are still in the early stages of the build-to-rent (BTR) movement. The market dynamics continue to promote more BTR supply.”
The report said we are not seeing the apartment market ‘turn’ as it still needs ‘a little push’.
The report said for the BTS apartment market to complete a turnaround, there will need to be a stabilisation of borrowing and building costs, alongside more efficient planning systems and confidence or incentives to convince purchasers.