Conditions within the residential-apartment market are currently weak. Nationally, housing prices have been falling since mid-2017 and, in some Sydney areas, are now 10% down from their peak. Add to this the recent high-profile unit-complex failures in Sydney – cracking in the structure at both Opal Tower in Homebush, and Mascot Tower – and home purchaser and investor confidence has taken a big hit. Gerard Sleiman, Associate Director of Impact Group, gives us his thoughts on the implications for project-development viability.
A perfect storm creates developer concerns
“There has been a known undersupply of stock on the Sydney market for several years. In the past few years, this was a major factor in seeing the value of property boom,” says Gerard. “The banks were funding, there was a lot of interest from overseas investors, and there wasn’t a lot of government control on those investments. The planning process, from land or property purchase to delivery, is generally about two to four years. When these projects were started, confidence was high. But by the time the banks started making loan approvals harder and the government started to crack down on international investment, things had changed. Now, developers are stuck with a project which isn’t viable and even more stock coming onto the market.”
Gerard’s observations are backed by research from CoreLogic, the largest provider of property information and analytics in Australia and New Zealand. The research shows Sydney’s total stock levels are 24% higher than a year ago and at the highest level since 2012.
Buyer confidence takes a nosedive
“Purchasers are questioning value and quality, particularly when there are so many stories in the press about defective buildings and cladding that isn’t fire-safe,” says Gerard. “There’s a lot of negative public sentiment and some people worry if they should be purchasing any of the recently built stock.”
However, Gerard believes the problem isn’t as big as media makes it out to be. “Despite the high-profile building fails, most builders do a really good job and there are already a lot of checks and balances. Plus, there’ll probably be more protection coming out in terms of getting construction and occupation certification, which should put buyers’ minds more at ease.”
What’s ahead for residential-unit development?
In terms of development opportunities, Gerard says the next year or so should give an indication of whether stock prices are going to stabilise or continue to go down.
“There’s still a demand for new dwellings but we don’t know yet if people will be too scared to buy into unit complexes or if they’ll go back to wanting less dense dwellings, like cottages and townhouses. That said, the old adage remains true: if the development is in the right location, it will sell for the right price.”
If you have any questions about this article, please feel free to email the team at Impact Group or call 1300 63 00 63.