Apartment developments steady across the country as demand begins to grow

The days of apartment developers throwing up cheap units with the expectations they will quickly sell are ending, the author of a new report into construction says.

Moderating apartment construction numbers and relatively high delayed or abandoned projects in Sydney, and to a lesser extent Melbourne, meant developers were learning the lesson of past apartment over-supply, said PRD Nationwide chief economist Diaswati Mardiasmo.

“Deferred or abandoned projects are not a bad thing, because that shows developers have become more aware of what people want,” Dr Mardiasmo said. “It used to be developers would build anything.

“Developers are becoming more realistic with what they’re putting on the market.”

The picture in other cities was more positive, she added, with some smaller markets beginning to mature.

Last year, 28,230 apartments were built in Sydney, and 7109 were deferred or abandoned, the PRD Nationwide research showed. This year, 52,070 were going ahead, and 7375 put off. Next year, the forecast is for 49,828 to be built and 6259 may not be.

“This is a more sustainable rate of growth in Sydney,” Mr Mardiasmo said. “People are being cautious in Sydney; there’s not as much demand as there was in the boom stage.”

Melbourne was slightly different. Fewer apartments were in the pipeline in total, and about 9600 were being deferred or cancelled this year and next year.

Dr Mardiasmo said this was likely the result of a previous building frenzy in the city, but she would not be drawn on whether recent negative press around apartment defects was affecting supply.

AMP Capital chief economist Shane Oliver said it could be too soon to tell if the Opal and Mascot tower defects would have an effect, but it was growing less likely as time wore on.

“There is a risk that home buyers get scared off by problems in apartments, and they shy away from new apartments. But there’s not a lot of evidence that’s occurring,” Dr Oliver said. “Some buyers might be staying away because of Opal and Mascot, but the figures don’t show that now.”

He said buyers might be just diverting their attention to more reputable buildings and builders.

“The reality was that there were only a few builders involved,” Dr Oliver said. “The unit buyer demand is still there, but it might have just shifted.”

In Brisbane, developers appeared to be pinning fortunes on the successful delivery of several major construction and infrastructure projects, Dr Mardiasmo said.

“Brisbane is one of those markets where there’s a lot of hope, and you can see that,” she said. “I can’t blame people for being hopeful.

“We’ve got the Queen’s Wharf, we’ve got the Cross River Rail, we’ve got a new entertainment precinct being built.”

Brisbane’s apartment pipeline was rapidly growing, with nearly 20,000 planned to be delivered next year, compared to 11,500 this year, the PRDnationwide report shows.

Incoming infrastructure was shifting developers to the middle and outer rings of Brisbane as the city became more connected, Dr Mardiasmo suggested.

Elsewhere, there were few cancellations in line with high-demand in the market, while nearly all apartments in Darwin last year were cancelled.

“The [NT] government is trying to attract people and businesses up there, but there’s still a lot of work to be done,” she said.

A spike in projects to be delivered next year in Perth meant developers there were hanging their hopes on a market turnaround, similar to Brisbane, Dr Mardiasmo said.

“Once upon a time they were reliant on mining but now they’re [diversifying] their economy,” she said. “That’s why you see, from a numbers perspective, 2020 will be the Perth comeback.”

And Adelaide’s apartment market was beginning to mature. “What’s happening in Adelaide is what was once happening in Brisbane, about five years ago,” she said.