I have written previously how Melbourne’s developers have been offering extraordinary incentives in a bid to stimulate sales of house and land packages.
Now it appears the madness has spread to inner city apartment developers, which are offering big incentives to clear rising inventories amid Melbourne’s burgeoning apartment construction boom (see next chart).
From the Age:
Melbourne apartment developers are resorting to giveaways of free marina berths, $40,000 furniture packages and stamp duty rebates of up to $45,000 to attract off-the-plan buyers in an increasingly flooded market.
There were 23,325 new apartments granted planning approval in the 12 months to February, driven in part by interventions by Planning Minister Matthew Guy to approve a host of new skyscrapers.
It represented a 19 per cent jump in approvals from the year before, when 19,530 apartments were given the green light, according to the Australian Bureau of Statistics. That compares with just 11,258 five years ago under the previous government and during the credit crunch.
Andrew Perkins, of real estate group Oliver Hume, said the rush of approvals had resulted in a record number of off-the-plan sales campaigns competing for buyers…
There are currently about 300 developments being marketed in Melbourne, with 35,700 proposed apartments for sale.
Independent property adviser Mark Armstrong said the glut of apartments meant current apartment owners were unlikely to have much capital growth in their asset for years to come. ”The reality for existing owners is that the value of their properties is always going to be below what developers are selling the new ones for,” he said.
The article also provides some examples of the incentives on offer:
Mirvac is offering buyers of million-dollar apartments at its proposed Docklands Yarra Point development a bonus berth at the local marina on a leasehold until 2030. A 17-year lease at Mirvac’s Yarra’s Edge marina sells on the open market for $120,000 for the smallest berth (12 metres). A large number of the 149 marina berths are still for sale.
At the Studio Nine apartment project in Richmond, buyers of an off-the-plan penthouse will receive a $40,000 Hermon & Hermon designer furniture package and a consultation with a home stylist. Those buying a townhouse are entitled to $20,000 worth of window furnishings.
Agents CBRE are offering 5 per cent rental guarantees at the You and I development in Collingwood and the Lucia development in South Yarra. CBRE and Spec Property developers are also offering stamp duty savings of up to $45,000 for developments in Prahran and Doncaster.
In most markets, the best way to stimulate sales is to lower prices. However, in this case such a move risks aggrieving recent off-the-plan purchasers that paid higher prices, potentially requiring developers to extend price reductions to everyone. Direct price cuts might also put bank financed developers at risk since transparent price reductions could lower their collateral value, potentially triggering the banks to call in more equity in order to bring their loans back to agreed conditions and/or loan terms.
On the other hand, keeping headline prices artificially inflated could preclude the apartment market from functioning properly. When the buyer seeks finance, the bank is more likely to value the property at a lower level than the contracted price, thereby reducing the amount that the bank will lend and effectively increasing the borrower’s required deposit.
