Melbourne’s “build it and they will come” approach to construction, which has seen it rank high-up on the global skyscraper index, appears to be suffering more indigestion. Following recent reports that CBD and St Kilda Road vacancies have rocketed and rents plummeted, as apartment supply runs well above demand, The AFR is today reporting that apartment prices are falling as more off-the-plan stock hits an already oversupplied market:
More than 2000 properties have been on the market for over two months around the CBD. About 14 per cent are selling for less than their listed asking price. “While detached housing has performed well in Melbourne, there has been little to no price growth in the CBD”…
Those high-density suburbs also have the highest rental vacancy rates…
The oversupply has prompted calls for the Victorian government to stem the rate of high-rise approvals. Planning Minister Matthew Guy has repeatedly said it is for the market to regulate supply and demand, and the priority is to encourage construction and higher density housing around the CBD, Docklands and Southbank.
Melbourne apartment construction has certainly been running hot, with approvals for units & apartments overtaking houses for the first time in late-2012, and running well above historical norms (see below charts).
While the surge in apartment construction is great news if you are looking for a place to rent in and around Melbourne’s CBD, with ample choice and relatively low rents on offer, the long lead times between approval and completion (typically three years for high rise apartments) means that the city and investors are exposed to the risk of a protracted downturn, as apartments could still be being constructed en masse long after the market has turned.
Buyer beware.
