ABC News has run a nice set of articles (here and here) on the growing apartment glut that is developing in Perth as construction booms and population growth slows, which has caused both falling prices and rents.
According to The ABC, “there are 3,085 apartments forecast to be constructed in Perth next year, with almost double that number – 5,668 apartments – due to be finished in 2018”.
And just this week, “there were about 3,332 units for sale across the city, which includes all attached dwellings”, which is well above the 2,104 units for sale in the same week two years ago.
Some analysts believe that apatment demand wil remain strong due to the influx of foreign buyers. Whereas others believe that many approved projects would not proceed because developers would not be able to meet their pre-sales targets.
One developer, on the other hand, is maintaining the faith, predicting an apartment shortage by years’ end:
Mike Enslin, managing director of apartment developer Psaros, believed Perth might soon have an undersupply of apartments relative to demand.
“We are calling a supply shortage to come into the market towards the end of the year as people realise the developments they thought they were buying into aren’t going to proceed,” he said.
Psaros has about 450 apartments in its development pipeline, with almost half due to be completed this year.
It has not lowered its prices, but Mr Enslin said the market was very competitive, with incentives – such as whitegoods and wooden floorboards – being offered by some developers to secure a sale.
“All [our] margins have been taken down to the bare minimum,” he said.
“Our product will sit at this price until such time as people realise the market’s not going anywhere further.”
Mr Enslin is also of the view that the bottom of the property cycle has been reached.
“We’ve probably been there for the last three or four months. As developers, we certainly can’t produce our product any cheaper.”
Below are some charts that sum-up the situation in Perth.
First, actual dwelling construction is peaking but will remain at levels far above population growth for some time to come:
While the lion’s share of this construction is in detached houses:
But Perth has still embarked on the biggest apartment boom in its history recently:
Meanwhile, apartment rents are crashing, down 14.6% in the 18 months to December 2015, according to the REIWA, whereas the overal rental vacancy rate has ballooned to 6%:
For now, Perth apartment prices have held-up reasonably well – down just 2% over the past year, according to RP Data. However, given the above data and the fact that the Western Australian economy is facing more downside as its massive LNG projects come to completion, the risk of a full-blown apartment crash is high.
