Apartment projects likely to be shelved until next growth cycle

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As it emerges that numerous developers are concerned about their ability to secure finance for their projects, one respected property market analyst believes many residential developments may be put on ice until the next growth cycle eventuates.

Analysis of recent Australian Bureau of Statistics (ABS) figures by CoreLogic shows that the 19,276 new dwellings approved in May was 9.1% lower than the peak level of 21,197 that was recorded in May 2015, which was also a record high for monthly approvals.

May also marked four straight months of declining approvals.

In May, unit approvals fell 10.3% and were 17.9% lower year-on-year, while detached house approvals were 0.2% higher over the month and 1.5% higher year-on-year.

CoreLogic research analyst Cameron Kusher said approvals still remain elevated compared to long-term figures, though he believes there is an increasing probability that projects will not make it to the construction phase.

“We expect that an increasing number of these properties, particularly in the unit segment won’t be built in the current housing market cycle,” Kusher said.

“With a record high number of units set to settle over the next two years we would anticipate developers and lenders will become more cautious around unit projects,” he said.   

Kusher’s claim of record number of apartment completions in coming years is illustrated by his analysis of approval figures over the past decade.

In May 2006, high-rise unit developments accounted for just 9.9% of approvals, with detached houses accounting for 70.7%, with townhouses and low-rise developments making up the remaining 19.4%.

In May 2016, high-rise units accounted for 26.4% of approvals, with detached house approvals falling to 53.7%, while townhouse and low-rise development accounted for a relatively similar level of approvals (19.9%) as they did a decade ago.

That boom over the decade has likely increased the level of risk in the sector, which Kusher said is responsible for his predictions of projects being shelved.

“More pre-sales are required to secure finance in order to commence construction, more things can go wrong during construction of a larger project and settlement can occur several years after the contract is signed when market conditions may be significantly changed from when the project commenced. 

“The higher risk environment and subsequent diminishment in confidence and tighter lending finance for development is starting to result in a slowing of approvals for high-rise unit projects. 

“It is increasingly likely that a larger than normal proportion of the recent high-rise unit approvals will not get built in the short-term.”
 

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