Financial difficulties faced by developers could be the saving grace for Australian apartment market.
As apartment oversupply concerns intensify following predictions of record settlement numbers in the near future, the head of an off the plan property marketing firm believes the issue may be overstated as work is unlikely to start on a large number of projects.
Mark Mendel, chief executive officer of iBuyNew, said many developers are facing the same financial issues many property investors are facing and will likely be unable to see projects through.
“While there is a lot discussion about banks toughening their lending policies for buyers, they are even tougher on developers,” Mendel said.
“Developers with no track record are getting a blanket ‘no’ from lenders across the board while those with a limited track record are also finding it extremely tough,” he said.
Earlier this week, CoreLogic RP Data released figures predicting more than 200,000 new apartments will be built in Australia over the next two years and said there is “big disconnect” between supply and demand in the sector currently
Mendel is not the only one who believes Australia is likely to see a lot fewer apartments completed than is currently predicted.
Daniel Holden, director of construction broking group HoldenCAPITAL, made similar claims this week and said “cash is king” for developers currently as they face the tougher lending requirements as well as increased construction costs.
While Mendel said supply concerns are likely overblown given the fact projects will fail to get off the ground, he also said claims that oversupply is a problem at a national, state or city level are also off the mark.
“You really need to look at the specifics of each state, region and suburb,” he said.
“There are definitely pockets of Brisbane, Melbourne and Sydney that may experience an oversupply of apartments.
‘But if you look at Zetland/Waterloo in Sydney’s inner south where thousands of new apartments have been built over the last five years, everyone expected an oversupply but capital growth has still been more than 10 per cent in the last 12 months.”
In particular Mendel said the transformation areas of south east Queensland are currently undergoing will mitigate any risk posed by a boom in apartment numbers.
“This is becoming an international region with infrastructure developments such as the new $2 billion casino in Brisbane as well as the Gold Coast hosting the Commonwealth Games in 2018,” he said.
“These elements will change the way the world sees Brisbane and South East Queensland in coming years.”
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