- Costs remain a major hurdle to making more affordable apartments viable to build.
- Demand is high, with recent sales amidst the dearth of supply showing underlying strength in the Perth apartment market.
- Completions this year are expected to exceed 2,600 apartments, but will drop to over 700 in 2025.
Solid sales for Perth apartments are showing high rise homes are gaining ground as a viable option alongside the hallowed four by two.
Despite that, getting apartments off the ground continues to prove challenging, particularly for more affordable options.
Perth apartment sales confident amidst challenging conditions
The latest Urbis Apartment Essentials report found that apartments in Perth have seen steady sales following the 2023 slow down.
This year kicked off with a strong result, with the first quarter recording 248 sales amidst low supply, the highest since the final quarter of 2022.
70% fewer apartments for sale over two years on despite rising demand
Back in the third quarter of 2021, 1,518 apartments were built and available for sale. Currently, only 441 apartments are ready for a buyer.
Not only is that dearth of supply a worry, there’s more to the story:
“In some of these developments, the developer has chosen to take the rental returns or is holding back stock due to the price increases that we are now seeing,” said Urbis director, David Cresp.
He added that there’s a lot of demand in the market for Perth apartments, with growing house prices one of the major factors.
CoreLogic’s daily home value index found Perth’s house prices leapt significantly more than the five capital city aggregate rate.
By how much?
Perth saw a 21% annual increase for the 12 months to 15 May 2024, while the aggregate was 9.3%.
The growing prices of inner city houses have made apartments begin to look viable again, with the Urbis report recording a weighted average price of just over $1 million in Q1 2024 for new and off the plan apartments.
“We are starting to see a more diverse range of product being sold this year compared to 2023,” said Cresp.
“Though the weighted average sale price is still sitting over $1 million, over 50% of the projects we surveyed recorded an average sale price below $1 million.
“Additionally, the project that achieved the greatest number of sales (Finbar’s Gargen Towers) was positioned mid-market, proving that where developers were able to provide more affordable apartment product there is strong buyer demand for this.”
Demand is also growing among investors, with Cresp noting investors are beginning to look at the smaller alternative.
“Whilst many of the buyers continue to be owner occupiers (accounting for 61% in Quarter 1 2024), we have seen a big increase in investor demand over the last six months,” said Cresp.
“We are seeing demand from all types of investors. There has been more demand from local investors but eastern states investors and offshore investors are also recognising the value that the Perth apartment market is offering.”
Why don’t developers get cracking?
According to Cresp, costs remain a major hurdle:
“The prices prices currently required to make apartments viable (generally over $850k for a two-bedroom apartment) are leading developers towards luxury apartments in more premium areas.”
While construction costs are beginning to stabilise, the impact of the insolvency crisis is much further reaching.
Cresp noted it is tough to find a builder for larger developments, with Ray White Group chief economist, Nerida Conisbee, also making a similar observation, particularly from the perspective of the insolvency crisis.
It’s a tough slog
Australian Bureau of Statistics (ABS) data is another lens through which the challenge can be viewed.
According to the ABS’ new building approval data, in 2023, only 4% of all new dwellings in Perth were apartments (453). This is the lowest level seen since 2009 when the proportion of apartments was at the same level of 4%. This pales in comparison to Sydney’s 27%, Brisbane’s 23%, and Melbourne’s 20% of new building license approvals being apartments.
“Approvals are starting to improve with Q1 2024 showing more building license approvals than in all of 2023 (508 apartments approved which accounted for 13% of approvals),” said Cresp.
More on the horizon
This year is set to see more apartments pop up across the Perth skyline, with four projects commencing construction in the first quarter of 2024.
“There are a number of apartment developments lined up expected to be starting construction during 2024,” said Cresp.
“Our data shows us that an appetite for new apartments is there, developers just need to be able to achieve prices that will make the development viable.”
“This is starting to get easier though with the increase in Perth house prices and stabilisation of construction costs.”
Completions for this year are also expected to be the highest in Perth since 2017, with 2,649 apartments.
While good news at face value, there’s a catch:
“Though we expect to see a lot of stock settle this year, 70% of apartments under construction have already been sold so this won’t fix supply issues,” said Cresp.
It’s also expected to be an aberration in numbers, though, with 2025 to only see some 732 completions.
“Given the record level of population growth that we are now seeing, Perth’s apartment market supply over the next two years is low,” said Cresp.
“With construction costs starting to stabilise and greater confidence in Perth’s apartment market, we should hopefully start seeing new project launches increasing.”
