- Only 314 new Perth apartments sold in Q3, lowest volumes in over 12 months
- Fringe South precinct was a standout market, with 92 sales averaging $1.056 million
- Concerns for rising construction costs prevail, resulting in low levels of projected supplies
Perth has recorded its lowest number of new apartment sales in over 12 months, according to property consultant company Urbis.
Figures from the Urbis Q3 2021 snapshot indicate only 314 new apartments were sold in Perth in the period from July to September.
Despite being the lowest in 12 months, the number of sales still surpassed those recorded in the first half of 2020 and the entirety of 2019.
Demand drives low supply in Fringe South precinct
The Fringe South precinct, which includes South Perth, Como, Applecross and Mount Pleasant, was a standout market in the third quarter.
The area recorded 92 sales with the average apartment selling for a cool $1.056 million.
Despite sales in the precinct decreasing since reaching its peak in the previous quarter, Q3 2021 still cemented itself as the third highest sales activity since Q4 2014, following behind Q3 2015.
Strong demand for new apartments in the Fringe South precinct has left the area with a reduced supply, with 51 apartments scheduled for completion in 2021.
Supply will undergo a swift recovery in 2023 however, expected to peak with 649 apartments reaching the market.
Construction cost concerns plague developers
Decreased sales activity in Q3 is due in part to only 3 new projects launching, as compared to the four projects that launched in Q2.
Project launches are expected to ramp up significantly in the summer selling period, with a total of 16 projects and over 1,300 apartments expected to be ready for launch in Q4 2021 or Q1 2022.
Urbis Director David Cresp said although demand remains consistent, rising construction costs have developers worried.
“Over the last 12 months developers are telling us that costs to build an apartment building have increased by 15-20%. This is a big concern for developers as prices have certainly not increased this much over this period.”
David Cresp, Urbis Director
“Apartment prices for new projects being launched are going to have to increase and we are already seeing prices in projects that have launched start to be increased,” said Mr Cresp.
Mr Cresp explained that apartment builders are competing against the residential housing construction sector, which is operating at or above capacity.
As a result, the industry is uncertain about future cost increases especially as there is a crowded schedule of residential, mining and energy construction projects on the cards for 2022.
“The construction sector really needs more labor to be able to cope and borders opening next year should certainly start to help with this. However, it will also see an increase in demand as population growth increases again,” said Mr Cresp.
Owner-occupiers dominate new apartment market
Owner-occupiers remain as the most abundant purchasers in Perth’s new apartment market, accounting for 71% of sales in Q3.
Mr Cresp said investors are underrepresented in the market, despite low vacancy rates and increasing rents which would typically be drawcards for investors.
“In 2016 48% of new apartments were being purchased by investors. In 2021 this has fallen to only 27% of purchasers.
This lack of investors in the apartment market is continuing to put pressure on the supply of new apartments available for rent and meaning that there continues to be upward pressure on rents. This growth in rents and the gap between Perth housing prices and the east coast means that we believe there will be an increase in demand from the east coast and overseas when the borders do open,” he said.
Meanwhile, investors in the Brisbane market still comprise 44% of sales, with interstate investors accounting for 12% of sales.
The number of apartments completed in Perth this year are predicted to reach 1,162 apartments, significantly below the 2017 peak of 2,887.
2021 total apartment completions will also fail to reach the number of sales recorded in 2020, at 1,218 apartments.
While supply should increase in the new year, the numbers remain disappointing with only 1,343 apartments scheduled for completion.