In 2014 Australia’s residential real estate was collectively worth AUD $5.6 trillion, a clear contributor to our nation’s wealth position. Residential real estate in particular, was eight times the value of commercial real estate. There is no doubt the trend in the Australian market has shifted in recent years. Contemporary apartments have become a legitimate and increasingly preferred form of housing for a diverse range of households. Since 2010 Melbourne’s apartment stock has grown from 63,000 modern apartments to 112,000 in 2015, with more than 160,000 anticipated by 2018. There is however, justification for this building boom as Victoria is grew by more than 100,000 people last year, the fastest population growth of any Australian state.
An increasing number of Victorian residents are interested in purchasing off-the-plan apartments, with the appeal being inner city lifestyle and properties offering rooftop facilities such as bars, pools and courtyards. Buyers are seeking apartments with well-considered internal planning to provide the functionality and liveability of a house, albeit within a smaller area. It is crucial that every nook is utilised efficiently. Measures may include minimising corridors in favour of larger flexible living areas. Convertible spaces are beginning to emerge, as we are seeing movable walls and fold down bedroom areas, capable of being incorporated into versatile rooms. Modern technology is also changing the way people are using their environment, for example; electronic device charging stations and multipurpose kitchen benches are contributing to a modern lifestyle of convenience.
Many of our city’s developers predict we will also see an emerging market of larger apartments and townhouses for young families in mid to outer suburbs, with a trend towards three bedroom units to cater for those moving from family homes. One interesting trend we have seen most recently, is downsizers buying multiple apartments off-the-plan in a new development and joining them together to create their own customised apartment.
What’s influencing price?
The current median price for a one bedroom apartment is $400,000, ranging between $340,000 and $430,000 across inner and outer suburbs. The overall median for a two bedroom is $570,000 with a greater price variance of $410,000 to $610,000 across Melbourne. These prices reflect a rise of approximately 9.6 per cent in apartment prices within the last year alone.
Like any market, property prices are a mere reflection of basic supply and demand economics. Construction of new developments Australia wide has been a little more than 150,000 dwellings per annum in recent years, adding only 1.5 to 2.5 per cent to the property supply pool each year.
Rapid population growth of major Australian cities, is a significant driver of demand. An increase in the birth rate and net migration inflow has Melbourne’s population set to increase from 4.5 million to 6.5 million over the next 20 years and to outgrow Sydney by 2038.
The effect of “demand” exceeding “supply” is quite obviously an increased need for affordable housing. This has progressively accumulated over a number of years and is reflected by the ‘boom’ in property prices. Increased activity in the property market has further been aided by the lending appetite of major Australian banks with exceptionally low mortgage rates boosting housing affordability.
Predictions & Strategies
I am frequently asked “when might the property bubble burst?” my response is “consider the might of the Asian economies”.
A significant number of our neighbours have both the desire and means to purchase a small to medium property investment in Australia. The question is why? Here are some reasons:
Our economy and politics are stable
Our legal system is well structured and property ownership is protected
Our tertiary education is among the best in the world and attracts a large number of fee paying foreign students, who return home after their studies and tell their parents about the benefits of buying Australian property
Many international investors are keen to send funds to a safe haven to protect their savings from the possible risk of their own government’s policy changes
To smart investors, neither the price of property nor fluctuations in our currency are of serious concern. Sure, everyone wants to buy at the best price however few want to miss the opportunity to secure a safe long term investment.
Evidently, Australia is starting to catch up with the rest of the world in its development of high density living within capital cities. The challenge is now to meet the accelerated pace of infrastructure construction with current demand and constraints of available skilled labour.
Future apartment distribution is likely to shift as the State Government’s planning zones direct developer away from some of Melbourne’s inner-ring suburbs. With intense expected population growth as mentioned, the demand for apartment living is now spreading further outside of Melbourne’s CBD and into the outer suburbs. Opportunity outside of Melbourne’s CBD is plentiful. As always, there will continue to be an appetite for areas where residents can access transport, jobs, schools and shops within 20 minutes of home in order to avoid the pain of city traffic. Our next challenge is to contain construction costs to match more conservative retail values.
Given the Victorian Governments 3% stamp duty tax imposed on foreign purchasers of residential property from July this year, the majority of activity is now moving towards off the plan apartments to maximise on stamp duty concessions. It is important to note that Victorian legislation includes guidelines to exempt particular foreign investors whose activities in development projects contribute to the supply of housing stock in Australia.
To maximise the success of residential project development, it is recommended to engage with highly skilled, experienced and cost effective professionals to guide you through the development process. The secret to a successful project marketing strategy is innovation in apartment design and reliance on channel partners to achieve 75 per cent of sales. I strive for effective innovation in our sales process. Creativity goes a long way to engaging with our channel partners. The result is faster sales for our developer clients with greater peace of mind.