Source: Australia Property Journal
APRA'S macroprudential measures coupled with state and federal government policies have had an impact on activity in the apartment market nationwide, with the total number of units under construction falling by around 10,000.
According to JLL's Apartment Markets report for G4 2017, self-regulation from developers in the face of tighter lending conditions and slower pre-sales rates has seen the number of projects under construction dwindle, as the country moves past the peak of supply in the current cycle.
It is expected that some 25% less stock will be delivered in 2018 than last year. The total number of apartments under construction dropped by around 10,000 over the six months to the end of September to 39,760.
JLL's head of residential research - Australia, Leigh Warner, said APRA's intention in clamping down on investor lending was always to slow the housing market down, particularly in Sydney and Melbourne.
"This has been successful, but the risk we are now facing is that the added imposts imposed by state governments and the federal government on foreign investors in residential property is slowing this important portion of demand by much more than intended.
"It appears that foreign investors that have already invested are still settling sales at present, albeit often over a longer than normal period. However, it is also clear new offshore demand has fallen sharply and this is particularly impacting some larger CBD projects and projects by foreign developers," Warner said.
Melbourne's strong population growth is soaking up new supply additions, with sustained low levels of rental vacancy, rental growth, and prices into late 2017. Sydney is holding up "relatively well" as Chinese demand slows down, with the rental market tight and the market more broadly appearing balanced after years of undersupply.
Around one-third less apartments were under construction in Q4 of 2017 than at the same time 12 months earlier.
Residential projects withdrawn for alternate uses, such as student accommodation, also played their part.
Warner said new policies from both the federal and Victorian government encouraging first homebuyers are certainly having a positive impact and stimulating owner-occupier demand."
Price and rental growth will remain moderate in 2018, as the market continues to process the high number of recent completions, while resales and rental values are likely to come under pressure in those areas where completions have been concentrated, particularly in Melbourne City.
Sydney's medium-term outlook remains "solid" despite facing lower investor demand and continued strong supply levels. Prices have stabilised through most of the market, and some falls recorded in areas of particularly concentrated supply.
However, Warner said still-low vacancy suggests the market is not generally oversupplied, and a reduction in the supply pipeline will help support a healthy market balance and a soft landing for the market.
Around 7,400 new apartments completed in inner Sydney in 2017, and the 7,800 scheduled to complete in 2018 will be slimmed down due to project delays before a significant drop-off in numbers through 2019 and 2020.
"It is a much tougher development lending environment now and slow pre-sales rates are likely to see a very high portion of planned projects delayed or abandoned, particularly those larger projects specifically targeting at offshore buyers," Warner said.
Prices are tipped to fall moderately in 2018, before stabilising with the tighter pipeline.
"As such, we do not believe the current downturn will be too painful for existing investors with medium to long-term time horizons. Our suggestion for those still looking to enter the market is to look to 'premium' locations where sustained demand exists, even in the face of strong supply, and to look for areas that benefit from the region's very large infrastructure investment program," Warner said.
A rebound in population growth is tipped to soak up some of Brisbane's surplus supply after a strong period of completions over the past two years, with the peak of the cycle occurring in 2016. That will be augmented by the tough lending environment and a sharp drop in pipeline numbers from 2018.
Warner said market fundamentals are expected to remain difficult in the short to medium-term as the heightened levels of stock are absorbed.
"Downward pressure on apartment values and rents is expected to be maintained, but ease slightly in the short-run. Any recovery in the inner Brisbane apartment market will be dependent on the continued growth of the Queensland economy and any subsequent increases in population growth stemming from that improvement."
This means that you get the 'real' valuation of your real estate with no hidden agendas.