Slow sales squeeze small developers

There are glimmers of hope emerging for beleaguered apartment developers, despite slugglish sales across Perth.

Small and mid-tier developers are being squeezed out of Perth’s stalling apartment market, as more cautious buyers put the brakes on new project launches.

Research by Urbis shows that, while 3,762 apartments are currently under construction across the metropolitan area, just five new projects were brought to market in the second quarter of 2016.

Urbis director of economics and research David Cresp said there were about 5,600 apartments currently being marketed in Perth, but only 390 sales were recorded in the three months to the end of June – the lowest number since Urbis began tracking in September 2014.

Mr Cresp said the slowing sales conditions also meant that a few of Perth’s largest proposed developments were in danger of being shelved.

He said 560 apartments across two towers proposed at Kings Square would not go ahead until landowner Seven Group Holdings found a suitor for the site, while a 1,000-apartment plan at the old Megamart site on Beaufort Street was also unlikely to proceed in the near future.

Mr Cresp said major developers were still able to find success, but the prospects were bleak for smaller players and new entrants.

“Whenever you see a market that’s going incredibly strongly, and the apartment market was going very strongly across 2014 and 2015, in fact we went through a period that it was being undersupplied, you see new entrants come into the market and the number of players in the market expands,” Mr Cresp told Business News.

“Now it’s getting a bit tougher. Smaller developers with less experience with developments in more secondary locations are starting to find it more difficult.

“Some of those developments are not necessarily getting the right number of presales in order to get the projects to go ahead.”

Of those apartments that sold, the Urbis report showed owner-occupiers made up 52 per cent of sales in the June quarter, with local investors making up 34 per cent and international investors just 10 per cent of the market.

“That’s part of the problem at the moment for the Perth apartment market … that there is not a lot of investor interest out there, given we’ve got a reasonably high vacancy rate and there’s a lot of uncertainty on price growth outlook in the short term,” Mr Cresp said.

“However, we see it as a good opportunity for investors to be buying. If you’re a countercyclical investor and you want to buy something that’s getting close to the bottom of the market, we think now is the time.

“Things won’t bounce back miraculously overnight, but I think the Perth property market is getting pretty close to the bottom of the cycle.

Mr Cresp said interstate investors, who made up 4 per cent of the market, presented an opportunity for developers, with Perth apartments firming as a value proposition compared with high-priced offerings in Sydney and Melbourne.

“We’ve been involved with a few developers taking projects over east, and there is interest building in the Perth market, particularly in Melbourne.

“Buyers over there are recognising the markets over there are getting reasonably high and see Perth as an opportunity.

“They’re not flocking over here yet, most of them want to see a sign that it’s hit the bottom and it’s on the way up, but it’s a fine game that you’re playing there and there is a risk that you miss the cycle by the time you get geared up.”