This article is from the Australian Property Journal archive
DESPITE negative sentiments and rough conditions in Melbourne’s off-the-plan apartment market, value rates may increase over the next 12 months.
According to Charter Keck Cramer’s report author Richard Temlett, despite many significant factors making apartment sales slow and many projects unfeasible, the next year will still see value rates in Melbourne’s BTS apartment market rise.
Analysis of apartment projects across 10 Melbourne suburbs reveals that many that have been released over 2023 have increased their off the plan value rates by 15% to 25%, compared to pre-COVID rates.
Importantly, these value rate increases have already been met with market acceptance.
Though this market acceptance is coming through slowly, the ability to increase value rates is based on the developer, brand, location and target market.
With some projects having increased value rates by just 2% to 5% while others have increased by amounts exceeding than 25%.
In Melbourne, the pre-COVID off the plan value rate of $10,000/sqm has risen to almost $12,000/sqm, whilst the pre-COVID off the plan value rate of $12,000/sqm has also grown to nearly $14,000/sqm.
Charter Keck Cramer suggests that higher interest rates and diminished consumer sentiment will open up a new buyer and renter pool over the coming year.
Many who bought at a lower rate having to trade into medium and higher density dwellings as dictated by their revised finances.
While those who can’t afford to buy in this high interest rate market will be forced into the private rental market, making BTS apartments more attractive to investors.
Though for some renters, rising rents may see some choose to purchase and pay off a mortgage instead, with BTS apartments the most affordable option.
Further, the gap between unit and house prices is currently very wide, with house prices down 9% since March 2022 but still up 15% on pre-COVID levels.
As a result of this and rapid rate rises, buyers will continue to be driven towards more affordable dwellings, such as BTS apartments.
Despite construction costs beginning to moderate, it’s unlikely they will decrease or return to pre-COVID levels.
This combined with stubborn land prices and Victoria’s restrictive planning system, will also result in increased apartment pricing, which will be supported by the buyer market.
Charter Keck Cramer forecasts that the maturity of the BTS apartment market in Melbourne is in the process of jumping by a full property market cycle, or seven to 10 years.
