This article is from the Australian Property Journal archive
INTEREST rates, construction costs and poor consumer sentiment are smothering Sydney’s apartment supply, with many projects being deferred or even abandoned.
According to Charter Keck Cramer’s latest State of the Market report for Sydney’s build-to-sell (BTS) and build-to-rent (BTR) market in H2 2022, they city’s housing market remained unbalanced over 2020-2022.
This was seen in as many sub-markets saw detached house price increases of 30% at the same time as weekly rents for units fell by just as much.
The median unit price for was down 1.2% for the quarter and 6.5% from the same quarter in 2021, to $748,422.
While median unit rents for December 2022 were up 0.9% from the previous month and 22.9% from the same month in 2021.
Over 2022 there 6,000 apartments completed across 88 projects, in the lowest completion level in more than a decade and a 45% decline from the previous year.
While 8,600 apartments commenced construction across 90 projects and 9,200 apartments launched across 108 projects.
17,000 apartments are forecast for completion in 2023, with current projections anticipating 11,400 completions in 2024 and 2,800 completions in 2025.
Charter Keck Cramer expects the market to remain volatile over 2023, as the country continues to deal with the impacts of the global pandemic, including the crucial fiscal and monetary choices carried out during its height.
Sydney’s apartment market is also facing the impact of nine RBA interest rate rises, which have resulted in poorer purchasing capacity and buyer demand, leading to a slowdown in presales for many projects.
“The BTS apartment market is anticipated to continue to remain slow for the first half of 2023 and until there is more certainty with interest rates (as well as the outcome of the NSW State election which is to be held in March 2023),” said Richard Temlett, director of research and strategy at Charter Keck Cramer.
Though this diminished purchasing capacity could see more buyers opt to enter the apartment market, as they are locked out of buying a house in a preferred location.
While the rental crisis spells housing stress for many Australians, for investors, the ability to pass on rate rises to renters could be seen as a positive when looking at BTS and BTR apartments.
Another major headwind facing the apartment market is still elevated construction costs, which are leaving many projects to either deferred to later in the cycle or abandoned, due to financial unfeasibility.
Sydney’s BTR apartment supply is growing, with 1,200 apartments across four projects completed. With five projects comprising 1,000 BTR apartments currently under construction and due for completion over 2023 to 2024.
“The fundamentals to support BTR in Sydney exist, and with over 35% of the population renting, there is a substantial opportunity for BTR to supply rental accommodation that will be unable to be supplied by the BTS market in the short to medium-term,” concluded Temlett.
As the sector takes off in Sydney, CIMIC’S CPB Contractors were last year appointed to deliver the Sydney CBD’s first build-to-rent residential tower, while in November the NSW government began looking for industry players to jointly develop a new 600 build-to-rent and affordable home development.
