The Weekend West – Apartment Living
While Western Australia still has some way to go to catch up to the volume of apartments in New South Wales and Victoria, an uptick in sales and development over recent years has buoyed hopes of a move towards higher density living in the state.
At the time of the 2016 Census, Western Australians comprised just four per cent of apartment dwellers nationwide, significantly fewer than the 51 per cent in New South Wales, but 2019 financial year figures from realestate.com.au suggest the tide might be starting to turn.
According to the online real estate portal, the volume of sold apartments in Perth was up by 39 per cent in the last financial year compared with the previous period, and the number of apartments available to rent increased by 12 per cent in the same timeframe.
Despite this, REA Group Chief Economist Nerida Conisbee said the apartment market in WA was weak in terms of demand, consistent with what had been seen in the wider Perth property market for around five years.
“We have seen price falls across Perth, but things do seem to be turning around and particularly the premium suburbs are starting to see price rises,” she said. “They will be the areas that recover quickest in terms of apartment demand and that will probably happen over the next 12 months or so.”
REIWA President Damian Collins said the organisation identified a 3.9 per cent rise in Perth’s median unit price in the June quarter, but the sales volume was comparably low, which he put down to a period of oversupply in the apartment market.
“We are still working through a pipeline of new properties coming on, but that will pretty much end in the next 12 to 18 months as the current construction round finishes, so we expect oversupply will run out in 2020,” he said.
Mr Collins said as a result of this oversupply some buyers had been put off purchasing an apartment, but this was short-term negativity at the expense of longer term gain.
“People are worried about what might happen to prices in the next six months when they should be thinking of the longterm lifestyle and investment returns they might get from an apartment,” he said.
Building on this, Mr Collins said the future of the apartment market was very strong and had an important role to play in the wider property market in WA.
“We are one of the least dense cities in the world, which leads to huge environmental costs to the community and government spending on infrastructure,” he said.
Ms Conisbee agreed urban sprawl in Perth was hampering the apartment market, but said as younger generations came through we would start to see more of a desire for higher-density living. She said it was no longer aspirational to move to the fringes and buy a big family home, with more people wanting to stay in the areas they had either been renting in or that were close to work.
“Our cities will become denser and the way to do that will be through apartments,” Ms Conisbee said. “In a city like Perth, which is not very dense and still has very low proportions of apartments, we will see demand for apartments pick up over the next few years and decades.”
Showcasing the benefits and encouraging foreign interest in Perth’s apartment market are key to improving demand, according to Ms Conisbee. As part of this, she said there was an opportunity for Perth to tap into the Asian market, with Perth receiving a high proportion of search activity coming from the region Realestate.com.au statistics revealed Singapore, Indonesia, Malaysia, Hong Kong and Thailand all appeared in the top 10 countries outside of Australia searching for apartments in WA.
UDIA WA President Nick Allingame said this interest was hampered by the Foreign Buyers Duty introduced in WA in January, which he said worked against the foreign investment market.
“Given a significant portion of presales for apartments has traditionally been secured from overseas investors, the apartment market has felt the hit of this new tax even more so than other segments of the market,” he said.
“Overcoming the impact of the introduction of the Foreign Buyers Duty and reigniting interest from foreign investors is integral to the market recovery.
“Attracting more people to WA and getting population growth moving again will also improve demand for property. We are very supportive of the State Government’s moves to further diversify the WA economy and create more jobs and growth in WA.”
It’s all about confidence
Ms Conisbee, Mr Collins and Mr Allingame all pointed to increasing investment confidence as a prerequisite for a stronger apartment market, but said there was a number of hurdles facing the sector in this regard.
Mr Collins said the apartment market in Perth was encountering the same challenge other cities such as Sydney and Melbourne had faced previously. He said there was a strong community backlash or reluctance to accept apartments, especially in some of the wealthier suburbs around South Perth and the western suburbs.
Mr Collins said the introduction of Design WA, a State Government-run initiative aiming to ensure good design was at the centre of all development in WA, would help alleviate some of this backlash.
“I think if we can get the design right, that will help some of the community opposition, but the community has got to accept you need to provide housing diversity,” he said.
Mr Allingame said continuing the dialogue with local communities about the benefits of higher density and the quality amenities that could come with densification was important. “Good-quality, well-designed medium and high-density apartments in locations around transport hubs and activity centres will showcase to potential buyers what can be achieved and the positive aspects of more
compact living,” he said.
Ms Consibee said people in Perth overwhelmingly preferred houses, but being able to tap into the first homebuyer and downsizer markets simultaneously might lead to a boost in the popularity of
apartments.
“First homebuyers are generally priced out of houses in premium suburbs in Perth, but apartments provide an alternative option,” she said. “Downsizers are a smaller market, but we can see with markets that are very big, a high proportion of apartment dwellers are downsizers, primarily due to the properties being easier to look after.”
Future focus
Mr Allingame said the future was very positive for the apartment market in the medium to long term, with buyers seeking a range of living options.
Building on this, he said the adjustment to Keystart thresholds, record low interest rates, easier access to finance and stability at a Federal Government level without the spectre of changes to negative gearing would see demand lift in the apartment market.
“Tight rental market conditions are likely to have an impact as we see more people choose to purchase instead of rent due to increasing rental prices and low vacancy rates,” Mr Allingame said. “This is also likely to incentivise more investors into the market.
“The reform of strata titles and the introduction of community titles is exciting and will enable apartment developments in particular to provide new and highly sustainable forms of living with increased vibrancy and amenities.
“Through these reforms and the emergence of ‘build to rent’, we are likely to see a new and exciting mix of apartments and community services such as shops, restaurants and public transport, as well as energy-saving and other sustainable features such as water recycling being fully integrated into development.”
Mr Collins said the next decade or two looked very strong for the apartment market, despite the current oversupply.
“Like all markets, things like oversupply come and go, but I think for a city so spread out, we’re going to see more people getting sick of the commute and starting to choose apartment living as a way of life,” he said. “If the development community gets it right and builds well, I think apartments have a very strong future in the Perth property market.”