Managing surging construction costs into 2022
Momentum continues to grow in Perth’s new apartment market despite industry concerns regarding the impact of rising construction costs and time blowouts.
Property consultancy Urbis recently released its apartment index, which showed that sales activity in September 2021 was higher than all four quarters in 2019 despite some slowing earlier in the year.
The report also showed that sales were strongest across Perth’s southern fringe, including South Perth, Como, Mount Pleasant and Applecross, and that the median sales price across those areas was just north of $1 million.
While the sales were slightly lower than previous quarters, they were still above the levels recorded in Perth throughout 2014 and 2015, with momentum expected to continue well into 2022.
The report also flagged supply in key markets, such as the inner city and urban fringe, as an issue, with only a limited number of apartments due for completion next year.
Many in the media, and the industry more broadly, remain concerned about the impact of increasing costs on apartment builds and the corresponding lift in price point that may be passed onto the consumer.
However, despite the recent surge in the Perth market, and the ongoing escalation of costs, prices remain the most competitive of any capital city in Australia.
Developers who offer a range of price points and a product mix that includes apartments at the more affordable end of the market will help ensure that more Western Australians are able to enter the property market.
While price increases are inevitable to counter the external factors impacting pricing at the moment, prices will remain accessible at the more affordable end of the market.
While the market is expected to continue to gather pace in 2022, the opening of borders currently flagged for either late January or February next year – new COVID-19 variants not withstanding – will help ease the pressure on labour markets and ensure developers are able to get projects off the ground and to completion.
The opening of borders and the anticipated return of expatriates previously locked out of WA, as well as those seeking to relocate to a state in the midst of a mining boom-induced job bonanza, are expected to ensure the market continues to experience the sorts of conditions we have seen through 2021.
The Urbis report also noted that despite the
ever-tightening rental market, new apartment sales continued to be dominated by owner-occupiers, who accounted for more than 70 per cent of all sales, and WA was yet to see a significant return of investors to the market.
The report noted while investors accounted for 48 per cent of sales of new apartments in 2016, that figure had fallen to just 27 per cent in 2021. This is undoubtedly due in part to the reintroduction of the foreign buyers surcharge in 2019.
The report also suggested that the growth in rentals across Perth and the continued relative affordability of Perth housing prices pointed to an expected surge in demand from east coast investors and buyers as borders open, making 2021 a good time to buy for many.
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