_Developers diversify with low-density development

In years gone by, grasping the performance of the Australian residential development market required three updates—the last direction of the cash rate, how much money was being borrowed to purchase residential property and the movement in the number of new residential buildings being approved.

Today, the dialogue is much more complicated, and these indicators only start to scratch the surface.

While the banking sector has achieved the Australian Prudential Regulation Authority (APRA) objective of cooling the residential market by creating a stricter lending environment for investors and owner occupiers, they also continue to tighten lending to developers.

This has caused many projects to be pushed back or change to an alternative use.

Over the past year, this has been aided with a historic low office vacancy environment in both Sydney and Melbourne, in addition to, increased competition from the hotel and student accommodation sectors.

There is no denying there has been elevated apartment stock in major Australian cities over the past couple of years, but this has also been met with reasonably strong underlying fundamentals and significant population growth.

With the marketing of these earmarked projects on-hold, delayed in their launch, or removed from the pipeline altogether, most markets are in a position to absorb not only recently completed projects, but those currently under construction by 2022.

There is a chance many apartment markets will be well undersupplied by this time.

Over the coming year, the residential rental vacancy rate will be closely monitored across the major cities of Australia, last recorded at 2.6% in December 2018. 

Vacancy in Greater Sydney has recently trended above 3%, although this has not yet been witnessed in Greater Melbourne. 

The stand-out city has been Greater Perth with 2.8% vacancy recorded at the end of 2018—falling from the recent ceiling of 7.6% in July 2017.

Investment in public amenity has continue to grow over the past couple of years, with a solid pipeline of infrastructure projects proposed over the next decade by the Federal and State Governments. 

Read our latest Australian Residential Development Review here.