With a degree of turmoil in the property market at the moment, Sydney finds itself in somewhat of a stalemate surrounding apartment availability. Developers, investors and buyers are seemingly caught in a state of flux, which is understandable when looking at the risks in the apartment market at the current time. However, there may be light at the end of the tunnel.
Slow release of apartments
Sydney is currently experiencing a decline in the release of apartments, that is, making them available for sale. Generally, developers won’t release apartments to the market until they have secured enough pre-sales for construction funding.
The 10-year average number of apartments released for sale sits at around 4,800 apartments, but even this is well shy of the boom we saw from around 2013 – 2017. 2015 saw the release of over 10,000 apartments in the fourth quarter alone. The figure for Q4 in 2021 dipped to around 2,600, well below the 10-year average.
Why aren’t apartments being released?
Market analysis suggests that these low numbers certainly aren’t a result of decreasing demand. However, we’ve seen almost a perfect storm of factors coming together to slow the construction process. Things like the Covid-19 pandemic, increasing inflation, rising interest rates and higher material costs have seen many developers pull back to some degree.
Several projects were launched and pre-sold before Covid, but they have now been paused because the rising construction costs have made them unfeasible. Apartments take a long time to build, so some developers have even gained approval for projects, but they’re not releasing them to market for fear of material cost changes, as well as potentially lower sale prices once built.
Even on the sales front, investors and buyers have become a little spooked due to rising inflation, interest rates and the recent collapse of building companies.
The road ahead
It’s not all doom and gloom for the apartment market because most market analysis occurs at a higher, or overall level. There are, fortunately, many sub-markets of people who are still eagerly looking for apartments and may be prepared to pay current prices.
For investors, now could be the perfect time to buy because vacancy rates are low and rents are going up. So, an apartment with a high rental yield could be perfect for them to hedge against inflation.
Retirees and people downsizing are also key players in the market. As many of them own their current homes outright, rising interest rates and obtaining finance are less of an issue.
Overall, it’s a bit of a standoff with both buyers and developers nervous about committing to prices, but for smart investors and developers, there are still plenty of opportunities in what is currently a severely undersupplied market.
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