Will Suburbia Apartment Vacancies saw like the CBD?
The Age painted a dim picture with their article below December 17th.
It begs the question, will the same occur in places like Doncaster where both high rise and Medium density apartments are being build en-mass.
Talking to the developers you get mixed stories, some say it all sells, others research shows entry level products are selling, and the larger units, but not much in the middle sizes.
Vacancies soar and rents fall as new apartments stay empty.
7 Comments
Doncaster East was ranked among the top 5 suburbs for capital growth over the past 12 months, recording a remarkable 19.2% increase in the median house price with two storey town houses not too far behind. Not so with the resale of high rise apartments on the Hill, in fact the larger ones are recording substantial losses after 12 months, which is hardly encouraging for owner/rental investors who will rely on capital gain. While It might be too early to predict the future of the DDO8 medium density overlay surrounding the Hill, where only 300-350 of the planned 9,400 apartments have been built, the now higher costs in acquiring suitable building sites, (consolidation of two or more established properties) could be among the limiting factors. The Doncaster Hill High-Rise Strategy is continuing to struggle according to the figures published in the latest Manningham Newsletter. Of the 4,080 planned apartments only 460,(including 98 in a government funded project), have been built so far since its inception in February 2002. In spite of expensive council promotion, investors are shying away from committing to a proposal so remote without a railway or an adequate parking supply, not to mention its poor street layout and difficult topography. Furthermore, the Hill Strategy does not comply with the ideals of the State Planning Department because of its inability to provide pedestrian and bicycle paths. The Newsletter states; “council will address these issues by developing a plan to encourage people to move from using their cars to other forms of transport, ie. public transport, walking and cycling……this is called mode shift”. “Achieving this mode shift is a complex issue requiring a coordinated approach across State and Local Government, developers, and the community”. “Parking management, the attractiveness, accessibility, efficiency and integration of sustainable transport modes are all considered key factors if mode shift is to be achieved”……..sounds very impressive, but how?
http://www.doncasterhill.com
Sandman
I am not surprised at the vacancy rates. Monash University’s Bob Birrell and Ernest Healy warns that the “planning elites” shaping Melbourne’s future are ignoring the disconnection between an investor-driven apartment boom, mainly led by overseas players, and Melbourne’s real housing preferences. “Their plans for the inner city’s expansion and for its economy are based on a property boom that our analysis indicate will implode”
One of the biggest problem with apartment stock is its affordability for the family market. Construction costs for larger apartments are prohibitive which means fewer are being built in inner city and outer activity centres. We are building too many small dwellings, thousands of CBD already built are less than 70sqm, and projects currently in the planning stages or currently under construction are trending towards even smaller apartments, most of which have to be sold off the plan. I would like to know the method used to select these activity centres, it would be interesting, many were car based which makes you wonder if they were picked using a blindfold, a pin and map rather than on their potential to reduce car dependency and encourage public transport etc..
It was imagined that the “empty nesters” in established outer suburbs would sell their large houses to young families and relocate to smaller dwellings. But they prefer to “age in place”. They still want space for their adult children to live at home, for visiting grandchildren and for home offices. They like the familiarity of their area and the garden they might have spent decades creating. Importantly, there is usually little financial benefit from “trading down”. This has resulted in the majority of apartments on Doncaster Hill being designed as studio apartments. Since the strategy was approved in 2002 only 7 apartment buildings have been completed. It would seem that the main drivers–economic, employment, public transport and government investment were scarcely considered.
Peter Sharp
I doubt it will ever happen in Doncaster. Despite the building approval data published in Manningham council’s promotional material, very few developments have been completed. A building approval does not necessarily signal a building commencement. The number of building approvals is a poor indicator of the number and the timing of apartments being sold off-the-plan, under construction or completed..
Apartment residents remain overwhelmingly young singles or couples who are renters. As in the past, they are transients who will move into family-friendly housing when they decide to raise a family. Most of the growth in new households in Doncaster will be looking for such housing. There is no large potential source of apartment occupiers (including empty nesters) that will come near to filling the expansion in the apartment stock that was envisaged in Manningham’s Doncaster Hill Strategy and its surrounding lower scale DD08.
Vincent
Lenders are becoming a lot more risk-adverse when it comes to lending on apartments. Lots of them won’t lend above 80%, which can severely hamper the resell potential – you don’t get this problem with landed property. Strata fees generally kill yields stone dead. It is not just the low 3% yield that you must contemplate but also the lack of any capital gain. in fact a Melbourne apartment is $24,000 cheaper to buy now that it was a year ago.
The situation will be no better in Manningham, already there have been apartments resold $50,000 below what they were purchased for 12 months prior. I hadn’t realised just how many apartments have been sold off the plan overseas, particularly in Asia, that are yet to be built in Doncaster, OK for now, but when these buyers want to sell they can only sell on the local market, which makes me think there will be a huge mismatch between stock coming on the market and purchaser demand down the line.
I certainly wouldn’t buy an apartment.
Alexander V.
High rise apartments, no matter where they are located, can be very dangerous, particularly if there is a significant number within the development. There is no scarcity about them, there will be a lot of people looking to rent them out so the rent agents quote is often too high so a discount war can eventuate. Worst of all is that valuations from the banks are coming up well short leaving you in danger of losing your deposit if you can’t find the extra cash to cover the shortfall. I can understand why overseas purchasers are being targeted as the link below appears to suggest.
(Click on movie)
http://88doncasterhill.com.au/
Dalray
Capital gain is the key consideration when purchasing a property for investment because of the low average rental yield. We had considered an apartment in Doncaster but, when talking to fellow property investors and our accountant, we were advised that it was not a good idea and we would be much better off purchasing an established home for a significantly greater tax reduction, when rented out, with the prospect of a reasonable capital gain. We eventually purchased a 160 sqm town house with a double garage for $605,000 in East Doncaster last year. Today it is worth $670,000, a capital gain of 11% in less than 9 months. In the same period the 78 sqm apartment, we had first considered, yet to be built, is still listed at $560,00.
Jessica Tran
If you are considering an apartment as an investment don’t be fooled by published reports designed to inflate the resale value and volume of high rise apartment sales (Capital Gain). All In Fill development such as the booming town house and villa unit market are being bundled together with apartments as total unit sales thereby helping to conceal the disastrous resale performance of the high density apartment schemes. e.g. “Units and apartments recorded a similar level of demand to houses with a 4.8 per cent increase in seasonally adjusted terms”.
Teresa Chu