Australia’s experiencing a booming building market now, but in an industry that’s so heavily influenced by economic forces beyond our control, it’s hard to predict the future.
Below we try to do just that. Using the best available data, we offer a guide of how the industry will next year and where the ‘areas of activity’ will be.
With an increasing population in our major cities, there’s a growing trend towards building up as opposed to building out. This means that apartments are becoming more prevalent than houses due to lack of space.
Research from CoreLogic has revealed that at around 20 Australian suburbs are expecting levels of apartment supply to balloon by up to 34% in the next two years. This will be a large player in the construction industry market, offering considerable work in these areas.
Predictably, the primary areas of activity are in the major cities. Melbourne leads the way in actual numbers of apartments being built (experiencing a 16.1% growth), trailed closely by Sydney (13.1%) and Canberra (12.7%). However, Brisbane is the city with the largest growth, with a whopping 25.4% increase in potential uplift. So, it’s an exciting time for builders in the Sunshine State.
It’s worth showing where the activity will be at a closer level. In Brisbane, much of the activity will be in the Inner, Inner-North and Holland Park–Yeronga suburbs, where apartment stock is expected to swell by 33.6%, 33.2% and 32.5%, respectively.
In terms of absolute volume, Brisbane City will add more than 10,000 units. Sydney is expecting about the same.
In Melbourne, the key suburbs are Manningham-West, Darebin-North, Maribyrnong, Whitehorse-West, Brunswick-Coburg and Melbourne City, where increases between 21.1% and 33.6% are expected. For Melbourne City, this will equate to around 16,354 extra units.
While oversupply may not be an immediate concern of the builder, it will affect the industry in the longer term. In Brisbane, current levels of vacancies sit at around 3.2%, just above the level of a balanced market (3.0%). If the expected 10,000 odd units are added to the market, there could be a problem with oversupply. This means that there’s too many units without occupants, meaning that there will be no need for future growth in construction in those areas.
Melbourne currently has a balanced rental vacancy rate of 2.9%, but this may change with the addition of the apartments expected to be built there in the next year.
Further, as a lot of these builds are ‘off-the-plan’, there is a potential issue of settlement risk. This is where purchasers do not make good on their promise to settle in the property once it’s built. Considering the extent of growth, Brisbane and Melbourne are most exposed to this risk.
Although Sydney is also open to some settlement risk, the problem there is different. Prices are higher than everywhere else, a lot of this pushed up by foreign investment. However, if prices continue to increase, local and foreign buyers may be priced out of the market, causing a significant problem and most likely halting future construction work.
The future may be uncertain, but you can still be prepared. Do your research, follow industry trends and capitalise on market changes.
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