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Australia’s residential development market falls to a seven-year low

Just $4 billion of total residential site sales were recorded in 2020.

It was well below the 2014 peak of $11.3 billion, according to Knight Frank’s Australian Residential Development Review 2021.

The review also found the national apartment pipeline will drop over the next three years, with just 86,400 new apartments planned across Sydney, Melbourne, Brisbane, the Gold Coast and Perth.

The expected decline would be 36.1 per cent less than the 135,300 new apartments built between 2018 and 2020.

The forecast comes in a year where total building approvals for new apartments dropped below 40,000 for the first time since 2013, with only 34,100 new approvals in 2020.

The weakness recorded in the residential development sector has been severely impacted by a decline in offshore investment, falling to pre-2013 levels. There was just $500 million in overseas capital invested in 2020.

It’s the first time overseas investment has dropped below $1 billion since 2012, and is well below the $5.25 billion peak in 2016. In 2019, overseas investment was at $1.4 billion.

With more developments being driven locally there has been significant growth in low-density site sales, with the share of total sales up from 10.1 per cent in 2015 to 23.1 per cent in 2020.

This is the result of more land being released for low-density in growth corridors in the major cities over recent years, developers taking on lower risk projects and the HomeBuilder buyer incentive since mid-2020.

Sites sold collectively – considered those with the potential for residential development and including more than one vendor – also performed strongly in 2020, accounting for 19.8 per cent of total site sales. It was the largest portion captured in the past decade and showed a growth of 6.2 per cent since 2019.

Knight Frank’s Head of Residential Shayne Harris revealed developers had their eyes on new targets.

“Developers across the country are continuing to shift their focus and risk towards boutique apartment developments and diversifying their portfolios with low-density sites,” he said.

“Although we’re in uncertain times, we can’t underestimate the impact investors will have on the apartment market as they start to return across the country. It’s only time before they’re lured back to the new apartment market given the cheap finance, a thinning new supply pipeline and lowered residential vacancy rates.” 

At a state level, New South Wales (NSW) accounted for almost half of all residential development sales in Australia last year, with $1.98 billion in total sales. Victoria came in second $1.29 billion. This was the ninth straight year it maintained its position as the nation’s leader for developers expanding their sites portfolio. 

Despite this, Melbourne emerged as the epicentre for Australia’s built-to-rent sector and led all capital cities in attracting overseas investment in the residential development market.

Melbourne had more than 6000 apartments in the BTR pipeline at the end of 2020, well ahead of Sydney with 3300 and Brisbane with 1600.

While the $185.4 million invested by overseas developers in Melbourne sites represented 53 per cent of all international investment made in Australia in 2020 ($351 million) and ahead of Sydney sites ($139.1 million in 2020). 

The Gold Coast bucked the national trend of declining high density apartment sales across all major capital cities, recording a major 238 per cent surge in major site sales purchased in 2020. The sale of nearby Brisbane’s high-density sites plunged by 86 per cent in 2020, with a diminishing pipeline of just 6075 new Brisbane apartments to be built by 2024, down from 13,850 in 2018-2020. 

In Perth, demand for high-density apartment sites rose with annual sales turnover of 10.7 per cent in 2020, as confidence increased among local developers. 

Knight Frank’s Head of Residential Research, Michelle Ciesielski suggested across every residential market, there will always be submarkets outperforming.

“Although we’re hearing of record sales being achieved in the upper echelons of the residential market, it’s the underlying mainstream residential market recording stronger growth than one year ago,” she said. 

“The demands of apartment buyers are evolving. We already know downsizers are most attracted to a three-bedroom configured apartment, but with the pandemic, there will be increased competition from other cohorts securing this third bedroom for the home office and potentially second living room, when required.” 

Knight Frank Research into residential development market

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