2.3
Apartments and Townhouses
Apartments One of the major trends throughout the pandemic has been the surge in buyer demand for detached dwellings (houses). The surge was partly due to shifting preferences with many buyers choosing to build new houses in both metropolitan and regional greenfield locations. However, record low interest rates and government incentives also allowed many purchasers to buy larger dwellings. In turn, the industry was able to respond quickly, ensuring supply could be brought to market. Market activity in higher density markets was much different. High-density (apartment) markets were heavily impacted by COVID-19 and, especially, the closure of international borders. As a result, vacancy rates increased and apartment prices (and rents) have generally lagged trends in the broader market. Some sub-markets, especially those in the inner suburbs of large capital cities, even experienced declines in price and rents initially and continue to experience only a relatively modest rebound. For example, the Real Estate Institute of Victoria (REIV) reports that unit and apartment prices for metropolitan Melbourne edged higher in the September quarter 2021 (up 0.4%) to be 5.6% higher on an annual basis.
24
QUARTERLY MARKET INSIGHTS
SEPTEMBER QUARTER 2021
However, overall prices were dragged down by softer conditions in the inner Melbourne market (0-10 km from the CBD) where unit and apartment prices rose by only 2.6%. In contrast, unit and apartment prices in the middle Melbourne (10-20 km) and outer Melbourne (20+ km) markets are up 6.8% and 10.1%, respectively, over the year. The apartment market is, however, steadily improving. Buyers are increasingly active in securing competitively priced apartments - especially when compared to detached housing which has experienced significant capital appreciation. Apartment tenant demand also appears to have stabilised, overall, with many tenants capitalising on the rare opportunity to lock-in good rental deals. It will take some time for new apartment stock to be brought to market with leading indicators of new supply in the pipeline, such as approvals, remaining relatively subdued (although above recent troughs). This is in contrast to the detached housing sector which saw new supply surge due, partly, to the HomeBuilder incentive. Apartment market fundamentals are expected to gradually improve as international borders are reopened.
