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With the up coming over supply of completed units, now is probably not the time to be investing in apartments and units. The below article from core logic goes into great detail about the number of units and houses being started and completed. There is a huge over supply of units to be expected in most areas and if this is an area you are still set on investing in – then it is imperative that you do your due diligence. Please come in and talk to us before looking at purchasing any off the plan units.

The Australian Bureau of Statistics (ABS) released building activity data last week which showed that a record number of dwellings are currently under construction across the nation.

According to building activity data for the March 2016 quarter there were 25,122 houses and 29,987 units which commenced construction nationally over the quarter.  The first chart shows that while commencements for houses eased over the quarter, unit commencements increased to a new record-high.  The number of houses commenced fell for the second consecutive quarter.

House commencements increased over the quarter in SA, Tas and NT but fell elsewhere.  For units, commencements were at record highs in NSW and Qld and also rose in SA and the ACT over the March 2016 quarter.

Quarterly dwelling commencements, house vs. units

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Looking at dwelling completions, both house and unit completions were lower over the quarter with unit completions having fallen for the second successive quarter.  Over the March 2016 quarter there were 23,218 houses and 15,002 units completed.  Completions for houses fell across each state and territory over the quarter while for units, they were lower over the quarter in all states and territories except for NSW and SA.

Quarterly dwelling completions house vs. units

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Although completions have fallen, there is a record-high number of dwellings currently under construction which is being fuelled by units which typically take longer to build than houses.  At the end of March 2016 there were 215,863 dwellings under construction nationally, 63,414 of which were houses and 152,449 which were units.  Year-on-year the number of dwellings under construction has increased by 18.6% with the number of houses under construction -5.4% lower while units under construction are 32.6% higher.

The number of houses under construction is well below previous peaks in all states and territories with the number under construction lower over the quarter in Qld, WA, Tas and Act but higher elsewhere.  For units, there are currently record-high numbers of units under construction in NSW, Vic and Qld which reiterates the magnitude of the current unit construction boom.  In all states and territories except WA, Tas and NT the number of units under construction has increased over the quarter.

Quarterly number of dwellings under construction houses vs. units

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While the number of dwellings under construction is at record highs we are also seeing an elevated number of houses and units which have been approved for construction but not yet commenced.  At the end of March 2016 there were 8,817 houses and 24,175 units which had been approved for construction but not yet commenced.  With completed and under construction supply ramping up sharply over recent years it is reasonable to expect that fewer recently approved dwellings will actually commence in the short-term.  Particularly when you consider that high-rise unit construction is at record-high levels and the considerable level of risk in constructing such a large project.

Number of dwellings approved but not yet commenced houses vs. units

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The record-high number of dwellings under construction and the continuing strong pipeline of approvals should ensure that there is plenty of work for the construction industry over the coming years.  There is the concern of over-building in certain areas especially considering in certain locations much of the new unit supply in particular is targeted at an investor rather than owner occupier market.  We would expect that over the coming quarters an increasing proportion of dwellings, particularly units, which are approved for construction will not be commenced.  This is largely due to challenges with securing enough pre-sales to trigger commencement of these projects.

Information from Corelogic.com.au