Apartment oversupply is overstated
July 13th, 2014 by Geoff Baldwin
There is no arguing that construction of apartments in Perth and surrounds is has increased significantly in recent times causing some concerns of an impending oversupply however a study at the influences suggests this is unlikely according to RE/MAX WA Managing Director, Geoff Baldwin.
“The property development industry is now much more regulated and sophisticated than it has been in past cycles and this has come about through hard lessons learned, not only by the developers themselves, but by the lenders that finance these projects”, he said.
“Prior to the global financial crisis lenders were much more liberal in their financing of prospective developments however today it is almost impossible to achieve financing without the developer having substantial equity in the project and certainly not before a majority of the apartments are sold off the plan on unconditional contracts.
“Without 60 or 80 percent unconditional presales developments will now not begin construction so, unlike in the past when construction could stop due to lack of finance or lack of sales, today they are unlikely to get off the ground at all.
“Further, as each development is mostly sold before construction begins the chances of a flood of unsold new apartments is very unlikely.
“It also must be taken into account the massive shift towards high density, low maintenance, secure living that is seeing an increasing number of people move away from the suburbs and into apartment closer to the city.
“We are also seeing a steady stream of overseas property investors snap up inner city apartments to rent out or to accommodate their children who are attending educational institutions in WA.
“Our property development industry is certainly influenced by supply and demand however, unlike in the past where slowing demand resulted in oversupply, there are now many safeguards in place to ensure this situation is avoided and that this segment remains healthy” Mr Baldwin said.