Apartment build costs ‘far outweigh’ sale price in Perth’s cheaper suburbs, UDIA claims

Source: The West Australian

A second key forecaster has predicted a massive increase in Perth apartment prices in the near future, warning new unit developments may not stack up financially for more than a year.

In more bad news for Perth’s chronic housing under-supply, the Urban Development Institute of Australia (WA) claims developers cannot currently sell apartments for the price it costs to build.

It’s research shows that since the pandemic hit, the value of new units has grown 2 per cent – or by 29 per cent when combined with established units – but construction costs have risen 32 per cent.

It predicts mounting pressure will drive up apartment prices about 18 per cent over the next 12 to 18 months, to close the gap between construction costs and market values.

The comments echo a forecast from property analyst Gavin Hegney who last week said Perth apartments were currently undervalued by 25 per cent.

UDIA WA chief executive Tanya Steinbeck warned of a delay in much-needed new stock, as only high end developments stack up financially.

“In cheaper or lower land value areas, including many of the Metronet sites around the Perth Metro Area, the construction and labour costs far outweigh the potential sale price of apartments in these areas, making them unviable and unattractive prospects … in these locations,” Ms Steinbeck, pictured, said.

Apartment developer Paul Blackburne said apartment prices were just starting to catch up after a decade of slow growth, and were set for five years of “substantial price increases”.

He expects a 25 per cent increase across the broader market over the next four years and more than 30 per cent for apartments.

While his own company would continue with one high-end development per year, he expected high interest rates and the labour shortage would keep some developers on the sidelines until interest rates drop and apartment prices improve.

Darren Patemen, the managing director of Finbar, said there were already signs the absence of new construction was boosting the value of second-hand strata apartment stock.

“You have to remember Perth had very little growth in apartment values for near-on nine years and missed out on two booms experienced in the East,” he said.

While Finbar was set to begin the $260 million Garden Towers in East Perth, it was holding back some approved projects to “observe monthly market price improvement across the market generally to help support these feasibilities and help return margins to more normalised pre-pandemic levels”.

Celsius boss Richard Pappas said apartment development costs were similar everywhere, irrespective of location, but only financially viable in the western suburbs.

He backed calls from UDIA to expand the Infrastructure Development Fund from $10,000 to $20,000 per dwelling and to expand eligibility.

“The key to solving our housing crisis is to unlock as much supply that is viable right now and gaining some support from government to help make more projects viable sooner across more suburbs,” he said.