Blackburne navigates undersupply

Source: Business News

Blackburne managing director Paul Blackburne says he will continue launching new projects to the market, despite unprecedented escalation of build costs.

As Blackburne’s $300 million ONE Subiaco development completed construction, Mr Blackburne told Business News he sold a majority of the 236 apartments in the complex two to three years ago.

This meant buyers captured capital growth as apartment values increased by 10 to 30 per cent from purchase to settlement.

He said his $380 million Grove apartments in Claremont and the $75 million East Village in Karrinyup sold in similar conditions.

“The apartments are mostly worth $100,000 to $500,000 more than people paid before they need to settle over the next 12 months,” he said.

“These buyers purchased before the boom in prices, however don’t need to settle for two to three years so they get the benefit of the strong market.”

Mr Blackburne added that the rate of price increases for high end apartments would slow over coming years, as they aligned with construction price escalations.

“However, we expect 10 to 15 per cent price growth over the next three years for larger high-end apartments in areas of low supply like we have,” he said.

“The baby boomer generation is a huge wave of equity that have only just started downsizing en masse and they will continue to increase in number over the coming years.”

Mr Blackburne added that he did not forsee build costs rising further into next year.

“We don’t expect them to increase anymore,” he said.

“We have developed for 20 years and released on average one project each year – some years we’ve commenced two new developments two, some years we’ve commenced none – and we don’t see anything would change.”

He said sale prices were up by about 20 to 30 per cent for high-end apartments over the last three years and while build costs have increased, construction costs were only one part of a project’s cost base.

“The only issue is if projects were sold at a low price one to three years ago and that developer was looking to start construction in the last few months, that may mean the margins on the development could be compressed,” he said.

“For new launches the sales prices will be at market value, which is 25 per cent higher than two to three years ago, so the escalation in sales prices more than offsets most of the increases in build prices.”

The 24-storey development is about 99 per cent sold, with two penthouses left.

The average sale price for apartments at ONE Subiaco was between $1.5 million and $2 million.

More than 500 residents are expected to move into the development before Christmas.

Recent data from Urbis revealed that no new apartment stock had been launched to the market during the third quarter of this year, which could ultimately lead to a shortage of stock.

Mr Blackburne acknowledged that there was definitely a shortage coming, as not much product was currently being launched.

However, the developer has $40 million in contracts for its $390 million West Karrinyup development after conducting what Mr Blackburne described as a “soft launch”.

“We will launch the project properly next year once all of the people that missed out on stage one have had the chance to preview the display suite,” he confirmed.