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Apartments still lagging general housing boom
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  • While the broader housing market boom has been quite robust and far beyond most estimates, apartment markets have lagged behind
  • Completions in 2021 are expected to surpass those in 2020, totalling roughly 18,500 apartments, then dropping to just over 7500 in 2022
  • According to CoreLogic, while the housing market has enjoyed a 12.4 per cent growth across the country, apartments have risen only 4.8 per cent
  • The JLL data shows that while Sydney and Melbourne are lagging behind, some other markets are further into recovery
  • Perth, in particular, is gaining traction thanks to improved local economic and population growth prospects

While the broader housing market boom has been quite robust and far beyond most estimates, apartment markets have lagged behind.

This is according to JLL's latest National Apartment Market Report, which found the majority of recent demand to be owner-occupier driven for detached housing.

"Domestic and foreign investor demand remains much more subdued and this is keeping pre-sales demand for new apartments muted and seeing few new apartment projects commence," JLL head of residential research Australia Leigh Warner.

"This is particularly the case in Sydney and Melbourne where the population impact of COVID-19 has been greatest and where there is more residual unsold stock in recently completed projects."

JLL's apartment supply data reflect these difficulties for developers. Owing to delays in certain major projects, notably in Melbourne due to the extended lockdown, stock completions in the first quarter of 2021 were strong. 

As a result, completions in 2021 are expected to surpass those in 2020, totalling roughly 18,500 apartments throughout the areas JLL monitors.

In 2022, however, this number is expected to drop to a little over 7500. The market's delayed project start-ups have prompted JLL to predict that supply levels would remain low at least until 2023 and 2024.

According to ABS data, detached housing approvals hit a fresh record high in April, rising 4.6 per cent in the month while unit approvals fell 28.6 per cent.

Mr Warner said it strange situation for developers right now.

"While it’s still difficult to get projects going, the general housing market confidence is expected to steadily flow into increased investor demand," he said.

"Developers are growing more confident towards the next supply cycle and are steadily looking to position themselves for this cycle.

"However with very long planning, marketing and construction lags involved in large apartment projects, this next wave of supply is still quite a few years’ away and the market will tighten significantly in the interim, particularly after borders re-open and migration resumes.

"Many Build to Rent (BTR) developers are seeing this as an opportunity and are looking to fill this gap. There is currently a lot more new BTR schemes emerging."

According to Corelogic, while the housing market has enjoyed a 12.4 per cent growth across the country, apartments have risen only 4.8 per cent.

The JLL data shows that while Sydney and Melbourne are lagging behind, some other markets are further into recovery.

Perth, in particular, is gaining traction thanks to improved local economic and population growth prospects. In Brisbane, supply peaked far earlier and is presently at an all-time low, with little remaining apartment stock to consume for the same reasons.

"This divergence in performance across markets is particularly evident in the rental market," Mr Warner said.

"The rental market, particularly for apartments, in Sydney and Melbourne is past the worst but still very weak and unlikely to fully recover until borders re-open. In contrast, rental vacancy in the other capital cities is now low and rental growth is rapidly re-emerging."

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