Canberra’s apartment boom is here to stay
17 February 2017
Opinion piece: Nick Georgalis, Managing Director, GEOCON
Canberrans are embracing units in ever greater numbers. There is no better indicator of Canberra’s evolution from bush capital to modern metropolis than the city’s changing skyline. Apartment living is not for everyone, but it is increasingly the choice of first home buyers, downsizers and investors alike, for very good reasons.
While multi-unit living is a mature market in cities like Sydney, Melbourne and Brisbane, it is an emerging market in the ACT, with Canberra just beginning to experience the demand for units well-established in those cities. Each year around 2000 apartments are being sold off plan in the ACT and GEOCON alone is forecast to sell 700 in 2017. On average for the past four years, GEOCON’s sales volumes have been increasing by 50 percent, year on year.
Canberra is a growing city. Each year the ACT is adding another 5000 to its population which equates to a need for 70 new dwellings each week just to keep up with population growth.
Limited land release for new houses coupled with the cost of housing means buyers are seeking alternative solutions to achieve home ownership. Apartments offer excellent value and amenity, especially when compared with a tiny dogbox on a pocket handkerchief block out in the ‘burbs, away from employment and amenities. The idyllic Australian dream of the house on the quarter acre block is dead. That is not the reality of today’s new housing estates, and buyers know it. In the ACT, land is costing around $1000 a square metre and then the cost to build a quality house is around $2800 a square metre. It just doesn’t stack up as a value proposition and first home buyers cannot afford a house and land package for $800k. It’s no surprise this group accounts for more than half of GEOCON’s sales.
Rental markets are the ultimate guide of whether there’s a supply/demand imbalance. Those trapped in the rental cycle unable to save for a home deposit know all too well that rental vacancies in Canberra are exceptionally low – less than one percent (compared to 2-3 percent nationally) – and therefore rents are high. The frustrating thing is they’d actually have no trouble paying off a mortgage if they could save the 20 percent deposit. On a comparable property, it is currently costing about the same to rent as it would to service a standard loan for 80 percent of the property’s value.
With rental returns strong, interest rates low, and less value offered in other locations, investors are coming out of the woodwork. The Canberra market is counter cyclical to other parts of Australia. When markets like Sydney, Brisbane and Melbourne slow, some of that capital gets redirected to Canberra because we are outperforming those markets in terms of price growth. New investor housing finance in the ACT increased by 35 percent last year, with the greatest increase in the second half of the year.
As Canberra grows and becomes more sophisticated people want to live in locations that are close to everything they need. They want to be close to shopping, dining and entertainment options where they don’t have to get in their car, and they want to be close to their work. In Canberra, residential density in the town centres makes absolute sense. It also adds vibrancy and safety because these areas are alive after five, when in the past they have been like ghost towns once all the workers went home. We have begun the journey to sustainable urban intensification.
This is no freakish bubble that could burst at any time. It is a solid trend underpinned by buyer demand and APRA regulations, which mean developers need to have sold at least 70 percent of their units before they can get finance. The settlement risk feared in other states has not manifested in the ACT.
As a local company accounting for more than 30 percent of the apartment sales in Canberra, GEOCON is seeing this borne out in its own developments.
Our recently completed 330-unit Wayfarer development in Belconnen is a case in point. Only around 25 units remain for sale, and 280 settled successfully last month. A number of units have already been resold, on average at 10 percent above the price the sellers originally paid two years ago.
GEOCON’s Infinity development in Gungahlin is the best-selling project in the ACT residential apartment marketplace since 2010 (Manhattan in Canberra City). Sales at Southport in Tuggeranong have been strong and will be boosted by the opening of our display apartment this weekend. Shortly, we will release to market our new project in Braddon, Midnight, which is already getting strong interest and Republic in Belconnen will be released later this year. By next month we will have more than 1000 apartments under construction and by the end of this year, 1500 apartments under construction.
Our confidence in the market is based on sound economics. Rental yields data dispels any suggestion of a market contracting. Interest rates are at record lows and show little sign of rising judging by the Reserve Bank Board’s recent decision to keep rates on hold. The booming apartment market is here to stay.