Why The Apartment Market Is Not As Shaky As It Is Made Out To Be

Difficulty in obtaining funding for a project to get off the ground is a difficult task in any property cycle. The base rules of most multi unit apartment developments have been fundamentally the same over the last five year period. Developers need to own the land outright, pre sales are a requirement, the construction/builder is to be known to the marketplace and the entity needs to be able to show debt coverage of a percentage plus basis over the total development period. The simple truth is for a project to get “off the ground”, an intending funder has undertaken their due diligence process.

1. Most apartment developers are catering for either an untapped segment or a submarket that is still under supplied.
2. Apartment developments are sold to differing submarkets of either owner occupiers and/or private investors and never to one specific category. Risk mitigation is a high priority.
3. The marketing of a project is verified as to the sales process proposed usually by the intending funder and/or the marketing agent. The old adage, from an agent’s perspective, being don’t over cook your Vendors expectations.
   
4. There is a shortage as to current levels of supply as to the extent that most of the newly constructed apartment developments have been sold, with most 100% sold prior to completion. The only area of concern is completion of the sale and settlement.
5. Population growth of 100,000 people per annum now coming to Melbourne from interstate and globally.
6. We are no different to any other major city of the world. We all want to live amongst the action with linkages and services at our doorstep, rather than in the “burbs”. Simply, most people if they have the choice would like to live within the city or fringe.
   
7. The majority of apartment developments are improving as to size, design and amenity. As time goes on the market builds to the then current market forces of the time and to the cycle.
8. The rental market is very stable and is getting stronger and stronger, with long term tenure to be the “new” and emerging market segment.
9. Within the 20 kilometre band of Melbourne, the apartment segment is now becoming the only affordable sub market sub $1.0m.
10. Even at current rates of construction, a shortage will still prevail based on population entry into Victoria.
11. Developers are still “upbeat” about the segment and demand and supply levels.
12. Downsizers and the baby boomers are still yet to make a dent in the apartment market segment. Watch this market segment over the next 5-10 years.
13. The generations of X & Y still look at the residential apartment market as a residence of choice. We don’t cook, we don’t do house chores, we just live for the day and keep it simple.