Transcript of a discussion on the Perth inner city apartment market with Director of Property Economics and Research, David Cresp.
Mark Pownall: Interesting you talk about people wanting to go out and have more meals, and one of the reasons people do that is because there’s a bit more inner city living. And to be an inner-city liver, resident, you need to live in an apartment. I think we’re seeing this trend toward…
Jane Marwick: Sounds like a heavy drinker, doesn’t it, inner-city liver [laughs].
MP: Yeah, that’s the one you need to get replaced (!). We’ve seen this rise in apartments of late, very – conversation point, something like 18 per cent of new homes approval is… are apartments to be built.
JM: Some of them have been contentious, we’ve seen stories coming out of South Perth, and people not wanting high rises in their backyard.
MP: There’s been a lot of that. Actually that’s not as new as you think because the ocean… beachfront stuff has been a long term issue trying to – people have been complaining about high rise along there. But look, we’ll talk about that in a minute, because we’ve got David Cresp from Urbis. He’s an analyst who knows this market very well, and he can tell us what’s going on, not just in apartments but all over.
JM: David Cresp, good afternoon and welcome to 720 Drive.
David Cresp: Good afternoon.
JM: David, Mark lets me know that you have some fresh data that you can share with us this afternoon.
DC: We do. We do a quarterly survey of what’s happening in the apartment market, so very on top of it. And just – our figures for the December quarter have come. The December quarter was a little bit quieter, follows the trends in the general property market that the back end of last year did see a bit of a slowdown. We saw a bit under 500 sales in the December quarter of apartments, both off the plans and newly completed developments. So we track newly apartment developments of 25 or more. So that was a bit of a drop down from where we’d seen things generally last year. But in the December quarter, you’ve really only got two active months of selling. So no surprise to us, and follows the trend that we saw in the December quarter previously.
MP: David, does that trend – I gather with apartments you’re talking about a lot of sales are pre-sales, so therefore the cranes we’re seeing, I presume, are figures… they’re not the latest sales that you’re talking about. They’re stuff that happened a year ago or more?
DC: Absolutely, yes. Most developments, you need to get around sort of, 60 per cent sales to get the banks to be able to give you the money to go ahead and build an apartment building. Yeah, most developments that you see with work starting on site, they’re certainly north of 50 per cent, and generally north of 60 per cent of the apartments in the building would have already been sold. So we are seeing lots of cranes on the skyline, but a lot of those are apartments that are under construction will already have been completed sometime.
JM: David, looking at the Urbis Think Tank, it says in total, there are “12 apartment towers above 30 storeys in various stages in the construction or planning pipeline. Developments will, that will if they go ahead, add significant height and depths to Perth’s ever changing city skyline”. I wonder, are you seeing much push back from people who’ve lived in Perth for a long, long time and don’t want it to change?
DC: I think Perth’s pretty good at that.
JM: [Laughs] Resisting change?
DC: Resisting change. I think a lot of people in Perth would like things to remain the same forever. When you look at the State Government forecasts and planning, the WA Planning Commission are now forecasting and planning for 3.5 million people in Perth at 2050, compared to about 2 million people at the moment. We’re going to see by 2050, not quite doubling, but up there, the size of the people in Perth.
JM: Mark Pownall, perish the thought [laughs].
MP: But I would have thought that if we are going to have that growth, it’s kind of, whether we like it or not. If you want Perth to remain a little bit like it was, the best way to do it is get people in closer to the city, and apartments are the answer, aren’t they? And have less cars, and otherwise… I mean, we already saw congestion in Perth when we really boomed. Why that resistance? Do people feel that their property values get affected, David?
DC: I don’t know why there’s resistance to some degree. There is just this thing in Perth that we like it the way it is now. Perth is a wonderful city, and I think there is just this perception that we want it to stay the same as it is forever. But if you think that we’ve got about 150 km of coastline with residential built up and down it already at the moment, we can’t just keep on going out. Whether we like it or not, we’re going to have to find ways to get to being a denser city, and accommodate the 1.5 million people that plan to be coming to Perth, inside the boundaries of what’s the metropolitan area at the moment. Can’t just build another Perth on… by spreading out. We really need to get more dense and find ways to do that. So that is going to bring change.
I think what we’re not used to is density, and we don’t – we often don’t look at the benefits that it brings. If you have a look at – talking about more bars in the city, that’s because we are starting to see more people around the city.
JM: Interesting point, because a lot of people would say that they’re comfortable with medium density, but it’s the skyscrapers that they object to. What – and I can understand the infrastructure argument, the urban sprawl argument. What’s the benefit of skyscraper apartment living?
DC: It does bring that density and intensity to an area. I think it’s a matter of getting that sort of development in the right type of areas around Perth. You have a look at Elizabeth Quay, the Northbridge area, and just north of the railway line, Stirling Street. That’s the type of areas that are planned for the high rise type development. And hard to see arguments against it in areas that have been – Stirling Street for example – been heavily neglected for a long time, don’t have anyone living there in single residential houses. What would be the objection to something that’s high rise? And in terms of some of the benefits in those sort of areas, from the ground point of view it does bring more intensity and more people in to the area. And for an apartment – someone living in the apartment, there are areas that would offer absolutely wonderful views.
MP: David, what about the thoughts that there might be a bubble going on? What does it feel like from a business perspective, is that a concern?
DC: Look, there’s a fair bit of supply coming through. We don’t see it as a bubble. As you commented on in the intro, 18 per cent of dwelling approvals last year were for apartments. Now, if you have a look on the east coast, then Brisbane’s sitting at about 48 per cent of approvals last year, Sydney at 58 per cent and Melbourne at 43 per cent. So, they’re all north of 40 per cent of all new dwelling approvals were for apartments. We’re still fairly low and we think that that proportion of dwellings in Perth that will be apartments over the next 10 years, will increase.
MP: But nevertheless, the market has softened, like you said. Should buyers, when they’re looking at apartments, how do you go about it? Is it the same as when you look for a builder for your house, do you – how do you go about getting the right builder and making sure that your investment is secure?
DC: Yeah, absolutely. You need to consider who are the builders going to be, who the developer’s going to be, what that building offers compared to other buildings. The real estate market generally at the moment is in the part of the cycle that is more of a buyer’s market and that does produce opportunities for people. So you do need to be careful of all those sort of factors when you are looking to buy off the plan.
JM: David Cresp from Urbis Economics, thank you for joining us this afternoon on 720 Drive.
DC: Thank you very much.
JM: That was interesting, Mark, an interesting conversation. I would imagine there will be people listening who say ‘no, no, no. We don’t want that kind of development’. But I suppose when you compare it to what other capital cities in Australia are doing, those figures are interesting, aren’t they?
MP: We’ve had it too good for too long, and I think the argument with South Perth is that maybe there was 10 or 15 years… in fact, I think there just hasn’t been that much development. You’re almost seeing a catch up, and sometimes when you see that kind of pace of development, like in anything, like we saw in the boom, it hurts.
JM: Feels fast.
MP: People can’t adjust to it.