NEWS

1,400 apartments on track for completion in 2017

Colliers International records jump in Adelaide CBD apartment market

The Adelaide CBD apartment market has seen a jump in completions in the past 18 months, with 408 apartments completed in 2016 and up to 1,400 due to be finished in 2017.

These figures are well above the 10-year average of 260 apartments per year, according to Colliers International research, which predicts that absorption will be higher in the next three years.

“More than 2,400 apartments are under construction, which is a major jump from 2016,” associate director for research, Kate Gray, said.

“Included in this supply pipeline, however, is the completion of 689 nest student apartments, significantly boosting the supply completions in 2017.”

More than 11 projects have created a strong supply pipeline, with about 870 apartments being marketed for presale at present. Among these are Realm on Austin Street (320 apartments), The Adelaidean on Frome Street (82 apartments) and Parkland Vista on South Terrace (11 apartments).

“This higher-than-average supply is to support the City of Adelaide council’s target of having 50,000 people living in the Adelaide CBD, which will double the precinct’s permanent resident population,” Colliers International director for residential projects, Nick Pelvay, said.

Ms Gray said most of the negative media coverage on housing affordability and apartment supply related to the national market, which often did not accurately reflect Adelaide’s data.

“Nationally, we have seen housing finance continue to grow, with investors being the primary driver,” she said. “This has caused some level of concern from the Reserve Bank of Australia, as it is fuelling significant price growth in the Sydney and Melbourne housing markets.

“Both of these markets have a significant supply of new apartments coming to the market in the next two years, with investors driving much of the presales, which has led to some concerns regarding settlement risk in these markets.

“This means that although there may have been a contract for the apartment prior to construction, the apartment fails to settle, which is mostly to do with finance for the purchaser.”

While the Sydney and Melbourne markets have experienced strong demand from offshore buyers, the Adelaide market is predominately being driven by local owner-occupiers, as determined by Colliers International’s research.

“Adelaide has adequate supply of both land and apartment developments, unlike the Sydney market, which has been undersupplied compared to population growth for an extended period of time,” Ms Gray said.

Mr Pelvay said that Adelaide remained one of the most affordable housing markets nationally.

“There has not been a significant spike in house prices for almost a decade, with the CBD housing rental market seeing yields of about five per cent, which is much higher than in the other capital cities,” he said.

“The combination of all of these factors makes Adelaide a much more stable market, with prices growing at a more moderate rate and less prone to falls in prices.”

In 2012, the South Australia government introduced full stamp duty exemptions for off-the-plan apartments less than $500,000 and partial exemptions for apartments more than $500,000, with Ms Gray saying effects on supply were not evident until 2014.

“There is a lag time between the pre-commitment to purchase an off-the-plan apartment to the completion of construction, which can be 18 months or more,” she said.

“The stamp duty concessions were initially restricted to the Adelaide CBD but in more recent times, they have been extended first to the inner rim and then statewide,” Mr Pelvay added. “Given their success, and the fact that they were extended statewide last year, it is expected that these exemptions will stay in place for a further 12 months.”

Looking forward, Mr Pelvay said the Adelaide apartment market was likely to see the average number of apartments absorbed continue to increase.

“As this market matures and occupiers and investors became more comfortable with apartment living, we expect more absorption during the next three years, based on the current and projected supply,” he said.

“That said, it is likely that some of the projects currently being marketed may not reach the target for presales and therefore may not proceed to construction. This will mean that new supply is likely to be lower than what we have forecast.”

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