THE lack of large scale residential developments will likely drive a major investor rush back into the market, according to research by Colliers International and the Australian Property Institute (Vic).
The joint report found as result of the tight credit market, a number of planned and approved large-scale residential developments throughout Melbourne will likely be moth-balled over 2009.
Colliers has forecast new medium and high density dwellings to fall by 18% in 2008/09, further tightening supply with vacancy rates at a low 1.1% and placing upward pressure on rental rates which have increased by 10% over 2008.
Colliers & API projections for major residential projects in Melbourne have factored in the shelving of various projects during 2009 due to developers failing to obtain finance.
Over the next three years, less than 1500 dwelling units are forecast to be completed each year – well below peak of around 3,400 units in 2004.
Prepared By Colliers International Research Source: City of Melbourne
But the lack of supply is likely to drive both investors and renters to purchase available stock if interest rates stay low.
Colliers’ research analyst David Grima said the increase in population which has been forecast by numerous independent & government institutions.
“Demand assumptions have forecast population growth to increase by 4.8% per annum and the average household size to decrease from 1.95 people per household to 1.89 persons per household.
“It is apparent that there will be a severe shortage of new stock coming on to the market with equilibrium being reached in the medium term,” Grima added.
The Colliers – API research is supported by a recent BIS Shrapnel forecast suggesting the recovery of the housing sector on a national scale will be exacerbated in Melbourne due to the burgeoning population and already apparent shortage in housing supply, the supply will be truncated by the global credit crunch as financing constraints are reducing the pipeline of new residential developments.
API Victorian president Chris Plant added that with the expectation of investors returning to the market as a result of more beneficial interest rate/ yield spreads, and significant government stimulus packages, prices could gradually recover over 2009 pending no further blows to consumer confidence.
He said the top end of the market however is expected to continue to come under pressure as dwindling bonuses and margin calls impact on the lifestyle of wealthy Melbournians.
Both Plant and Grima agree that due to these factors, the demographic expected to drive the market over the following 12-18 months are likely to be price sensitive in comparison to buyers who have driven the market over the previous 12-18 months.
“As a result, an appropriate strategy suitable for this type of demographic needs to be employed and is likely to be predominately based on affordability i.e. targeting the appropriate price points,” Plant concluded.
Australian Property Journal
