Apartment Market Insights - the latter end of 2023

As 2023 comes to a close, Sydney's apartment market exhibits a dynamic landscape characterised by surging construction costs, evolving buyer profiles, and a persistent housing crisis.?

Recently, Urbis released the "National Apartment Essentials Snapshot Q2 2023", which gave a detailed, yet highly understandable view into these trends, providing a roadmap for potential investors, developers, and homebuyers.

The Apartment Market

One of the most striking features of the current market is the steep rise in the cost of off-the-plan apartments. The report notes a significant 15% increase in prices per square metre compared to the previous quarter and an 8% rise year-over-year. This surge reflects the broader economic pressures impacting the construction industry and, by extension, the real estate market.

In terms of buyer profiles, Sydney's apartment market is dominated by owner-occupiers. This trend significantly influences the design and pricing strategies of new projects. Interestingly, the international investor market has shown signs of revival post-pandemic, marking a shift in investment patterns.

This is consistent with what we are seeing from REA and various commentators in the news. More and more property dollars are coming from South-East Asia. Watch this space!

Apartment Approvals and Project Launches

In Q2 2023, approximately 6000 apartments received approval, mirroring the activity level of Q1. However, the number of new projects and apartments launched witnessed a sharp decline, a significant drop from the momentum observed in late 2022 and early 2023.?

This decrease can be attributed to the ongoing challenges in construction contracts and the escalating costs. It’s been a very tough time for the construction industry with the dual whammy of supply-side inflationary costs driving the cost of construction up, and the demand side being hiked by consistent interest rate hikes.?

The rental market has recovered from the lows experienced during the pandemic, returning to its long-term average growth rate. The report anticipates a moderation in the strong growth observed recently, especially in areas with transient markets and limited new stock.

One notable aspect of the current market is the growth in the Build-to-Rent pipeline, particularly along the Eastern Seaboard. Q2 2023 saw the addition of 8400 Build-to-Rent apartments nationally. This trend is essential for delivering much-needed supply to the market and alleviating the housing crisis.

Future Outlook

The report paints a concerning picture of the future apartment completions beyond 2023, indicating that the current levels are insufficient to meet the demand.

There are simply not enough approvals and new builds taking place.

This situation highlights the ongoing housing crisis in Sydney and underscores the need for strategic interventions to boost supply and affordability.

In conclusion, Urbis's report on the Sydney apartment market in Q2 2023 is a mix of challenges and opportunities. The rising costs, shifting buyer demographics, and evolving rental market dynamics offer insights for potential buyers to navigate this complex landscape.

When all is said and done, one thing seems certain, with rising immigration - many of whom seek apartment lifestyle when they first arrive on Australian soil - and a future shortage of new apartments in the pipeline, prices may well continue to push on…upwards.