Failed projects fuel apartment undersupply fears

An online property agency believes Melbourne is more likely to face an undersupply of new apartments rather than an oversupply due to its rapidly growing population.

iBuyNew Group CEO Mark Mendel said Melbourne is the fastest growing city in Australia and projected to be the nation’s first city to reach a population of eight million.

Many proposed apartment developments in Melbourne will never get off the ground, Mr Mendel said, while some developers are acquiring permits for apartments but have no intention to build, massively inflating the number of approvals.

“It’s easy to think that with all the apartment construction currently underway in Melbourne that the city is undergoing an apartment oversupply, but Melbourne will not be seeing an apartment oversupply crisis anytime soon,” he said.

Mr Mendel said the Commonwealth Bank of Australia revealed that more than 140,000 apartments were approved across Melbourne, with only 35,000 expected to be completed between 2016-2018.

“These figures suggest that an undersupply of high rise apartments in the future is more likely than an apartment oversupply,” he said.

“Another important reason Melbourne does not have an apartment oversupply is down to the number of new developments that are failing to start. This is due to stricter lending policies and developers finding it tougher to be approved for finance, especially if they have little or no experience.”

His comments come after Meriton founder and Australia’s wealthiest man, Harry Triguboff, explained how he is reaping the rewards of an apartment undersupply in Sydney.

Mr Triguboff, who has built more than 70,000 apartments, says high house prices are driving demand for apartments from owner-occupiers and tenants, resulting in stronger than expected gains already his year.

“Today we are in a situation where the apartment supply this year is not, I’m afraid, likely to meet the demand and that can mean only one thing – buyer competition forcing prices higher,” Mr Triguboff said.

“Sadly, many mooted projects that were due to start by other developers have not and some of them never will start due to regulatory and financial restrictions,” he said.

Unless developers have plenty of equity and a strong book of solid pre-sales, the banks won’t bankroll them and sites will sit derelict, Mr Triguboff explained.

The Meriton founder said one of the main problems is the banks and other funders, under government pressure, have curbed lending to offshore buyers.

“Fortunately for Meriton, funding is not an issue and our delivery pipeline will continue as always – we’ve been around for a long time and we’re our own banker,” he said.

[Related: Major developer sees 'dangerous' impact of lending curbs]

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