Investor demand drives surge in unit construction

by Julia Corderoy19 Jun 2015
Buoyant property market conditions have created a surge in unit approvals in Australia, with record-high levels of activity over recent months.

Approvals for the development of units has reached a record high over the past year, now accounting for 45.9% of all dwelling approvals, according to the Australian Bureau of Statistics.

Across the combined capital cities more than half of all dwelling approvals are for units and in each capital city, except Adelaide, Perth and Hobart, more than 50% of approvals over the past year were for units.

Cameron Kusher, research analyst for CoreLogic RP Data says the current surge in unit approvals has coincided with very low interest rates and surging demand from the investment segment of the market. 

According to Kusher, data from the ABS 2011 Census also shows that across the country, units are more than twice as likely to be rented as houses, which would indicate a clear preference from the investment segment which is currently so active for units over houses.

Inner city Melbourne is the clear winner, recording the highest number of unit approvals, with 12,516 approvals so far this financial year. Brisbane Inner City recorded the second highest number of approvals. But at 5,808 approvals, it is less than half as many unit approvals as Inner Melbourne.

Kusher says heightened construction activity is likely to continue for a number of years, however with APRA’s recent crackdown on investor lending, the unit sector is going to run into some challenges. 

“The biggest hurdle for developers may be achieving presales which are generally necessary for project commencement, particularly given that many financial institutions are now starting to tighten their lending practices on the request of APRA,” he said.

“With a particular focus on investment mortgages this may have an impact on demand from investors who are seemingly a key driver of the surging demand for inner city units.”