Downsizers propel sales surge for off-the-plan apartments

Perth’s sustained growth in established house prices has helped push up the value of off-the-plan apartments, with further momentum expected to build once Western Australia is reopened to the rest of the country, in the first half of 2022.

Cygnet West Director Residential Sales and Marketing, Greg Billings said the gains in the established market had driven a tangible surge of confidence for off-the-plan sales, with downsizers flocking to the market in much greater numbers than in previous years.

Data from the Real Estate Institute of Western Australia showed that in the year to the end of September, Perth’s median house price had gained 8.3 per cent to $520,000.

Over the same period, Perth’s median unit price gained 9.3 per cent to sit at $410,000, a contrast to other capital cities across the country, where there has been a large divergence in the value gains between detached houses and apartments.

“Confidence has come back, and the value escalation in the established residential market has done the off-the-plan market a world of good.”
“Our buyer demographic have traditionally been downsizers and this price growth has given those buyers the confidence to commit to an off-the-plan purchase because they know they will sell their existing property fairly quickly and at a very good price,” Mr Billings said.

In 2021, developers also continued the trend towards larger, more luxurious apartments.

“What has changed is the type of product,” Mr Billings said. “We’ve sold a lot of apartments this year and it’s been the larger, more expensive product. “In 2020, generous Government grants flushed out a lot of first homebuyers, they were keen to take advantage of the incentives on offer and purchased the cheaper available stock.”

“When those grants disappeared and the established market lifted, we saw many of our downsizers back to the market.”
Mr Billings said rising construction costs were also pushing up apartment prices, a global phenomenon that was causing an element of nervousness for some apartment developers.

“When you are pricing a project at the front end, you don’t know what the true cost of construction is going to be down the track.” he said.
“I’ve spoken to several developers who are saying when they did their feasibility, their construction cost was X, but once they’ve hit their pre-sale target and go back to the builder to lock in a firm building contract, costs have risen by 20 to 30 per cent.”

“Given the current conditions, we work with developers in the pre-construction phase to ensure we price appropriately for the economic climate. “As an experienced off-the-plan marketer, the last thing I want is to be in a situation where the developer tells me they can’t afford to build a project.”

Looking forward to 2022, Mr Billings said he expected the reopening of WA’s border, scheduled for February 5, would cause a short-term shock with the introduction of COVID into the state.

However, he said he believed that shock would be short lived and with WA’s high vaccination rates, the off-the-plan market would adjust quickly.

“COVID might dent confidence a little bit, but with people coming into the State in significant numbers, the rental market will continue to be impacted – it is already tight and it’s going to get tighter,” Mr Billings said.

“Those projects that have completed stock this year, will in my opinion, sell out very quickly.

“Off-the-plan projects will likely achieve construction a lot faster than currently forecast, which will mean this market is going to continue to run.

“The biggest issue for us in Western Australia is our completed stock is going to dry up really quickly. That’s ultimately going to increase prices.”