Local players still dominate Melbourne apartment supply

12 August 2015

The Australian Financial Review, 12 August 2015

By Nick Lenaghan

Local developers have delivered more than 90 per cent of the recent supply of apartments in Melbourne, challenging a common assumption that offshore players dominate, according to industry research.

Melbourne is also punching well above its weight nationally, accounting for 47 per cent of core capital city apartment supply around Australia between 2010 and 2014.

And over the next four years, the southern capital is expected to deliver 44 per cent of the national city apartment supply.

The latest research, by Charter Keck Cramer for the Urban Development Institute (UDIA), reveals a more nuanced picture of apartment supply across the city, with only 38 per cent contained in CBD skyscrapers.

Offshore players feature more heavily in the city centre, with 52 per cent of upcoming supply to be produced by the foreign developers.

"With less than 10 per cent of recent apartment completions provided by international developers, this research sets a clear example of how the local development industry plays an enormously positive role in the Victorian economy," the UDIA's Victorian chief Danni Addison said.

Even so, the role of international payers is growing. While local players delivered 92 per cent of supply across the city in the past four years, that proportion slips to 70 per cent for near-term supply.

Major players from the Asian region including UEM Sunrise, Hiap Hoe and Chip Eng Seng have become well-known players in the central city.

But local majors, such Lend Lease, Cbus Property and Grocon, are also pursuing major residential projects in the CBD.

The spectre of a potential oversupply of apartments in the Melbourne CBD still haunts the market. 

As recently as this week, Aussie Home Loans founder John Symond warned against lending to off-the-plan developments and there are concerns about settlement risk on apartment projects.

Melbourne's apartment stock has almost doubled over the past four years, increasing from 63,000 contemporary apartments to 112,000 by this year.

The city is expecting historically high levels of new supply but that is not a simple indication of oversupply, according to the research. Not all projects mooted will be developed and new releases are being absorbed, it said.

"The apartment market is currently subject to a range of both cyclical and structural factors which will have short and longer term benefits and impacts to the strength of market opportunities," Charter Keck Cramer's national executive director, Robert Papaleo, said.

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