Australia's apartment market is self-correcting with fewer projects in the pipeline, according to Andrew Schwartz, the co-founder and managing director of real estate investment firm, Qualitas.
But it won't crash, Schwartz suggests.
He suggested the Australian market had certain qualities that allowed it to self-correct including high levels of migration, a demographic shift towards apartment living and low and stable levels of rental vacancy.
Another key distinction of the local market is the mix of foreign and local buyers. “Although there has been a lot of concern expressed about the volume of sales to foreign buyers, the Australian banks – again, using very prudent lending standards - have insisted that a maximum of 30% (and often much lower) of total sales could be made to foreign purchasers. “In addition, we know from our own experience that approximately one-third of all foreign buyers settle using their own cash resources.
"So, even assuming all the remaining foreign purchasers fail to settle - which seems a very harsh assumption - the banks will still have very comfortable levels of security,” Mr Schwartz said. “Given the high level of pre-sales required upfront, the dominance of local buyers, and the banks’ conservative lending standards, we think it’s highly unlikely that there would be a rush of bank liquidation sales for apartments. “There could be a short period where there is some market excess, but overall, we continue to see the absorption rates being strong, as evidenced by continuing sales across well-designed projects. “The demographics also continue to weigh in favour of residential apartments – including an ageing population seeking to downsize, an influx of offshore students, and continued high levels of immigration,” Mr Schwartz said.
The boutique lender, which was founded in 2008, has financed or invested in $3.5 billion worth of real estate projects, mostly apartment projects.
He anticipated any potential apartment over supply would be short-lived.
"By 2020, prices will have risen, especially in Sydney and Melbourne, to support a new round of much-needed development projects," he said.
"However, we do see some warnings on the horizon for the short term. This includes increased supply concentrated into specific precincts across Australia, fully priced site values, rising construction costs, lower levels of available construction finance, and curbs on loans to foreign purchasers and additional taxes for this group," he said.
