Residential Apartment Market

Managing Risks

Corporate Finance & Restructuring | Real Estate & Infrastructure

April 12, 2017

Apartments

Throughout 2016 there was no shortage of commentary and data presented by various market participants, financiers, industry groups, research houses, economists and regulators regarding the state of the nation’s residential apartment market and the potential risks. 

The scrutiny has come at a time when market participants are digesting the following:

  • Historically high supply levels in some markets — in particular in the inner city markets of a number of major capital cities;
  • Questions over levels of ongoing demand;
  • Ongoing tightening of financing requirements (and increased finance costs) for developers and buyers;
  • Significant regulatory changes and their impact on foreign buyers (who have been a significant buyer group, in particular for investment product);
  • The failure of a number of building companies; and
  • Continued uncertainty around the future performance of domestic and global economies.

Each of these aspects has the potential to negatively impact upon market balance, across buyer and tenant demand, vacancy rate/rental return and pricing metrics, and indeed sales volumes and buyer settlement capacity/willingness/risks; which ultimately may present increased developer and financier risks.

We see that certain sub-markets will be more susceptible to these downside risks, in particular those areas where there is a current and/or emerging high supply of homogenous stock in geographically tight locations; and those regional areas where local economic fundamentals and general consumer confidence remain at muted levels.


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