Oliver Hume

When the Gratten Institute report was released last month it made headlines, with its main thrust being that people wanted more apartments and townhouses in desirable areas, but that this demand was not being met.

But in Melbourne, there is evidence developers have twigged to this demand, not only in the inner city and café belts but also in the outer suburbs.

Real estate agent Oliver Hume says affordability issues in Melbourne’s café belt have created strong demand for apartment and townhouses in traditional city fringe location.

The firm’s assessment of the Melbourne metropolitan apartment market found 17 of the 31 new projects launched in the first quarter of this year were in the inner Melbourne municipalities of Melbourne, Port Phillip, Stonington and Yarra.

The market within a 5km-7km radius of the Melbourne central business district is underpinned by owner-occupiers demand an projects released are moving through the pre-selling-marketing phase to construction at a faster rate than other market segments.

The most popular developments are near cultural and parkland precinct; and tend to have slightly larger apartments, better design, a focus on communal area, fewer levels and a smaller number of apartments in comparison with traditional high-rise towers in Melbourne’s CBD, Southbank and Docklands.

Historically, these projects attract a relatively high proportion of owner occupiers and relatively few investors, which is a key point of difference, says Hume.

A recent newsletter from Egan Property Valuers about the Melbourne apartment market showed the increased viability of apartment construction has spread to some outer suburbs. While inner-city areas, such as the Docklands, the CBD, St Kilda, Port Melbourne and North and West Melbourne account for most approvals for apartment development, Egan also points out Melbournians are increasingly being presented with higher density living options across a much broader urban landscape.

“No longer does choosing to live in an apartment mean moving from suburbs to an inner-city location,” it says.

Egan says main reasons are affordability compared with houses, along with a change in approach by planning authorities and an improvement in bank funding and the risks associated with apartment development.

Development has become a much better proposition with apartment values, since 2009, growing faster than building and other project costs.

Egan notes project viability in the outer east, as far as 30km from CBD, has recently improved.

One example it gives is a 15-apartment development in Boronia, 28km east of Melbourne CBD has recently. The project has two levels of apartments over a basement level of parking, internal staircases, no lift, and balconies.

The feasibility study indicated about 17 per cent profit margin, whereas a few years ago such a project would have been barely viable, says the valuation firm.

On the one hand it seems in Melbourne there is the clear demand for a cheaper substitute than houses, but there is also a history of apartment oversupply every so often in this capital city’s property cycle.

What is happening now probably lies somewhere in the middle and the quality of apartments In either inner or outer areas is probably the most important factor for buyers to consider.

To view the article please click here: Cafe society develops a taste for suburbs

Author: Majella Corrigan, Weekend Australia
Posted: 27, Jul 2011
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