New unit approvals up 35% in August: ABS
Date: 25th October 2011
After a long period of sluggish development activity, construction of apartments looks set to pick up over spring following a big jump in non-house dwelling approvals in August, according to ABS estimates.
This is good news for investors as well as home buyers looking for deals both off the plan and in the built environment. Yet data shows that in seasonally adjusted terms, the estimate for private sector dwelling approvals excluding houses rose 35.1% to 5,829 dwellings in August following a rise of 0.4% in July, with the biggest increase occurred in NSW, with unit approvals up 45% over August, with a 19% increase in Queensland and a 17% rise in Tasmania.
By no means a certain precursor for a sustained upswing, the data does offer hope of an availability of new apartments in NSW in particular where unit approvals more than doubled month-to-month to the highest reading since January 2003. Here it was 'high rise' apartments which saw an extraordinary 1,890 dwellings approved - the biggest reading since 2002.
According to the Housing Industry Association there are a number of factors at play. A low base combined with interest rates being too high as well as and consumers becoming increasingly cautious given volatility in the global economy and weakness in the non-resource domestic economy.
One of the factors that is contributing to the increased approval rate is the fact that demographics as well as affordability are changing. Today people want the convenience of location and many are settling for smaller apartments. This has a direct financial equation as well as one that is affected by bank lending rules.
In today’s investment climate it should be noted that banks will generally not lend 100percent against a property and although they will lend up to 90 percent Lone to Valuation Ratio (LVR) this will cover with tight conditions including Lenders Mortgage Insurance which will need to be carefully assessed. In some locations (for example rural locations) banks will not lend above 70 percent and for some type of properties (for example small, one bedroom apartments under 55 sqms,) banks will limit lending to about 60-70 per cent of market price or valuation; while for off-the-plan purchases, for example on apartments, banks may only lend up to 70 percent, maximum.
Many of the current spate of high rise buildings being planned offer a range of studio and one bedroom apartments; fewer the more expensive two –bedders. The trend to building smaller higher rise apartments in sought after locations will continue for some time yet.
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