Boom in medium density approvals!

According to recent research from Bankwest, demand for medium density housing is booming in Queensland, and has now reached the highest level on record. By “medium density”, we refer to units, townhouses and semi-detached houses.

While many of my readers are in Queensland, it is also interesting to note that this same Bankwest survey reports the highest ever level on record for the whole country. Australia wide, 43.4 per cent of new home approvals were for medium density, compared with a national average of 39.8 per cent in the previous year.

An additional 4828 medium density approvals were granted in Queensland last year, a staggering increase of 53.5 per cent on the previous year. Notwithstanding an increase of this size, the overall proportion of this type of housing in Queensland is still only 21.8 per cent, somewhat below the national average of 24.7 per cent.

OK, enough with the statistics. What does this mean to the management rights industry?

First, it would indicate that good opportunities for on-site managers should continue into the future. The management rights industry in Queensland has a successful track record harking back 40 years and developers will be seeking to incorporate a management rights component into any development of any decent size. Since most developers would prefer experienced managers as the “foundation” managers for their development, there should be ample scope for good managers to upgrade to a larger building or complex. Since, at the moment, we have plenty of possible new entrants to the industry, selling the old complex should also be possible.

The one risk is an over-supply of available rental stock. Some commentators are already predicting a softening of demand in near CBD areas, due to the number of new apartments hitting the market. While this is a risk to be considered, the overall view of respected commentators seems to be that, apart from isolated pockets, Australia is still suffering from a housing under-supply, rather than an over-supply. Queensland in particular has seen a return to substantial population increase and these new arrivals all need a roof over their heads. I think a chronic blow-out in the vacancy rate is not likely but still something to keep in mind.

If you are thinking of purchasing an off-the-plan management rights in the next year, do your own personal due diligence on the rents being projected by the developer or his marketing arm. What rental return is being dangled in front of investor purchasers in the building? It is not unheard of for a project marketer to err of the side of “irrational exuberance” when discussing potential rents with a buyer. After all, once the building has settled, it is the on-site manager who has to handle the Melbourne investor who cannot obtain the rent that was indicated!

Go on the web and check what is actually available for rent in the geographic area. Are the competing rental agents offering incentives to find tenants? Are vacant properties sitting empty for a long time? These two events happen very rarely in the Brisbane residential context particularly but, if this is happening in your area, take off your rose coloured glasses when considering your projected net profit. Of course, as long as the rent is right, a brand new building will be easier to rent than an old tired one. What is it they say about buying a new car.. “there is nothing like the smell of new leather!”

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