Property experts warn Allan government activity centres years away from financial viability, $300k gap between cost to build and buyer budgets

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The future of the Allan government’s new activity centres is in doubt after experts have warned many are years away from their first new apartments being built.

Development industry insiders have revealed there is a six-figure gulf between what homebuyers will pay for units in several of the designated zones, and the price needed for projects to stack up financially.

Multiple areas are unlikely to see affordable homes built, with price estimates for apartments in five and six-storey complexes suggesting price tags of more than $1m.

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The Allan government has announced plans for 60 activity centres along major transport hubs around Melbourne to host an extra 360,000 homes.

In locations from Broadmeadows to Toorak, the government plans to pave the way for significantly denser housing construction — including multistorey apartment developments in residential streets.

But Charter Keck Cramer national research director Richard Temlett said that across Melbourne there was a $100,000-$300,000 gap between homebuyers’ budgets today, and what it would cost to build units in most of these areas.

Where the train and tram activity centres are expected to appear.

“Prices would have to be in the range from $875,000 to $1.05m to turn a profit at present,” Mr Temlett said.

“These are the mid-market, entry-level homes. But our research shows that the market would be willing to pay $775,000.

“These projects are very, very far from being financially viable.”

Marshall White Projects director Leonard Teplin has estimated likely sales prices for 10 of the 50 new activity centres, with figures as high as $30,000 a square metre in the Toorak village.

With one-bedroom apartments unlikely to appeal in the well-off neighbourhood, Mr Teplin said in most instances they would have to be two-bedroom offerings — and likely to top $2m with a fairly typical 70sq m floorplan.

The 21 apartments Cookson Project in Camberwell has three-bedroom apartments for sale from $1.6m. Render: Marshall White Projects.

The same lack of appetite for one-bedroom homes in Armadale, Hampton and Camberwell Junction meant they were also unlikely to see homes offered for sale below $1m.

Mr Teplin made the estimates based on apartment projects already for sale in the areas, but warned somesuburbs already had more than a year’s worth of homes to be sold in them.

“There are a number of areas where the current supply isn’t being absorbed by the current market,” Mr Teplin said.

“Brighton and Camberwell would take at least 12 months for the market to absorb the apartments that are currently available. And that could be Kew, as well.

“Some of these areas have half a dozen to a dozen projects in them already and buyers have plenty of choice, so bringing more buyers into these places will be more difficult – especially with the way costs are.”

ESTIMATED APARTMENT PRICES FOR NEW ACTIVITY CENTRES

Camberwell Junction: $17,000sq m — Two bedrooms (70sq m): $1.19m; (one-bedroom apartments unlikely to be built)

Moorabbin: $11,000sq m — One bedroom (50sq m): $550,000; Two bedrooms (70sq m): $770,000

Preston: $9,500sq m — One bedroom (50sq m): $475,000; Two bedrooms (70sq m): $665,000

Hampton: $16,000sq m — Two bedrooms (70sq m): $1.12m; (one-bedroom apartments unlikely to be built)

Toorak Village: $30,000sq m — Two bedrooms (70sq m): $2.1m; (one-bedroom apartments unlikely to be built)

Armadale: $20,000sq m — Two bedrooms (70sq m): $1.4m; (one-bedroom apartments unlikely to be built)

Murrumbeena: $12,000sq m — One bedroom (50sq m): $600,000; Two bedrooms (70sq m): $840,0000

Elsternwick: $15,000sq m — One bedroom (50sq m): $750,000; Two bedrooms (70sq m): $1.05m

Brunswick: $13,000sq m — One bedroom (50sq m): $650,000; Two bedrooms (70sq m): $910,000

Source: Marshall White Projects

All price estimates subject to views, based on prices for existing projects in market

Mr Temlett said that even at the square metre level there was a substantial gap between buyers and developers, with budgets around $10,000 a square metre for buyers and developers needing at least $12,500 for the projects to be feasible.

“Some are closer to being viable, but it would have to be 12 to 18 months in others — but in that time rents will jump up significantly to bring investors back in,” he said.

Mr Temlett said if the government wanted to avoid a four to five year delay as the market caught up, they needed to make changes to taxes that impact holding and acquisition costs, the GST on building materials and a variety of regulatory requirements, as well as reducing imposts on foreign investors.

Most of the buyers for apartments in area’s like Camberwell are downsizers with high budgets, which has led to projects skewing towards luxe living offerings such as the Cookson.

He added that typically larger apartment complexes were not viable until a suburb’s median house price surpassed $1m, putting a question mark over the activity centres in the most affordable areas.

A recent Housing Industry Association and Centre for International Economics report showed $236,000 of a $734,000 new apartment in Melbourne was being spent on tax and regulatory requirements.

Mr Teplin said this was a significant factor hampering developers’ ability to deliver new homes, however noted that picking sites with existing train lines and infrastructure would help generate demand, and there would always be demand for AAA-located property.

Lowe Living developer Tim Lowe currently has projects in both Sandringham and Hampton and said while they were getting good interest from buyers, the rate of sales had been getting slower for the past year — in many cases as they were downsizers who were now waiting for the value of their existing home to rise.

The Caulfield project titled the Fabric is under construction, and only offered a mix of two and three-bedroom floorplans. Render: Marshall White.

“The sales velocity is phenomenally slower than it was … even a year ago,” Mr Lowe said.

Mr Lowe said council’s knowing that change was ahead had seemed to help during planning discussions for the projects, most of which were priced from $15,000 a square metre at the more luxurious end of the market, and added that the overarching idea of the government to create increased density in desirable areas was “a good thing”.

“It’s unfortunate that where most people want to live is where many people don’t want apartments, but there’s an opportunity to shift the buyer behaviour and pull it away from apartments just being in Docklands and being in these areas,” he said.

“At the moment our supply of apartments is four years from acquisition to being built.

“You’d be lucky to have people in there, living in a home, within five years.

“But without much relief on the cost base to bring down the price, you won’t see the apartments running out the door.”