In today’s show Greville Pabst, from WBP Property Group, joins us to say that he is not concerned about the potential for an oversupply of units in Australia. He argues that we need to grow up and realise that we are “world cities” and the dynamic is changing.
Kevin: Whether or not there is an oversupply of stock around Australia, particularly in the Melbourne market, which we have been hearing a lot – a lot of concern expressed about the number of units on the way through under construction or on the planning stages in Melbourne and also in Sydney.
Greville Pabst from WBP Property Group, who has joined us on the show on a number of occasions, isn’t that concerned. He sells out of the Melbourne market. I’m interested to get his take on this, too.
Greville, thanks for your time.
Greville: Thanks, Kevin.
Kevin: Now, let’s have a look at the number of units coming through. You don’t think that’s a problem in terms of oversupply and what it may do to the market?
Greville: Look, Kevin. I’d argue that Australia has not got an oversupply of apartments. I think it’s more of a cultural change and difference that has some people concerned.
If we look at Melbourne and Sydney, they’re now global cities, and if we compare Melbourne, for example, only about less than 10% of all dwelling stocks in Melbourne is apartments and units. Now if we compare that to New York, or London, or Hong Kong, up to 40% of all property in those cities are apartments, so I really think that in the major cities in Australia, we do still have some way to go.
Kevin: It’s a bit of a cultural change, this move to apartment-style living, which – you’re quite right is – in New York is fairly well ingrained. But in Australia, we still like to have that patch of dirt. We still like to have that bit of land that we can call home. That’s led us to probably less apartments and more homes, Greville.
Greville: That’s right. But there is a gravitation to the big village. Everybody now wants to live close to those inner-city areas of the capital cities, like Melbourne, Sydney, or Brisbane. That’s because lifestyle is now the big driver – it’s like a magnet – so accommodation needs to change to meet that demand.
Of course, the concern is about the supply, and there needs to be a balance. Developers want to create smaller living spaces and get as many apartments onto a site as they possibly can because that maximizes profit. But if you’re an investor, you know that if the apartment is too small, you know that the land is what appreciates and buildings, especially new ones depreciate. It’s important to have a balance in terms of the size.
Kevin: Listening to what you said earlier about how in Australia, we don’t have an oversupply, generally, across Australia, that could be the case. But I think if you look market to market, there could be some concerns. We’ve seen this in some markets.
Let’s take, for instance, the Gold Coast, where probably eight to ten years ago, we had a huge number of units coming through – so much so that developers stopped building. The market went into a slight decline, but we’re now finding that we need that stock to come back on.
It really does change from market to market and time to time, Greville.
Greville: Yes, it does. As you suggest, markets do tend to self-correct. But I’m concerned not so much about supply; I’m more concerned about the quality of the apartment and the design of the apartment. They’re the things that worry me more than supply.
I think if the quality and design are there, they’re more attractive to both investors and to owner occupiers. But if they’re too small and they’re cheap and nasty, then they’re going to appeal to a much narrower market.
Kevin: Though, the style of unit in Sydney and Melbourne needs to be different from that in New York, do you think?
Greville: I just think that there’s a tendency on the developers’ part to create smaller living spaces, and there’s a motive for that in terms of maximizing profit and getting as many apartments onto the site as possible.
But I think we have to understand who’s buying these apartments. Size does matter to owner-occupiers, particularly to downsizers, who really are a big player in this market. Downsizers are, of course, used to space. They’ve sold down their place out in the suburbs, kids have left the nest, and so they’re used to size. They want to have a reasonable size apartment when they do make that move.
Kevin: Greville, thanks very much for your time. Greville Pabst there from WBP Property Group. Thanks, mate.
Greville: Thanks, Kevin. Cheers.