‘Flight to quality’ for off-the-plan apartments

‘Flight to quality’ for off-the-plan apartments

13 July 2018

A recent report by the Investorist indicates that apartment developers are struggling to sell inferior stock as demand from Chinese buyers slows, and the off-the-plan market is instead seeing a flight to quality.

Rising state government taxes for foreign buyers, tighter bank lending and stricter capital controls have seen demand from Chinese buyers fall by more than a quarter, Investorist’s Australian Off The Plan Sentiment Report found.

“The market fully expected there would be a rebound shortly after the stamp duty changes took effect, but in reality this was minor,” Investorist chief executive Jon Ellis said.

“Declining investor demand has marked a real paradigm shift after the boom times of the past few years.”

Chinese investors have started looking to park their funds in countries with more conducive regulations, while some smaller private investors from China were affected by a crackdown on transferring funds out of the country, Mr Ellis said.

“Developers and agents have had to adjust to ‘the new normal’ of less sales, which are harder to find and take longer to close,” he said.

“There has been a further and noticeable ‘flight to quality’ in apartment offerings, regardless of scale.

“It’s become more difficult to move inferior stock of any type as buyers, whether from Shanghai, Sydney, Hanoi or Melbourne are significantly more educated and quick to reject product which does not meet their quality and location criteria.”

China was a key buyer market for 86 per cent of property developers surveyed for the report, but only 60 per cent will be looking to sell into the country over the next 12 months.

Instead, developers expect to increase their focus on buyers from India and Vietnam, and continue selling to residents of Singapore and Malaysia.

Investorist also commented that Indian foreign buyers of off-the-plan apartments are expected to triple next year, with many apartment developers and sellers confident 2019 will deliver more sales after a slower 2018.

The survey observed that most buyers, whether local or foreign, expect a rental return of about 4 per cent to 5 per cent and prefer to buy apartments in the price range of $400,000 to $750,000, considered the “sweet spot” for off-the-plan apartments.