Despite recent interest rate rises, the Gold Coast apartment market is booming as Southeast Queensland experiences high population growth, via strong interstate migration which continues to drive up demand for Gold Coast apartments, particularly at the high-end of the downsizer market.
Indeed, recent research from Domain reports that Australia's second most expensive apartment market in Q1 2024 by median price is now the Gold Coast ($757,000), trailing only Sydney ($806,000), while the median price for off-the-plan apartments on the Gold Coast has increased to $1.73 million.
Demand is particularly strong amongst wealthy downsizers, investors, and holiday home buyers, evident by record breaking sales in the last 12 months, including the $24 million sale of an off-the-plan tri-level apartment in Spyre Group's "Glasshouse"; development at Burleigh Heads.
We have seen this play out in our research, with a significant increase in building activity in the Gold Coast apartment market, with projects under construction increasing from 36 projects (representing 3,453 apartments) at 31 December 2018 to 71 projects (representing 6,727 apartments) at 30 June 2024.
Yet, these figures don't reveal what developers on the Gold Coast are experiencing, as many find themselves in a peculiar position where large construction projects are ready to go, but there is nobody to build them.
Approved developments along the Gold Coast are facing delays due to increased construction costs, difficult economic conditions, builder insolvencies, and infrastructure projects.
City of Gold Coast anecdotally report that in recent months there has been an increase in the number of developers postponing projects and filing new development applications with revised plans, in the hope of increasing the number of dwellings or reducing building costs. These actions have acted to further delay building works.
KPMG research: Gold Coast apartment construction projects
Our research of data as at 30 June 2024 (62 out of 133) shows that approximately half of apartment projects on the Gold Coast – which accounts for 6,727 apartments – are waiting for construction to commence.
The acute builder shortage in the region is pinned on rising construction competition and insolvencies, as well as the Queensland state government's pipeline of major infrastructure projects, which are attracting builders due to the long-term security that government-funded projects provide.
Many developers believe that elevated construction costs are not going away anytime soon. In fact, a recent report from Arcadis predicted a 34.4 percent rise in building costs in nearby Brisbane between 2023 and 2028.
These increased costs are squeezing margins and making some planned developments no longer feasible.
This is anticipated to persist for the foreseeable future, with only those projects that target the higher end of the market, having a better chance of securing price increases from buyers to offset the rise in construction costs, therefore protecting project margins and overall project feasibility with developers.
KPMG's Gold Coast property database of 133 apartment construction projects, categorises these projects into four main financing categories, Big 4 banks, other (non-Big 4) banks, private lenders, and no mortgagee projects.
Our research identifies an increasing trend of developers partnering with private lenders, suggesting a risk aversion from the Big 4 banks given their tightening of credit standards following the GFC.
As at 30 June 2024, projects which are secured by a first mortgage from a traditional bank (Big 4 and other banks) total 41, of which, 26 are under construction with the remainder 15 waiting for construction to commence.
Similarly, projects which private lenders hold a first mortgage security over, total 50, with 27 currently under construction and 23 waiting for construction to commence.
There are also 40 projects where there is currently no mortgagee, noting that funding may come through internal debt or equity arrangements, or for those awaiting construction simply may not have had funding finalised for construction.
Growth in private credit for apartment developments
The rise in private lenders is significant amongst projects secured with a second mortgage. Our research identifies 20 projects which have a second mortgagee listed, 17 of which are private lenders.
This growth in private credit is consistent with the trends in Australia's broader real estate sector.
Key factors driving the take up of private lenders in real estate include:
- speed to market
- less reliance on presales
- more flexible drawdown processes
- less onerous LVR requirements
- less track record requirements.
While the current undersupply of residences in the Gold Coast, coupled with the growing population and rising demand is an attractive proposition for developers, financers need to be wary that rising construction costs and persistent delays will impact project feasibility.
In order to mitigate risk, financiers will continue to look to these developers and builders with strong track records of project completion and successfully managing their business through challenging cycles.
Our Queensland Real Estate Turnaround & Restructuring Team has extensive experience in the residential apartment sector and has prepared our Gold Coast Apartment Market Report which summarises our research as at 30 June 2024.
If you would like a copy of our report or further insights on the Gold Coast property market, please register for KPMG Turnaround & Restructuring Hub.
