GST drags residential market down

Residential property developments have been through one of the biggest slumps in recent times, due almost entirely to the introduction of GST.

The Melbourne market saw about 37,000 new dwellings commenced in the 2000 financial year, but according to Angie Zigomanis of BIS Shrapnel, new dwelling commencements in 2001 will fall to about 23,000.

If the predictions are correct, the slump will be below the total of the last boom year, 1989, in which 25,500 new dwellings commenced. The boom figure of 37,000 new dwelling commencements did skew the 2000 figures and created a record due to Melburnians trying to beat the GST introduction deadline.

"There has been a 'pull-forward' of demand for new dwelling commencements that would otherwise happened in 2001 as a result of the introduction of GST," Zigomanis says.

"However, the market will bottom out towards the end of this year, followed by a more modest upswing driven by weaker underlying demand fundamentals."

Zigomanis believes new dwelling commencements will peak at 27,000 units in the 2005 financial year, which will be significantly lower than previous peaks.

While new total building commencements are down, the construction of units and townhouses continues to grow each year.

In Melbourne, 12,600 units were commenced during the 2000 financial year and according to Zigomanis, most were destined for the rental market.

The boom in new dwellings, and changing social trends, has pushed house prices to record levels in many capital cities around Australia.

Since 1989, Melbourne median house prices have grown at 4.8 per cent per annum, compared to 5.1 per cent in Sydney and 4.1 per cent in Brisbane, says Zigomanis.

"However, we consider the Melbourne market has run ahead of itself and will experience small declines in median prices during the next two years before showing an increase in 2003," he says.

In Melbourne, the hot residential properties are the inner bayside suburbs, says Greg Hocking, a director of real estate agents Hocking Stuart.

The unit market is booming around the Melbourne's Docklands regeneration area. At Southbank on the Yarra, the Grollo family is developing the world's tallest residential tower, Eureka, and 300 of the units have already been sold in the first three months of marketing.