Understanding and knowing the financial drivers that influence the behavior of developers and investors is crucial for communities that hope to attract more private investments. From 2007 onwards, the conditions of the financial markets have been changing continuously and rapidly that limit all types of investment.
Not too long ago, markets have become more stabilized to give confidence to some investors and developers to start new projects. Investors are also starting to go back to real estate as they believe it to be a good and stable investment to serve as protection from future inflation many people feel will happen as the result of sustained low rates of interest and government spending.
In the real estate market, apartments are most suitable as investments against inflation. They also reflect the market with favorable economic and demographic trends that result in significant numbers of new projects including rental units.
Unfortunately, the latest upheaval in the property market has resulted in more developers with half-finished apartment buildings dot the landscapes of major cities.
With the year coming to an end, more operators who already pushed the limits will be joining them.
Places with oversupply of apartment buildings will be seeing more chaos for the next few months. In Australia, for example, areas over 10 kilometers from city centers of Melbourne and Sydney and some areas of Queensland are considered to be the most vulnerable.
Mounting Numbers of Job Losses
Jobs in construction are a crucial support for any economy. Expenses in this sector will flow through other industries such as services, retail, and manufacturing sectors.
Considering how important this aspect of the economy is, it is hardly a surprise that financial institutions are keeping a close eye on the activity or the lack of it.
The government officials are pointing out that they were able to contain the property slump and that it will not have any derailing effects on the economy.
But, the past year has seen the loss of around 40,000 jobs in the industry of construction as the lending crackdown driven by regulator started to take effect.
Projects Put on Hold
The oversupply of apartment buildings is probably the result of developers having a hard time getting to what is known as financial close. This usually happens around 12 months after the purchase of a site. During these 12 months, developers undergo the process of planning and kick off their marketing. Usually, 80% of the development should be sold to receive finance when this is achieved, the developer will get finance and begin construction.
However, considering the environment, developers don’t launch their projects. Around 50% of projects since 2015 got to the construction phase. But, even though the developers have enough buyers, there is the risk that customers don’t have the money to make a purchase.
The oversupply of apartment buildings today in many parts of the world might not be good news. But, with hopes of changing tides in the economy, this oversupply may still come to an end.