Research highlights key opportunity in premium townhouse market

Recent figures from property data provider, PropTrack (REA Group), have revealed a significant gap in supply for premium townhouse product amid growing demand from Perth buyers.

The report shows that while the bulk of new townhouse supply in the three months to September 2022 sat in the $500k – $750k price bracket, a significant divergence exists between demand and stock for townhouses priced between $1million – $2 million.

As a guide, 29.2% of buyer enquiries in the three months to September were in the $1 million – $1.5 million price range. Yet townhouses in this bracket made up only 11.3% of newly developed townhouse stock.

It was a similar story for townhouses in the $1.5 million – $2 million price bracket, which held only a 7.5% share of new townhouse supply, despite attracting a 23.3% share of enquiry.

Source: PropTrack

Rezonings have prompted new opportunities for developers

Our Head of Development at Westbridge Funds Management, Philip Anderson, says this combination of factors is providing the perfect catalyst to pursue opportunities within the premium townhouse market.

“With demand far exceeding supply, now is an ideal chance for developers and investors to harness the attractive returns of the townhouse market, particularly in Perth’s prestigious suburbs where this type of stock has historically been extremely limited” he explains.

Philip says a number of rezonings, including the City of Nedlands rezoning in 2019, have opened up new opportunities for developers in the townhouse space.

“This type of development hasn’t always been possible in these areas until recent years, which has created somewhat of a missing middle in Perth’s housing supply,” he explains. “At the same time, we’re seeing a lot of pent-up demand for this type of housing from the downsizer demographic, many of whom want to access the benefits of premium locations, but with the right balance of privacy and low maintenance living that townhouses can offer.”

He adds, “This is something we’ve already been pursuing at Westbridge with several of our luxury townhouse developments in Perth’s western suburbs, including our newly completed townhouse project at Adelma Road in Dalkeith, and our recently closed Cottesloe Fund and multi-asset Townhouse Fund.”

Attractive sales prices supporting stronger development outcomes  

Philip says another factor has also been key in driving development opportunities in the premium townhouse space.

Recent data from the Real Estate Institute of WA (REIWA) has shown that median house prices within the western suburbs rose 14.79% to $1,904,188 during the year to June 2022, compared to house prices in Greater Perth which grew 2.51 % to $530,000 over the same period.

A similar trend can be seen over a five and ten-year period, with median house prices in the western suburbs increasing a considerable 34.47% and 50.54% respectively over these timeframes.

Source: REIWA June QTR 2022 & Westbridge Funds Management

“Beyond highlighting the enduring appeal and resilience of Perth’s prestigious Western suburbs, this also holds critical implications for us from a development feasibility perspective in today’s market,” Philip says.

“The strong sales outcomes and the continued growth we’ve seen in suburbs such as Dalkeith has helped to absorb and, in some cases, even outpace rises to construction costs, which has underpinned the strong and continued potential of developments in this space.”

Elevations in build costs and labour shortages have been more moderate for townhouses than for larger-scale apartment projects in Perth, the latter of which require the input of commercial-scale builders, many of whom are already engaged on government infrastructure projects.

Philip concludes, “Increasingly, we are finding that Perth’s premium townhouse market is offering the ideal trifecta of factors from a demand, supply and cost perspective, which is in turn supporting the prospect of stronger returns to investors in these developments.”

To find out more about townhouse product in relation to managed funds, or to enquire about upcoming opportunities with Westbridge Funds Management, submit an online enquiry form below or contact us on 08 9321 5566 to speak to a member of our Key Relationships team.

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This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. Westbridge Funds Management and its related entities do not make any representations or give any warranties that the information contained within is or will remain accurate or complete at all times and they disclaim all liability for harm, loss, costs, or damage which arises in connection with the use or reliance on the information. Manager, Responsible Entity and Product issuer: Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS License 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban