For several years, developers across Perth have been receiving approvals for apartment projects that never get built. Getting one off the ground requires navigating rising construction costs, labour shortages and financing conditions that rarely align at the same time.
Government's $250 Million Pre-sale Guarantee
While the State Government’s recently announced $250 million Pre-sale Guarantee is designed to address the financing barrier, it does not solve all of the challenges of apartment delivery. Under the scheme, Keystart will offer a commitment to purchase up to 50 per cent of unsold apartments upon completion, satisfying the pre-sales threshold most banks require before construction funding begins.
If the project sells out during construction, the guarantee will lapse, while if apartments remain unsold at completion, Keystart will purchase at a 10 per cent discount to market value. By acting as a buyer of last resort, rather than a direct purchaser, the State Government has created a mechanism that will cost little if the market is strong and which will generate much-needed affordable housing stock if it is not.
Affordability Requirement and Market Tensions
The 30 per cent affordability requirement, which ties the scheme to projects pricing at or below Keystart’s property price limit of $860,000, adds purpose. The tensions, however, are worth examining. The projects most likely to struggle with pre-sales are those where the price needed for viability is more than what buyers will commit to off-the-plan. For those developers, a 10 per cent discount on unsold stock upon completion compounds the problem, rather than resolves it.
The backstop helps those already confident of selling and simply needing certainty for their bank but does least for the developers who need it most. The projects currently proceeding in Perth tend to be in highly desirable locations where selling prices justify elevated construction costs, producing a supply pipeline weighted towards premium stock.
Challenges for Mid-Market Projects
The scheme’s affordability requirement pushes against that market reality, and the mid-market projects it is designed to unlock are where profit margins are thinnest. The Pre-sale Guarantee is a genuinely well-conceived response to a structural problem that has held back Perth’s apartment supply and it deserves credit for targeting the financing mechanism, rather than layering demand-side support.
Whether it delivers at the affordable end of the market, where the need is greatest, will depend on how its conditions interact with the real-world economics of apartment development in Perth. Get the latest news from thewest.com.au in your inbox. Sign up for our emails.
