Glut of apartments to put off-the-plan buyers at risk

Adam Smith 13 May 2016

apartment constructionOversupply seems likely in the next two years.

New research from CoreLogic RP Data shows a booming market for unit construction across capital cities, but researchers Tim Lawless and Cameron Kusher have said the amount of stock set to flood the market over the next two years could put settlements at risk.

The CoreLogic RP Data report said 92,102 units were set for completion over the next 12 months, with the figure expected to rise to 231,129 over the next 24 months. Sydney and Melbourne are expected to see the greatest increases in unit stock. Kusher and Lawless said this massive increase in stock could put settlements at risk, particularly as banks tighten lending criteria to investors.

“The large volume of new stock, coupled with an ever-growing supply of existing stock means that historic high levels of unit settlements are due to occur over the next two years in most cities. In fact, even a recurrence of the peak year for sales in Melbourne and Brisbane over the next two years wouldn’t represent enough demand to cater for all of the new units set to settle over the coming 24 months,” Kusher said.

How the apartment bubble could burst.

Kusher pointed to a “big disconnect” between the volume of unit stock expected to settle over the next 12 and 24 months and the average number of annual unit sales over the last five years. The huge upswing in unit settlements raises concerns, Kusher and Lawless said, that buyers who have committed to off-the-plan units might not be able to borrow as much as they could have at the signing of the contract due to banks tightening their lending criteria to investors. Moreover, with off-the-plan buyers banking on capital growth between contract and settlement, many may be stung by sluggish capital growth for units.

CoreLogic RP Data said many of the units coming up for settlement are in similar locations and will compete with existing unit stock.

“With so much stock coming online at once there is an increasing concern as to whether settlement valuations will actually meet the contract price of these units,” the research company said.

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