Stephen Walters, a former chief economist at JP Morgan and current chief economist at the Australian Institute of Company Directors, is the latest to warn on the budding apartment glut, predicting 10%-15% price falls and contagion to other parts of the property markets as negatively geared investors get squeezed. From The AFR:
“I think it’s going to get ugly, particularly in some parts of the market and for some lower-income cohorts who have borrowed,” Mr Walters said in an interview on Tuesday…
[Walters] said falling rents are a “pretty strong price signal” the market is starting to adjust downwards.
“Rents are already off and given that a large part of the market is investor focused, that’s got to affect your price expectations and purchasing prices”…
“If you get a real shakeout in inner Brisbane and Melbourne, where rents are already falling, eventually that will have to be reflected in not just the apartment market but in the broader market… the coming shakeout in housing is becoming a larger blip on the radar screen”…
This site has argued for some time (for example see here and here) that it views Brisbane and Melbourne as most exposed to a shake-out from the apartment sector.
Brisbane’s exposure stems from the fact that apartment construction is experiencing an unprecedented boom at the same as population growth has fallen. Whereas, while population growth is strong in Melbourne, its dwelling construction boom has been running for six years, plus there is a huge construction pipeline still in the wings, leaving it also highly susceptible to a shake-out.
Sydney is also experiencing an epic boom in highrise apartment construction. However, this has come off a much lower base and population growth is also strong. Thus, it could take longer for Sydney to experience a bonafide glut, reducing its risk of a shake-out.
