Property investors poleaxed as apartment market implodes

The apartment market in Sydney is reportedly imploding, hammering landlords via falling prices and rents:

Parramatta, Mascot and Rouse Hill in the northwest have topped a list of Sydney suburbs “oversupplied” with apartments.

These suburbs each have more than 1500 units in the pipeline over the next two years, which will increase the current supply of apartments by 13 per cent or more…

The oversupply in these areas has raised the risk of dangerous price reductions…

RiskWise chief executive Doron Peleg said there were already risks associated with off the plan units but they have been exacerbated during the COVID-19 pandemic…

One of the biggest risks is that the glut of new apartment projects in some areas will coincide with reduced buyer demand – particularly from investors, he said…

Investors who were still buying rental apartments unsuitable for families were taking an enormous gamble, with both equity and cash flow risk expected to materially increase, he said.

Buyer advocacy group Buyers Buyers’ co-founder Pete Wargent said buying into oversupplied areas amid international border closures would compound these risks.

It’s a similar story in Melbourne.

Apartment rents across Sydney and Melbourne tanked by 4.2% and 4.4% respectively in the five months to 31 August:

This comes on the back of tanking immigration and soaring rental vacancies across both capital cities:

To add further insult to injury, the apartment construction pipeline remains above decade averages across both cities:

With mortgage repayment holidays nearing their end and both prices and rents falling, how long will negatively geared landlords hold on?

Even the RBA believes rents in Melbourne and Sydney will keep fall falling, noting the following in its latest board meeting minutes:

Rental vacancy rates had risen recently, and members noted that downward pressure on rents was unlikely to dissipate in the near term in either Sydney or Melbourne.

Rental supply had been boosted by short-term and holiday rentals being brought onto the long-term rental market, while demand had been depressed by the reduced flow of new migrants and a decline in the rate of household formation.

How many investors will cut their losses and sell before the situation deteriorates further, thus pushing prices even lower?

Leith van Onselen
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Comments

  1. The oversupply in these areas has raised the risk of dangerous price reductions…
    Seriously FMD DANGEROUS price reductions… pity Steve Irwin got bested by nature…he could’ve tackle the DANGEROUS price reductions to the ground…anyone on personal terms with Bear Grylls??? Australian landlords need you!! Batman Superman The Hulk Spider-Man Luke Skywalker He Man Skeletor?? Anyone??? Help!!!!!!!!

  2. Vacancy rates above 4 – 5% for about a decade will be marvelous for both Sydney and Melbourne.

    But to achieve this indication of market health will require a lot more building so it is critical that the government encourage the building industry to….

    Build baby build

    Sealing the international borders shut helps as it means we should hit the target of vacancy rates across Australia of at least 5% sooner.

    Nothing dangerous about this.

  3. https://www.perthnow.com.au/business/property/coronavirus-crisis-wa-government-extends-ban-on-residential-commercial-evictions-by-six-months-ng-b881663059z

    Western Australia will extend COVID-19 emergency laws preventing residential and commercial tenants from eviction for a further six months.The moratoriums had been due to end on September 29 but will be extended until March 28, 2021.
    Perth’s rental market has tightened significantly during the pandemic.

    REIWA has previously called for the emergency laws to end as scheduled, saying they were not fair on landlords given many tenants were unaffected by the pandemic.

    • CH9 Perth were trying to get some panic going as well by saying that rental vacancies were going to be at an all time low.
      Of course this begs the question, wouldn’t we need more people coming in to the state to actually cause this problem? I think they were just doing some spruiking as usual for the RE industry.

  4. “The oversupply in these areas has raised the risk of dangerous price reductions”

    Well as a renter in one of these areas I don’t find these price reductions too “dangerous”.

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