ROUSE Hill and Norwest in Sydney’s north-western suburbs have topped a list of “danger zones” for off-the-plan apartment investors in 2019.
RiskWise Property Research had three New South Wales and three Queensland suburbs in the top 10, as well as two each from Western Australia and Victoria, while Adelaide (postcode 5000) came in at 11.
Rouse Hill has additional units coming on to the market over the next 24 months that make up more than 300% of current stock, while Norwest, has more than 200% to come on to the current market, as does Beaconsfield in Perth.
Inner Sydney Zetland last year came in at number one, but is now number nine with 27.5%.
Footscray, in Melbourne’s inner west, was fourth with 54.2%, followed by Fortitude Valley and Brisbane City with 44.5% and 38.6% respectively, while South Brisbane was eighth with 33.5%.
Box Hill was seventh with 38.5%, and Perth rounded out the top ten with 26.4%.
Doron Peleg, RiskWise chief executive officer, said almost all Australia’s capital cities were suffering from potential unit oversupply.
“Add to that tighter lending standards, the results of the Royal Commission, political uncertainty, a sharp drop in dwelling commencements and Labor’s proposed taxation changes if elected, and you have the potential for major disaster,” Peleg said.
The ALP proposes to limit negative gearing to new houses only and reduce the discount on capital gains tax from the current 50% to 25%, which has drawn mixed predictions from analysts on its impact.
“A number of markets across Australia are already experiencing weakness and the introduction of these taxation reforms will hit them hard,” Peleg said.
“Also, increased scrutiny of residential property loan applications and restrictions on foreign investors have led to a significant reduction in investor activity and changed the market landscape and consumer sentiment.”
Bill Nikolouzakis, chief executive officer of listed company iBuyNew, said house-and-land packages and townhouses had become much more popular, while larger inner-city apartment developments had received significantly lower enquiry.
Peleg said the saturated Brisbane unit market had seen rising defaults on settlements, huge price reductions and over-the-top incentives and discounting to get buyers across the line. He said while there had been a reduction in dwelling commencements there was still a high level of stock that needed to be absorbed and this meant the area remained high risk.
PRDnationwide’s Inner Brisbane Apartments Report showed imbalances within Brisbane’s inner city apartment market as demand for one-bedroom products dwindles. It could trigger a shortage of 15,500 units by the end of 2023, as deferred and abandoned projects have wiped out more than 3,000 apartments from the pipeline over 12 months.
Last year’s Development Finance Partners Market Sentiment Survey showed developer confidence was at an all-time low, in part due to failure to meet pre-sales and sales targets by developers and lower sales volumes.
“Currently, there are a large number of high-rise properties in our capital cities being offered to a smaller number of investors. This is because there are less investors in the market mainly due to credit restrictions,” Peleg said.
“Also, lenders are being more cautious about their loan-to-value ratios (LVRs) and more discerning about who to lend to, meaning there are less buyers in the property market. In fact, many lenders have black listed areas they have determined are high risk or are asking for significantly higher deposits, up to 30%, and this further reduces demand,”
Peleg said all of the major banks, and some of their subsidiaries including AMP, had stopped lending to self-managed super funds which often target off-the-plan units.
He said while unit oversupply was the main cause for an area being high risk – there are more than 263,600 units been approved for construction across Australia over the next two – other factors included, in some cases, poor economic growth and also that demand in the inner-rings did not extend to units.
“Units that are used by owner-occupiers are larger than units that are typically used as rental properties and, more importantly, the price per square metre of rental properties is higher than the price per square metre of owner-occupied properties, especially in Sydney and Melbourne. This means that, overall, rental units in Sydney and Melbourne are significantly less affordable than units that are owner-occupied.”
Australian Property Journal