Here's a breakdown of the vast apartment supply coming to the Sydney and Melbourne property markets

Williams West/ AFP/ Getty Images.
  • The number of units in Australia could increase by 10% over the next two years, according to analysis from CoreLogic.
  • 61.8% of the expected increase in supply is tipped to be absorbed by just two cities, Sydney and Melbourne. These are the capitals where home values are falling the fastest at present.
  • The supply of new units could place downward pressure on values and rents in these cities, and could increase settlement risks among those who purchased off the plan at the peak of the price cycle.

The number of units in Australia could increase by close to 10% over the next two years, concentrated in Sydney and Melbourne, those capital city markets where home prices are falling the fastest at present.

“Over the next 12 months, an additional 94,471 new units will be completed nationally. This figure represents a 3.5% uplift in total unit supply,” says Cameron Kusher, Research Analyst at CoreLogic.

“Over the next 24 months, the unit supply uplift is expected to be much greater at 251,751 units which is an increase of 9.3% on current supply.”

As seen in the table below, most of that that expected increase in supply is tipped to occur in Sydney and Melbourne, Australia’s most populous capital cities.

CoreLogic

“Across the Greater Capital City Statistical Areas (GCCSA), Sydney and Melbourne are expected to see the greatest increase in unit supply over the next two years, lifting by 76,977 and 78,689 respectively,” Kusher says.

Such an increase would represent an increase in unit supply in both cities from current levels of 9.3% and 11.5% respectively, and account for 61.8% of total new supply nationally over this period.

Mirroring that expected contribution, both Sydney and Melbourne dominate the list of regions where the largest number of new units are likely to be built.

CoreLogic

“The top 25 list is dominated by regions of Melbourne which account for 12 of the 25 regions listed while Sydney accounts for nine,” Kusher says.

At a time when home price are already falling in both cities, reflecting the impact of tighter lending standards, especially for interest-only and high loan-to-income borrowers, Kusher says this could weigh on both unit values and rents in these locations.

“Over the past five years we’ve seen a significant increase in overall unit supply. At the same time, housing market conditions have deteriorated over the past year, particularly in Sydney and Melbourne, with dwelling values falling and rental growth slowing,” he says.

“As the new supply comes on line over the coming years, it is anticipated that this could lead to further softening of both dwelling values and rents in Sydney and Melbourne.”

He also warns that with unit values in Sydney and Melbourne now falling, it could lead to problems for those who purchased properties off the plan at the peak of the price cycle, especially at a time when lenders are reducing loan-to-income ratios.

“Considering that dwelling values have generally trended lower over the past twelve months, buyers who have purchased a unit ‘off the plan’ may find the unit value at the time of settlement is lower than what they may have expected at the time of signing the contract,” Kusher says.

“In some cases, the settlement value may be lower than the contract price, implying buyers may need to top up their deposit in order to meet their lenders loan to valuation requirements.”

According to CoreLogic’s Hedonic Home Value Index, unit prices in Sydney and Melbourne fell 0.4% and 0.7% in July, leaving the average decline so far this year at 1.6% and 0.9% respectively.

Kusher says the data for unit completions is provided by associated industries and are based on estimated project completion dates. As such, he says some projects may be delayed, deferred or cancelled entirely, noting the report only provides an indication of likely new apartment supply.

Given current market conditions, and widespread expectations for further price declines in the period ahead, there will surely be some doubt as to whether all the expected new supply of units will be built.

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