Australia is building a lot of apartments.
Everywhere you look, there are cranes littered around the skies of Australia’s capital cities, particularly along the nation’s eastern seaboard.
The dream of the house on the quarter-acre block appears to be a thing of the past. Now, instead of building outwards, we’re building upwards, and at a record-breaking pace.
This is no better demonstrated than by the table below, supplied by CoreLogic RP Data.
It contains the top 25 locations for expected apartment completions over the next 24 months, with the list unsurprisingly dominated by Australia’s most populous states, New South Wales, Victoria and Queensland.
Across Australia’s capital citites, CoreLogic RP Data calculates that there’ll be 231,129 new apartments built over the same period.
It’s an incredible amount, particularly in inner city regions of Melbourne, Brisbane and Sydney, raising understandable concerns from some parties over the potential for a looming housing glut.
Along with increased supply, Cameron Kusher, a research analyst at CoreLogic RP Data, suggests that tighter restrictions on investor and overseas buyers from Australian banks as two factors that could amplify settlement risks over these properties in the years ahead.
“Mortgage lenders have recently tightened their lending criteria, subsequently some people who have committed to off-the-plan units may not be able to borrow as much as they could at the time of signing the contract,” says Kusher.
“To compound the situation, three of the four largest banks have announced they will no longer be lending to overseas home buyers which may result in a larger number of contracts not progressing through to settlement, considering a larger proportion of off the plan unit sales are to overseas buyers.”
As a result of these factors and increased supply in some regions, Kusher believes there is a clear risk that some properties may be be worth less than the price they were purchased for off the plan.
“Many of the units are coming up for settlement in similar locations and will compete with existing unit stock,” says Kusher.
“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.”
There have already been reports that this is already occurring, with some apartments in central Melbourne selling at discounts of up to 30% from their original off-the-plan purchase price.
Late last year the Reserve Bank of Australia warned that Australia’s high-rise construction boom, primarily led by increased investor activity and foreign buyers, “could lead to an excessive increase in construction activity and future supply overhang”.
“Some geographic areas appear to be reaching that point, particularly the inner-city areas of Melbourne and Brisbane,” said the bank.