A rush of new apartments coming onto the market could put pressure on prices in some parts of Australia’s biggest cities.
It comes as Australian Bureau of Statistics figures show building approvals rose more than three per cent in February, driven by a nearly eight per cent rise in apartments.
Where the apartments are going up will be critical to prices.
Cranes may be littering the skylines of Australia’s major cities, but the executive chairman of the property group WBP, Greville Pabst, says prices may be coming down.
“Particularly, the new units and apartments and off the plan, I think we’re going to see very little growth. In fact, I think the conditions will be quite flat and passive and negative over the next couple of years.”
Buying an apartment off the plan means signing a contract to purchase an apartment yet to be built.
Potential buyers can view the design and building plans, but there is no physical property to see or inspect.
Mr Pabst says WBP studied 1,800 off the plan purchases in Melbourne over the past 18 months.
He says, in about half of them, the valuation on settlement of the property was 10 to 15 per cent lower than the purchase price.
That means the borrower has to make up that shortfall.
“That gap has to be funded by the borrower. And, if they can’t fund that equity gap, they have to either put in more money or forfeit the deposit.”
Mr Pabst suggests some apartments are overpriced.
“Particularly, the higher value apartments in Melbourne and Sydney, the two bedroom, the three bedroom apartments, tend to be priced too highly. And I think the best advice I can give to consumers and borrowers is to seek independent advice before they sign the contract.”
Starr Partners real estate agent Douglas Driscoll says half of all the new dwellings coming onto the Sydney market this year will be units.
“Everyone seems to have a different opinion, you know. You’ll hear politicians, economists, market commentators … Some will say there’s an oversupply, then, conversely, some will say there’s an under-supply. For me, I think we’re fast approaching an oversupply of apartments in Sydney, but we are facing a crisis in regards to an under-supply for detached homes.”
Mr Discoll says location and infrastructure is the key.
“There’s going to be simple economic rules apply — you know, what goes up must come down. But, certainly, the market’s found its feet. I personally anticipate property prices across Sydney to be going up by about three to five per cent this calendar year. Having said that, there will be the odd exception, and I think the pressure points will be for some of the apartment buildings in the outer suburbs further away from the CBD.”