Apartment value falls outpace houses as oversupply looms

The Australian 12:00am June 2, 2017

Elizabeth Redman

A looming apartment supply overhang is set to put more downward pressure on prices after apartment values in Sydney and Melbourne dropped more sharply than houses over the past month, dragging on the broader housing market.

Economists warned a surge in apartment construction was likely to peak later this year and next, possibly making investors cautious about buying a property if it becomes harder to find a tenant.

Apartment values across the five capital cities fell 2.4 per cent in May, according to CoreLogic figures released yesterday, faster than the 0.8 per cent drop in detached house values. Melbourne apartment values dropped 3.8 per cent in the month, while Sydney apartments fell 2.7 per cent.

Unit completions are likely to reach a peak this year in Victoria and next year in NSW, according to BIS Oxford Economics.

The supply increase makes it more difficult for landlords to find tenants, making them “very cautious” about the prices they are willing to pay, the firm’s senior manager for residential property Angie Zigomanis said. “It should keep putting pressure on prices.”

MacroPlan chief economist Jason Anderson warned that the new supply coming on line in Melbourne was concentrated in a few inner suburbs such as the CBD and Docklands, and could have a more pronounced impact than in Sydney where new supply was more dispersed.

AMP Capital chief economist Shane Oliver tipped unit prices in parts of Sydney and Melbourne to fall by 15 to 20 per cent, but said a broader crash was unlikely unless unemployment spiked.

The apartment supply increase is not the only issue for the broader housing market, with buyers facing regulatory clamps on bank lending and higher interest costs, as well as high prices that have led to buyer fatigue.

Dwelling values across the combined capitals fell 1.1 per cent during May — the biggest monthly fall in 18 months, according to CommSec research — signalling the five-year bull run is reversing.

Weakening consumer sentiment was also weighing on the housing market, CoreLogic head of research Tim Lawless said.

Kerry Williams, a 49-year-old social media manager, yesterday made an offer on a one-bedroom apartment in Elwood, Melbourne, through agents PropertyPromotions.com Bayside.

She saw the softening market as an opportunity to make a long-term investment, picking a structurally solid unit in a small block in an area she hopes will be attractive to tenants.

She has bought 15 properties over the past five years and currently owns four. “This is the first time in five years that agents have returned my calls. Normally I’m chasing them,” she said.