More than half the apartments bought off the plan in Melbourne’s CBD, Docklands and Southbank since 2011 have changed hands at a loss, while many inner-Brisbane unit buyers are also out of pocket from the resale of new apartments.
Sydney, where the building boom is about two years behind Melbourne’s, has proved resilient, with most new apartments resold at a profit, according to research from BIS Oxford Economics.
The rash of losses sets a lower bar for valuers, meaning banks are willing to lend less on the next sale, according to BIS analyst Angie Zigomanis. “The risk is that this cascades down, setting lower benchmarks for the next round of apartment projects,” he said.
The plight of the new apartment market comes against a backdrop of surging housing prices in Sydney and Melbourne as regulators intervene amid concerns of a housing bubble and risks to the overexposed banking sector.
Yesterday, National Australia Bank said housing market sentiment had surged to a three-year high in the March quarter. NAB has increased its house price growth forecast for this year from 3.4 per cent to 7.2 per cent, with units likely to rise 6.8 per cent.
The market was expected to cool late this year, with house prices rising 4.3 per cent next year while unit prices were forecast to fall 0.4 per cent, the bank said.
“The latest results paint a picture of a very resilient market and came despite ongoing concerns about housing affordability, supply, the labour market, persistent warnings of a correction and speculation of more official measures to rein in lending to housing,” said NAB group chief economist Alan Oster.
At least two prominent Melbourne buyers’ agents will not recommend inner-city off-the-plan apartments to their clients with Wakelin Property Advisory director Paul Nugent describing the sector as “absolute carnage”.
“The scale of development is unprecedented and prices are artificial with inducements — stamp duty rebates, rent guarantees and the like — clouding real values,” he said. “We tell people to avoid these areas like the plague.”
Melbourne inner-city agent Mariecris Tagala said she had not seen vendors under financial stress, but new off-the-plan buyers were struggling: “We are getting buyers who can’t settle or will take a loss on the contract price.”
Sustained low interest rates and low unit vacancy rates were still attracting buyers, with bargain hunters coming in, she said.
According to BIS research, Melbourne city, which includes the CBD, Southbank and Docklands, Whitehorse city (including Box Hill, Burwood and Mitcham) and Port Phillip city (including Port Melbourne, St Kilda and part of Southbank) saw more than half units bought off the plan since 2011 breaking even or reselling at a loss.
In Brisbane, three areas, the Brisbane CBD, Kelvin Grove-Red Hill in the inner north and Southbank-South Brisbane-West End saw more than 40 per cent of units resold at the purchase price or less.
But most units in suburbs in Sydney’s Lane Cove council area, on the lower north shore, did not lose value, with the worst area, nearby Willoughby City Council, seeing only 9 per cent of resales recording a break-even price or loss.
Melbourne’s building cycle will peak this year with 18,350 new high-rise units completed compared with 13,453 last year. Brisbane will see 10,350 units finished this year, double 2016’s 5435 high-rise completions. New high-rise unit completions will peak in Sydney next year at 25,800, compared with 16,210 last year.