We could be about to see more off-the-plan apartment buyers unable to complete their purchases at settlement in the major capitals, according to new research from CoreLogic RP Data.
The record approval and construction levels of apartments could pose settlement risks in certain areas of the biggest capital cities, particularly where investors are looking to buy off the plan over the next two years.
A combination of record construction, tightened lending and the concentration of units due for settlement in similar locations to existing stock could increase the risk of off-the-plan buyers not being able to complete their purchases at settlement.
More than 90,000 new apartments are set to be built and completed over the next 12 months, according to CoreLogic RP Data. This figure is expected to rise to more than 230,000 over the next 24 months.
By CoreLogic numbers, the volume of new apartments is set to exceed the average number of total apartment sales in the past five years – something CoreLogic research analyst Cameron Kusher describes as a "big disconnect" between supply and demand, particularly in the four biggest capitals.
Sydney and Melbourne are predicted to have the greatest stock increases in the next two years – more than 80,000 apartments in each city – although Brisbane and Perth should also both see big spikes in supply during that time.
"The large volume of new stock, coupled with an ever-growing supply of existing stock, means that historic high levels of unit settlements are due to occur over the next two years in most cities," Kusher said.
"In fact, even a recurrence of the peak year for sales in Melbourne and Brisbane over the next two years wouldn’t represent enough demand to cater for all of the new units set to settle over the coming 24 months.”
The inner city regions of Melbourne and Brisbane top the national list of areas with the most expected unit completions between now and April 2018. More apartments are slated to be built over the next 24 months in the inner area of the Queensland capital than even inner Sydney, despite greater Brisbane having less than half the population of greater Sydney.
Spreading the riskKusher said that while most of the apartment stock due to settle in Melbourne and Brisbane is concentrated within a 10km radius of the CBD, Sydney's new unit supply is more geographically diverse.
He aruged that "in some respects this spreads some of the risk around the city rather than other cities where new supply is much more centralised".
Other regions of Sydney among the top 10 nationally for expected new unit completion include Strathfield-Burwood-Ashfield, Parramatta and Ryde-Hunters Hill. All three areas are roughly 10kms or further away from the centre of town.
Median unit prices have gone up by more than 4% in Sydney in the four months to 30 April according to CoreLogic, but only 1% in Brisbane. In Melbourne, they've fallen by 0.4%.
In April, a report by industry analysts BIS Shrapnel found around 70% of Melbourne's apartment construction boom over the next three years would take place in the CBD, Docklands and Southbank areas.
In the same month the Reserve Bank of Australia (RBA) also warned of the risk of a glut of apartments in inner Melbourne and Brisbane, particularly if "demand were to decline significantly".
Three of the big four banks recently announced tightening of their lending rules to overseas property buyers, many of whom have historically invested in off-the-plan apartments in inner Sydney and Melbourne.
Kusher identified several other concerns for off-the-plan investors raised by the flood of new apartments, including "substantially lower" capital growth in many regions compared with houses as well as the recent tightening of lending criteria, which meant "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".
Source: Commonwealth Bank of Australia by Sam Butler