Prices of apartments in Australia are set to fall across almost all Australian capital cities as massive volumes of new stock lead to oversupply in several markets, a new report says.
In its latest report, BIS Shrapnel says unit and apartment prices are likely to fall in absolute terms over the three years to 2019 in Brisbane, Melbourne, Sydney, Canberra and Darwin and remain flat in Adelaide and Perth.
Detached house prices will also fall in real terms in Sydney, Melbourne, Darwin and Perth, and are expected to decline in real terms across other capitals as the growth in nominal prices fails to keep pace with anticipated inflation of eight per cent over the three-year period.
BIS Shrapnel senior manager and study author Angie Zigomanis said that whilst interest rates are likely to remain low, markets across the country will be impacted going forward by a combination of lower levels of population growth and oversupply in several markets.
This is especially the case in the multi-residential sector, where investor demand is being impacted by more restrictive lending conditions and in which the boom in construction activity (and thus the anticipated volume of new stock expected to come online) has been particularly concentrated.
“In fact, nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand,” Zigomanis said. “As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion.”
According to BIS, over the three years to 2019:
- Melbourne will be worst hit as apartment prices drop eight per cent and detached house prices edge back one per cent as massive volumes of completions create an apartment oversupply and the economy is impacted by the automotive shutdown.
- Apartment prices will also be smashed in Brisbane (down six per cent) even though detached house prices will increase modestly. The detached housing sector will remain relatively affordable and in a position of undersupply but the apartment sector is expected to move into oversupply as massive volumes of new stock hit the market, net interstate migration continues and the questions remain over the state’s economic prospects.
- Apartment prices will also be impacted in Sydney, where construction levels have finally started running ahead of demand and the market is being impacted by the pull-back on the part of investors.
- With South Australia already having the highest rate of unemployment in the country, prices will fall by four per cent in the case of apartments and two per cent in the case of houses in Adelaide as the economy there continues to face headwinds in a number of sectors.
- Apartment prices will also decline by four per cent each in Canberra and Darwin, with both cities having to absorb significant volumes of new supply coming online and the latter being impacted by the slowdown of work on the Ichthys project.
- In Perth, prices will largely stabilise following significant declines in recent years amid massive levels of vacancies in the apartments sector as the resource boom.
- Whilst no growth is expected in apartment prices in Hobart as investors respond to a limited rent and price outlook, decent growth of seven per cent is anticipated for detached house prices as the city benefits from those returning from the mining industry and the downshifting of some home owners seeking to bank recent price gains in places such as Sydney. Given overall inflation of eight per cent over the period, however, this still equates to a price fall of around one per cent for detached houses and eight per cent for units in real terms.
- In other cities, decent house price growth is expected in regional cities such as the Gold Coast, the Sunshine Coast, Newcastle, Wollongong and Cairns, whilst prices are expected to drop by four per cent in Townsville.