Melbourne Apartment Sales Will Slow

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Thursday, September 29th, 2016
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Sales of apartments in Melbourne are expected to slow further notwithstanding strong population growth amid a confluence of factors which have seen lending conditions tighten and are making apartment living less attractive to investors, a leading researcher suggests.

In a recent interview, BIS Shrapnel senior research leader Angie Zigomanis says that sales in Melbourne’s apartment market began slowing last year after the Australian Prudential Regulation Authority started pressuring banks to tighten their lending standards.

He says sales will continue to slow going forward.

“We expect sales to steadily slow,” Zigomanis said.

“Investment in apartments has certainly become a less attractive proposition for investors.

Zigomanis said the apartment market in Melbourne is being subject to challenge in a number of areas.”

Aside from a tightening in lending conditions, the market is also expected to be impacted over the next few years by the arrival of a massive volume of new stock which will be brought about by the current boom in residential construction – a phenomenon he says will lead to growth in supply outstripping that in demand notwithstanding that Melbourne is currently experiencing population growth of almost two percent per annum.

All up, CoreLogic RP Data expects more than 80,000 new apartments to hit the Melbourne market over the next two years.

Zigomanis says this will depress capital prices and rents, which will further deter investors.

As well, many investors who do buy are likely to find apartments being offered for resale an attractive option, he said, whilst demand from foreign investors was meanwhile being impacted by a new 7 percent impost being levied upon foreign buyers being levied by the state government.

Zigomanis says there are a number of indications that the market may be weakening.

First, approvals for high rise units in the Melbourne CBD were down by 13 percent in 2015/16 when compared to their sky high levels of 2014/15 – a sign he says that sales may have dropped off as developers generally require a certain number of presales in order to obtain the relevant approvals.

Another telling factor was a falling away of investor finance, he added.

Whilst many commentators talking about an apartment market oversupply, however, not all are so pessimistic.

Andrew Leoncelli, managing director of residential projects at CBRE is quoted in Fairfax Ltd newspapers as saying that supply growth has slowed following the state’s impost of the foreign buyer stamp duty.

Besides, Leoncelli argued, with record clearance rates in the detached house market, many buyers had no choice but to consider apartment style living.

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