While regulatory hurdles have constrained the development of new apartments in Sydney, supply is expected to remain robust in Melbourne as a result of the overhang of approvals issued during the days of the Napthine government.
Existing disparities between the apartment markets of Australia's two most populous cities are set to become more pronounced in the wake of the Reserve Bank's latest interest rate cut, as a result of differences in local regulatory and approval regimes.
While values are on the increase in both major cities, Sydney's rental rates are on the rise following protracted stagnation, while those in its southern counterpart are expected to remain tepid.
Sydney may find it harder than Melbourne to satisfy demand as a result of the difficulties involved in overcoming regulatory barriers to the development of new apartments in the NSW capital.
Although the situation in Sydney has improved significantly of late, with initial approvals for fresh development now far easier to obtain than only one or two years ago, and developers for the most part winning their cases at the courts when met with opposition from councils, regulatory pitfalls have nonetheless placed a cap on the number of new apartment properties entering the market.
This curb on apartment construction continues to play a major role in the rising price of Sydney's inner-city accommodation, and could also thwart the efforts of Chinese developers who are entering the local market with little understanding of the Australian legal system.
The interest rate cut could thus provide a boost to the apartment market in Sydney, where supply continues to be constricted and rental rates are on the rise following protracted stagnation.
In sharp contrast, the recently ousted Napthine government in Victoria made it far easier for Melbourne developers to negotiate the approvals process, just as Chinese investors arrived in droves on the hunt for new projects.
While the Napthine government lost the November election, the approvals it issued during its tenure in office will continue to translate into new developments over the next several years, meaning that more apartments will be built in Melbourne as compared to Sydney relative to market size.
The upshot of this will be weaker rent growth as well as increased vacancies in the Victorian capital, where members of the property sector have been complaining since the middle of last year about a gross oversupply of new apartments.
The new Victorian government's decision to adopt a firmer stance on building approvals - potentially rescinding them permanently should applicants withdraw from development, could also have a positive impact on supply levels by compelling companies to fully commit to any green-lit projects.