Investors are being warned against buying property in 10 ‘danger’ suburbs across Australia due to an oversupply of new developments.
RiskWise Property Research has identified the key areas in Australia most at risk of high settlement and cash flow risk and warns that COVID-19 has only exacerbated the high degree of risk associated with off-the-plan units.
The equity risk, being the risk for price reduction that already had been high prior to the COVID-19 crisis, has further increased as investor activity is lower.
COVID-19 has also increased cash flow risk, as vacancy rates are at an all-time high, peaking in May at 16.2 per cent.
The table below lists the 10 ‘riskiest postcodes’ in the country in terms of oversupply.
The data is based not only on the supply itself but also on low demand for rental apartments, in relation to that supply.
Interestingly 5 out of Australia’s 6 states make the cut - no postcodes in Tasmania appear on the list.
Rouse Hill (2155) has the most staggering increase in new units becoming available within the next 24 months.
The area is set to see 1,661 new units, representing a whopping 200.4% increase in the unit stock the area currently has.
Elsewhere also in New South Wales, Gosford (2250) is expected to have 1,859 new apartments - a substantial 72.9% increase from the 2,554 units which are already in the area.
Darwin (800) and West End (4140) in Queensland will also see a big jump of 1,204 and 1,211 new units each, representing a 32% and 26% jump in apartment supply respectively.
10 postcodes most at risk of unit oversupply
|
State |
Postcode |
Suburb |
Current Stock |
New units in the next 24 months |
New units in next 24 months as % of units |
|
VIC |
3000 |
Melbourne |
34,694 |
4,744 |
13.6% |
|
VIC |
3008 |
Docklands |
10,845 |
1,307 |
12.0% |
|
NSW |
2020 |
Mascot |
6,023 |
804 |
13.3% |
|
NSW |
2155 |
Rouse Hill |
833 |
1,661 |
200.4% |
|
NSW |
2150 |
Parramatta |
11,700 |
1,553 |
13.2% |
|
NSW |
2250 |
Gosford |
2,554 |
1,859 |
72.9% |
|
NT |
800 |
Darwin |
3,737 |
1,204 |
32.0% |
|
QLD |
4101 |
West End |
4,636 |
1,211 |
26.0% |
|
QLD |
4217 |
Surfers Paradise |
19,857 |
2,779 |
14.0% |
|
SA |
5000 |
Adelaide |
9,807 |
1,266 |
12.9% |
Source: RiskWise Property Research
What has caused the oversupply?
A lot of new units have come onto the market at a time several factors have dampened demand.
High profile issues about defect issues in high-rise apartment blocks has caused enormous reputational damage for the entire industry and has seen many investors lose interest in high-rise developments.
Meanwhile, rental values have slumped across the country - according to CoreLogic data, rental values dropped 0.5% in the June quarter, representing the sharpest decline in two years.
At the same time, serviceability is still a major factor for investors who rely on a stable income to cover the costs associated with property and the mortgage for the property.
Add onto that the economic uncertainty caused by the global pandemic, closed international and local borders and state lockdowns, home buyers and investors are looking more towards property which allows them to work from home and which are further away from the city centres.
Property analyst Pete Wargent, said rental markets have been weak for inner-city apartments due to the absence of international students and tourists.
Uncertainty in the economy has been heightened in 2020, he said.
"The unit oversupply issue has been with us for some years now," Mr Wargent said.
Buying into oversupplied areas when international borders are "effectively shut" compounds investor risk, he said.
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Brett Warren is a director of Metropole Properties in Brisbane and uses his 18 plus years property investment experience and economics education to advise clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
