An oversupply of investor-style apartments in the east coast capitals could present bargains in a year’s time, according to Greg Paramor, managing director of Folkestone, a Sydney-based real estate funds manager and developer.
Speaking last week at The Property Congress in Cairns, Paramor said there was a “lot of rubbish” coming into the market in the overbuilt areas of Melbourne, Sydney, and Brisbane’s Fortitude Valley.
“In a year’s time that’s going to be probably an opportunity to buy,” he added.
Oversupplied investment apartments would sell at below replacement cost. “There is some stress there. The banks and APRA have picked that up early and have been working on it,” Paramor said.
He also criticised state governments for increasing taxes on investment property at a time when markets have begun to cool.
“Like the mining tax that came in after the boom and therefore didn’t raise any money, we are seeing state governments now increasing stamp duties and other charges to foreign investors,” he said.
In contrast, Paramor said the owner-occupier market was thriving, particularly since many homeowners hitting retirement age are in the process of downsizing.
Similar concerns of oversupply have hit retail developers and owners, mostly due to the impending arrival of Amazon.com in Australia.
David Harrison, managing director and group CEO of Charter Hall Group, said the arrival of the Seattle-based e-commerce company could be underestimated by some, and he was concerned about the supply of shopping centre development in Australia.
“The only time I have seen real property asset downturns is when there has been an oversupply - in the recession in the early 1990s there was a massive oversupply of office and industrial,” Harrison said. “So a word of caution - there is a lot of retail being built in this country. At 1 sq m per capita compared to 2.5 sq m per capita of retail in the US, we look okay, but we just need to maintain what we have seen in Canada, which is to keep those ratios low.”
Other analysts say the arrival of Amazon.com could witness the emergence of new property types for investors, namely smaller “last touch” distribution centres and modern fulfilment centres.
These property types aren’t prevalent in Australia, as the country’s share of the online retailing market is lower than in other countries.
“However, we do expect them to become more common in the major Australian cities as the market share grows. We don’t know what the future worth is,” said Stephen Hayes, head of global property securities at Colonial First State Global Asset Management (CFSGAM).
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