Australia’s looming apartment glut has prompted panicked developers to offer potential buyers significant incentives, including discounts with rental guarantees, free furniture and appliances, upgrades to fixtures, and significant stamp duty concessions.
An estimated 25,500 apartments will be completed in Sydney this calendar year, with a further 17,090 in Melbourne and 10,300 in Brisbane, according to property advisory firm Charter Keck Cramer.
“Feedback from our Australian Property Conference and mystery shopping highlight a clear change in the apartment market, particularly so in Perth, Brisbane and to a greater extent in Melbourne,” said Citi analysts David Lloyd, Adrian Dark, and Suraj Nebhani.
A mystery home buying spree conducted by researchers from Citi revealed that one large developer was willing to give new apartment owners a 5% twelve-month rental guarantee. Other incentives include covering the $25,000 stamp duty bill on a $495,000 one-bedroom unit, and buying furniture worth $11,000 for a unit.
Developers struggling to sell in an oversaturated market
A plethora of banking, regulatory, and additional factors are turning the tide for property developers.
Towards the end of March, the Australian Prudential Regulation Authority (APRA) told lenders to restrict higher-risk interest-only loans to 30% of new residential mortgages. Additionally, foreign investors were hit with new levies and buying restrictions, following the announcement of the 2017-18 federal budget.
Meanwhile, loan-to-value ratios (LVR) imposed by the banks have fallen and interest rates have gone up. This has lead to panicky developers resorting to offering incentives to try and get apartments moving.
Regulatory measures, combined with the Chinese government’s curbs on its citizens buying property overseas, has caused a dramatic slowdown in off-the-plan selling, according to developers.
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