Property investors poleaxed as apartment market implodes

The apartment market in Sydney is reportedly imploding, hammering landlords via falling prices and rents:

Parramatta, Mascot and Rouse Hill in the northwest have topped a list of Sydney suburbs “oversupplied” with apartments.

These suburbs each have more than 1500 units in the pipeline over the next two years, which will increase the current supply of apartments by 13 per cent or more…

The oversupply in these areas has raised the risk of dangerous price reductions…

RiskWise chief executive Doron Peleg said there were already risks associated with off the plan units but they have been exacerbated during the COVID-19 pandemic…

One of the biggest risks is that the glut of new apartment projects in some areas will coincide with reduced buyer demand – particularly from investors, he said…

Investors who were still buying rental apartments unsuitable for families were taking an enormous gamble, with both equity and cash flow risk expected to materially increase, he said.

Buyer advocacy group Buyers Buyers’ co-founder Pete Wargent said buying into oversupplied areas amid international border closures would compound these risks.

It’s a similar story in Melbourne.

Apartment rents across Sydney and Melbourne tanked by 4.2% and 4.4% respectively in the five months to 31 August:

This comes on the back of tanking immigration and soaring rental vacancies across both capital cities:

To add further insult to injury, the apartment construction pipeline remains above decade averages across both cities:

With mortgage repayment holidays nearing their end and both prices and rents falling, how long will negatively geared landlords hold on?

Even the RBA believes rents in Melbourne and Sydney will keep fall falling, noting the following in its latest board meeting minutes:

Rental vacancy rates had risen recently, and members noted that downward pressure on rents was unlikely to dissipate in the near term in either Sydney or Melbourne.

Rental supply had been boosted by short-term and holiday rentals being brought onto the long-term rental market, while demand had been depressed by the reduced flow of new migrants and a decline in the rate of household formation.

How many investors will cut their losses and sell before the situation deteriorates further, thus pushing prices even lower?

Leith van Onselen
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