Australian home buyers and investors have been warned to avoid certain suburbs in Australia, particularly in Sydney and Melbourne, which are at high risk of being oversupplied with thousands of new units flooding the market in those areas.
Some locations are facing a major glut of newly developed units in the pipeline over the next 24 months – yet will likely remain vacant for a long while amid closed borders which have drastically reduced demand, according to data from Buyers Buyers.
“Unit supply is a factor landlords need to be wary of,” said Buyers Buyers CEO Doron Peleg.
“Investors should be cautious about the risk of rental vacancies and capital loss, particularly investors who consider new or off-the-plan purchases.”
“The CBD areas of the capital cities have been a risk area for some time, but our danger zone list also incorporates locations far further afield, such as Gosford and Broadbeach,” Peleg said.
The number of units in NSW’s Schofields will more than double in two years’ time, with more than 3,000 units in development over the next 24 months.
Rouse Hill in Sydney’s north-west is due for an 88 per cent increase in the volume of units in the area, with 1,274 units being developed.
Meanwhile, the number of units in Western Australia’s Subiaco will increase by nearly half (46.4 per cent).
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Investors prefer homes over apartments
The oversupply of units has had a hand to play in higher house prices, Peleg said.
“It is generally the rising land values that deliver the returns in Australian real estate, so units in boutique blocks with a high land-to-asset ratio and a point of scarcity value tend to fare best,” he said.
“Conversely, there tends to be more risks in a generic high-rise of higher-density developments.”
Apartments can still constitute “solid investments”, if they’re in areas where demand is high and supply is constrained, he said.
But generally, investors are turning to houses instead of apartments.
“There are many uncertainties about the return of international migration at present, and therefore the risks of buying a new unit are even higher than they normally are right now.”
“But now everything is different. The ‘place’ people want to be is a lifestyle neighbourhood where all amenities are in easy walk or drive rather than living in congested CBD locations.”
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