Photo by Tarryn Myburgh on Unsplash
New data has identified the top ten danger zones for high settlement and cash flow risk for units.
The analysis from RiskWise Property Research, seen in the table below, found the riskiest areas in the country in terms of oversupply, based not only on the supply itself but also on low demand for rental apartments in relation to that supply.
State |
Postcode |
Suburb |
New units next 24 months |
New units next 24 months as % of units |
VIC |
3000 |
Melbourne |
4,744 |
13.6 |
VIC |
3008 |
Docklands |
1,307 |
12.0 |
NSW |
2020 |
Mascot |
804 |
13.3 |
NSW |
2155 |
Rouse Hill |
1,661 |
200.4 |
NSW |
2150 |
Parramatta |
1,553 |
13.2 |
NSW |
2250 |
Gosford |
1,859 |
72.9 |
NT |
800 |
Darwin |
1,204 |
32.0 |
QLD |
4101 |
West End |
1,211 |
26.0 |
QLD |
4217 |
Surfers Paradise |
2,799 |
14.0 |
SA |
5000 |
Adelaide |
1,266 |
12.9 |
Source: RiskWise Property Research
RiskWise chief executive Doron Peleg said property investors should be extra cautious of the high degree of risk associated with off-the-plan units, which has been heightened as a result of COVID-19.
Additionally, the equity risk has also been heightened, with investor activity lower and the media spotlight on the faults of high rise apartments increasing their awareness of the risks, increasing the risk of price reduction.
The pandemic has also increased the cash flow risk, with SQM Research data revealing vacancy rates were at all-time high in May at 16.2%, and dropping slightly to 13.8% in June.
Looking to compare low-rate, variable home loans? Below are a handful of low-rate loans in the market.
Lender | |||||||||||||
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Variable | More details | ||||||||||||
FEATUREDUNLIMITED REDRAWSSPECIAL OFFER | Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)
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Variable | More details | ||||||||||||
FEATURED100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES | Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)
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Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)
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Variable | More details | ||||||||||||
NSW/VIC/SA METRO & INNER REGIONAL AREAS | Variable Home Loan (Principal and Interest)
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Variable Home Loan (Principal and Interest)
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Variable | More details | ||||||||||||
REFINANCE ONLY | Variable Rate Home Loan – Refinance Only
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Variable Rate Home Loan – Refinance Only
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Variable | More details | ||||||||||||
NO ONGOING FEESFREE REDRAW FACILITY | Live-in Variable Loan (Principal and Interest) (LVR < 90%)
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Live-in Variable Loan (Principal and Interest) (LVR < 90%)
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- Fast turnaround times, can meet 30-day settlement
- For purchase and refinance, min 20% deposit
- No ongoing or monthly fees, add offset for 0.10%
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 29, 2022. View disclaimer.
Pete Wargent, co-founder of buyer's agency Buyers Buyers, said off the plan unit purchases carried a high level of risk of significant price reductions.
"Areas with high unit oversupply carry ‘a very high risk’ and this is still a major issue in some property markets, for example in Melbourne’s CBD, while the same city simultaneously has an under-supply of family-appropriate properties,” Mr Wargent said.
Mr Peleg of RiskWise said the high-profile issues around cladding and defects has created enormous ‘reputational damage’ across the entire industry and because of this, investors had lost interest in high-rise unit developments and were turning to “safer” house-and-land packages suitable for families.
Buyer’s agent and chief executive of propertybuyer.com.au Rich Harvey said buying new apartments in outer suburban areas like Rouse Hill made no sense.
“While it may be nice to have a shiny new kitchen and bathroom, there is a significant downside price risk as the supply of land for further development is plentiful," Mr Harvey said.
"Investors and home buyers are far better off seeking apartments in locations where land supply is very low and demand for property high.
“In a market where prices are declining, there is a settlement risk for the buyer if they discover that the value paid for the unit has declined significantly."
“Say the purchase price was $650,000 some two years ago, but at settlement the bank valuation came in at $585,000 (i.e. 10% lower), then the purchaser has to find an additional $65,000 to settle the property. This could be a serious problem for some cash-strapped buyers.”
Mr Harvey recommended seeking independent advice and guidance from a local expert buyer’s agent who understood the dynamics of the local property market.
Disclaimers
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.
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