Top 10 unit oversupply suburbs in Australia revealed

^{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. 

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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.

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