Top 10 unit oversupply suburbs in Australia revealed

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on September 14, 2020
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.


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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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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