“If this causes vacancy rates to rise and rents to fall, then this widens the gap between rents and mortgage costs. An expectation for lower rents (as well as lower capital gains or falling prices) will also reduce the price investors are willing to pay, so this will have a demand-side impact on prices as the negative impact created by the tighter credit environment.”
Brisbane, where the apartment market declined first and is the furthest through its cycle, will benefit from an estimated 5700 completions this year – nearly half the level in 2017, BIS says.
Apartment values fell 4.3 per cent nationally in the year to December, pulled down by Sydney’s 6.3 per cent decline and Melbourne’s 2.3 per cent loss in value, CoreLogic figures show. Perth (6.5 per cent) and Darwin (10.4 per cent) posted bigger declines, but the larger Sydney and Melbourne markets had a greater influence on the national figure.
The market is already under pressure. Unreported valuation figures seen by The Australian Financial Review, however, show falling values of newly completed apartments in Australia 108, the country’s tallest residential tower, being developed by World Class Land, an offshoot of Singapore developer Aspial.
A two-level penthouse in the 101-storey building in Melbourne’s Southbank broke records when it sold in 2015 for $25 million – more than $33,000 per square metre – but gravity is proving strong for many apartments in the building.
A two-bedroom apartment on the 28th level bought by an overseas-based buyer for $708,000 in April 2015 was revalued at $560,000 in June last year – a near 21 per cent decline.
The first 277 apartments – about a quarter of the total 1105 – were handed over to residents in a staged completion that started in June, permitting the developer to recoup $147 million from settlement of the units on levels 14 to 30 in recognised revenue, even as construction continued at higher levels.
Not all units suffered devaluations, but the figures show that apartments priced above the $10,000-per-square-metre level fell the most.
A one-bedroom apartment bought for $586,000 in March 2015 was revalued in October last year at just $490,000, for a decline in value of more than 16 per cent.
Data provider CoreLogic also expects unit markets in the two largest cities to remain under pressure.
“Slowing demand and higher supply in the multi-unit sector is playing out, which is likely to result in weaker conditions across the unit markets in Sydney and Melbourne where the new unit supply pipeline is the most concentrated,” CoreLogic says.
“Demand is being negatively impacted by a range of factors including slowing migration rates from both overseas and interstate, fewer domestic and overseas investors (key target markets for the multi-unit sector), low valuations for off-the-plan unit settlements and overall tougher lending conditions.”