By Brett Warren January 21, 2021

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The 10 Australian postcodes most at risk of oversupply

Property Investment
The 10 Australian postcodes most at risk of oversupply

Investors are being warned against buying property in 10 ‘danger’ suburbs across Australia due to an oversupply of new developments.

RiskWise Property Research has identified the key areas in Australia most at risk of high settlement and cash flow risk and warns that COVID-19 has only exacerbated the high degree of risk associated with off-the-plan units.

The equity risk, being the risk for price reduction that already had been high prior to the COVID-19 crisis, has further increased as investor activity is lower.

COVID-19 has also increased cash flow risk, as vacancy rates are at an all-time high, peaking in May at 16.2 per cent.

The table below lists the 10 ‘riskiest postcodes’ in the country in terms of oversupply.

The data is based not only on the supply itself but also on low demand for rental apartments, in relation to that supply.

Interestingly 5 out of Australia’s 6 states make the cut - no postcodes in Tasmania appear on the list.

Rouse Hill (2155) has the most staggering increase in new units becoming available within the next 24 months.

The area is set to see 1,661 new units, representing a whopping 200.4% increase in the unit stock the area currently has.

Elsewhere also in New South Wales, Gosford (2250) is expected to have 1,859 new apartments - a substantial 72.9% increase from the 2,554 units which are already in the area.

Darwin (800) and West End (4140) in Queensland will also see a big jump of 1,204 and 1,211 new units each, representing a 32% and 26% jump in apartment supply respectively.

10 postcodes most at risk of unit oversupply

State	Postcode	Suburb	Current Stock	New units in the next 24 months	New units in next 24 months as % of units
VIC	3000	Melbourne	34,694	4,744	13.6%
VIC	3008	Docklands	10,845	1,307	12.0%
NSW	2020	Mascot	6,023	804	13.3%
NSW	2155	Rouse Hill	833	1,661	200.4%
NSW	2150	Parramatta	11,700	1,553	13.2%
NSW	2250	Gosford	2,554	1,859	72.9%
NT	800	Darwin	3,737	1,204	32.0%
QLD	4101	West End	4,636	1,211	26.0%
QLD	4217	Surfers Paradise	19,857	2,779	14.0%
SA	5000	Adelaide	9,807	1,266	12.9%

Source: RiskWise Property Research

What has caused the oversupply?

A lot of new units have come onto the market at a time several factors have dampened demand.

High profile issues about defect issues in high-rise apartment blocks has caused enormous reputational damage for the entire industry and has seen many investors lose interest in high-rise developments.

Meanwhile, rental values have slumped across the country - according to CoreLogic data, rental values dropped 0.5% in the June quarter, representing the sharpest decline in two years.

At the same time, serviceability is still a major factor for investors who rely on a stable income to cover the costs associated with property and the mortgage for the property.

Add onto that the economic uncertainty caused by the global pandemic, closed international and local borders and state lockdowns, home buyers and investors are looking more towards property which allows them to work from home and which are further away from the city centres.

Property analyst Pete Wargent, said rental markets have been weak for inner-city apartments due to the absence of international students and tourists.

Uncertainty in the economy has been heightened in 2020, he said.

"The unit oversupply issue has been with us for some years now," Mr Wargent said.

Buying into oversupplied areas when international borders are "effectively shut" compounds investor risk, he said.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

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About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.