Unit oversupply still a high-risk concern in some locations


While, overall, there has been a major reduction in the number of units in the pipeline, there are still areas where the stock is well exceeding population growth, and which continue to have high risk.

The apartment oversupply was largely contained to rental properties where there was a high concentration of new small units.

In addition to the oversupply issue that they have had in recent years, now sales volume of new units in some areas is also low. Real Estate Investment

And added to that investors are now more aware of the risks associated with units in high rises and there’s more media coverage on that.

This means that some investors, who are the target audience of these properties, often prefer to invest in houses.

That reduction in the demand from local investors, combined with restrictions on foreign investors and difficulties to borrow against self-managed-super-funds (SMSF) creates a new problem of poor demand that we haven’t seen in the past.

Based on our research, there is a clear distinction between units that are rental properties and units that are purchased by owner-occupiers.

Rental properties are closer to the CBD, their size is way smaller but their price per square metre is way higher (i.e. if they were at the size of larger properties, they would be more expensive).

Unit Oversupply

The good news was the impact of apartment oversupply on the overall recovery of the property market was relatively small with those areas with high oversupply more impacted than others.

While there’s an issue across most states, the areas that experience the greatest oversupply are mainly in Sydney, Melbourne and Brisbane.

Overall, there has been a major reduction in the number of units in the pipeline in the next 24 months, however, there are still areas where the current stock is well exceeding the population growth.

This means it will take some time (12-24 months) for the market to absorb the stock in those areas even under the assumption there are no major additions of new developments.

Also, construction lenders have become more conservative, which means that many developers can’t get finance for units which will also help reduce the new stock.

Unit Pipeline

And also remembering that family suitable units in the middle rings, are more attractive to owner-occupiers looking for larger floor space, lower price per square metre and smaller unit blocks. Melbourne, Australia

These are, effectively an alternative dwelling to houses, which are, in many areas, unaffordable.

The overall market of existing properties was projected to reach the bottom by the end of the year.

But with new units in high supply areas, it will take time for the market to absorb them as there is strong competition among developers to shift these high levels of stock, therefore, there is an increased risk of price reduction there.


Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.


Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


is the CEO/Founder of RiseWise Property Review. He has more than 20 years’ experience in risk management including, Co-Founder of Peleg, Kessel & Co, an assurance and advisory accounting firm & Executive Manager at Westpac Banking Corporation in Sydney. www.riskwiseproperty.com.au/

'Unit oversupply still a high-risk concern in some locations' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts