The apartment market is about to boom, say realtors, as many new developments are being built. But only those who buy wisely will reap the rewards. So it’s important for you to do your homework before signing any contract.
The Housing Industry Association (HIA) report that national apartment sales fell by 10.6% in February 2016. The apartment market has been under pressure for some time, and this represents a good time to buy, especially for first home buyers who are looking to enter the market.
Construction levels in the apartment market are at record highs. These levels are well above those recorded previously so it’s anticipated that the apartment market is about to experience what many are calling a ‘backlog’.
This backlog, or oversupply, is expected to have a profound impact on market prices which are already falling due to changes in lending regulations. Realtors are saying that the property market is divided and operating under two speeds – the housing market speed, which is currently undersupplied, and the apartment speed, which is oversupplied.
There is an increasing demand for homes due to a steadily increasing population. But there are too many apartments on the market. So for a savvy apartment buyer who has sharp negotiation skills, there are bargains to be had. For instance, four apartments in inner Melbourne were listed on the market in September 2015. Since then, only two of these apartments have sold. The first, a two-bedroom, was listed for $550,000. This property sold for $500,000 in March 2016. The second, a one-bedroom, sold for $383,000. Its asking price was $420,000.
These sales equate to a 10% discount on the asking price. But some properties are selling for 15% under asking price. This means a buyer who is willing to negotiate can possibly get themselves a far better price.
Not all apartments represent value for money. Those in big blocks of 20-units which are located in, and around, the central business district (CBD) should be avoided, especially if they’re buy-off-the-plan. These apartments tend to be overpriced and have high corporate costs to maintain lifts, car parks and gyms.
Good buys are boutique-styled apartments that are in a complex of 10 to 15 that are at least 50 square metres in size. Look for a property that is off the main road and approximately 20-kilometres from the central business district (CBD).
If you buy well, then you should see a capital gain of around 7% a year say seasoned investors. However, they indicate that poorly thought-out purchases won’t make any significant capital gain for 3 to 5-years. Plus, if you’re looking to make a healthy rental yield, you’ll find competition steep, especially if there are 10 or more apartments for lease in the same block.
The biggest oversupply of apartments is in Melbourne and Brisbane. Some areas of Sydney, such as the CBD, Northern areas and the Southern corridor will be flooded with new apartments. In fact, a recent report on inner Sydney estimates that 5,800 apartments are currently under construction and that this number will jump to 11,500 apartments over the next 3-years.
Apartment demand is said to be driven by local and overseas investors. But changes to lending criteria by the Australian Prudential Residential Authority (APRA) and major banks may see off-the-plan deals fall through. The main concern is many off-the-plan apartments can take years to be constructed. So while an off-the-plan buyer may not need to make payments until construction begins, this may be when they find it difficult to secure finances due to changes in legislation and lending criteria.
A slow in population growth is also said to be having an impact on apartment rental demand. As a result, vacancy rates in Melbourne are expected to rise from 3.5% to as high as 6% by 2017. Rents are also expected to decline by up to $10 per week. Other states may experience similar trends.
Do you want to know more about apartment buying? Then contact eChoice today.