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BFCSA: Property Bubble Burst stage : GLUT of apartments in all states - renters can name their price

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Landlords hit by glut of apartments

Jason Plevras paid $600,000 for a two-bedroom apartment in Melbourne’s Southbank last May. The off-plan unit was one of 237 in the 15-storey Sunday Apartments on ­Coventry Street that went on the market around the same time.  The real estate agent assured him he would have no trouble finding a tenant, Plevras says. “I remember when I was signing the contract to buy, I made clear that I was worried we won’t be able to rent it,” the 33 year old says.  “They said ‘renting will never be a problem. You’ll always have tenants’.”

He waited three months before ­advertising the unit. His starting price was $600 a week, but that went down to $525 before it rented. It’s been a “yo-yo” of tenants coming and going ever since, Plevras says.   “Because it’s so competitive, we’re almost putting anyone we can in.”  For Plevras, the news is not good. The pressure on prices will only grow as more stock comes to the market. Weekly ­advertised rents have fallen 3.6 per cent in Docklands and 6.4 per cent in ­Southbank over the past 12 months while they have stayed still in the central business district, RP Data figures show. Over the past five years, rents in Docklands have fallen 8.6 per cent.

In Sydney, Hugh Eriksson tells a similar story.   The marketing executive, who owns a townhouse in Neutral Bay, says he has bent over backwards to keep rents near to stable and has even allowed pets.  “There might be low vacancy in the inner city but renters are still in a position where they can choose,” he says.  Sydney’s competitive rental market means rental returns at Eriksson’s townhouse have averaged below 3 per cent a year and a new property he is looking at in Balmain in Sydney’s inner-west is likely to generate only enough rent to cover his costs.

In Melbourne, the New York-style incentives that have started to creep into the soft market, such as offering the first month rent-free, will grow as investors and their agents seek to draw tenants into ­dwellings without affecting all the other rents in the same building, says buyers’ advocate Paul Osborne.  Investors will be caught in a very ­competitive market needing to offer ­pricing discounts to lure tenants,” he says.  Central Melbourne has over 17,000 new apartments in the pipeline and 5260 are under ­consideration for development approval, the city disclosed last week when it passed a resolution asking Planning ­Minister Matthew Guy to impose a ­$900-per-apartment levy.  “There’s chronic oversupply,” say Margaret Lomas, a founder of property consultancy Destiny. “There’s an ­increasing demand for inner-city living, but the supply is going much faster than that demand.”

Without rental growth or capital growth, the prospects for many investors are bleak, Lomas says. “What normally comes next after this, as those people become more and more distressed financially, they begin to need to sell as well. “Then you’ve got the double whammy of not achieving a rental yield, but you can’t achieve anywhere near the price they’ve paid to go in. You start to see them dumped. Prices topple.”

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21 August 2014

By Leith van Onselen

The AFR has produced a detailed report on the apartment glut hitting Australia’s major capitals, whereby recent purchasers are finding it increasingly difficult to secure tenants and are having to either drop their asking rents or offer so-called New York-styled incentives, such as providing the first month free. The oversupply situation is reportedly worst in Melbourne:................

A key driver of this surge, particularly in the three biggest markets (Melbourne and Sydney in particular) is foreign investment, with developers increasingly marketing their product to overseas investors. Indeed, apartment construction is becoming a key defacto export industry for cities like Melbourne and Sydney, which is helping to keep the construction sector ticking along.

Many foreign investors do not care about local conditions, such as rental demand and supply, and instead invest in Australian real estate in order to transfer their wealth into what they perceive is a safe asset in a stable country. This poses risks to local investors that purchase apartments alongside foreigners at over-inflated prices. Many are now stuck with a crappy investment that is competing alongside a bunch of other similar crappy investments. Accordingly, these investors are unlikely to yield a decent return or achieve capital growth.

All of which is great news for inner city renters, who now face a smorgasbord of apartment choice (albeit of the generic ‘dog box’ variety), reasonable (and stable) rents, and the ability to negotiate favourable rental returns from increasingly desperate landlords.  Moreover, with all levels of government seemingly keen to keep foreign investment flowing in, the apparent glut of inner city apartments is unlikely to abate anytime soon, which should continue to see downward pressure placed on apartment rents and eventually prices too.




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  • Aries
    Aries Thursday, 21 August 2014

    This is disastrous for property investors, no doubt most of them were lied to about how
    property and rents always go up. Careful consideration for loan approvals non existent
    as usual.

  • NABbed Nanna
    NABbed Nanna Friday, 22 August 2014

    I absolutely feel sorry for these investors, but this has been coming for a long time and was eminently predictable in the long term. A created problem which is not going to go away. Bankers, real estate agents, brokers have been flying high and reaping massive rewards for their manipulative conduct. These investors are suckers just like the rest of us who belong to BFCSA. We all know now where we have been taken advantage of. Many of us have been totally cleaned out now, no homes. We can see the fraud perpetrated by the banks which have deprived us of our home. Immoral and illegal.

  • kddeed
    kddeed Tuesday, 02 September 2014

    We were sucked in with all their crap with our investment property in Qld. Great area, great rents, the promise of increased property price, financial security for our retirement, bullshit, bullshit. The property is now worth $100,000 less than we owe the bank after 2 years. Then to hear we were conned with this 30 year interest only loan & buffer ....., icing on the cake really!!!

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