Sydney suburbs the place condo oversupply is turning into a significant difficulty for consumers

Parramatta Square 5

Building in Parramatta, one of many suburbs with the most important unit provide. Image: John Fotiadis

Parramatta, Mascot and Rouse Hill within the northwest have topped a listing of Sydney suburbs “oversupplied” with flats.

These suburbs every have greater than 1500 models within the pipeline over the subsequent two years, which can improve the present provide of flats by 13 per cent or extra.

An analogous state of affairs was unfolding in Gosford on the Central Coast, the place near 1900 models had been set to be constructed, which might improve unit provide by 73 per cent.

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The oversupply in these areas has raised the chance of harmful worth reductions for consumers of models offered off the plan, in line with RiskWise analysis.

RiskWise chief govt Doron Peleg stated there was already a excessive diploma of danger related to off the plan models however they’ve been exacerbated in the course of the COVID-19 pandemic.

One of many largest dangers is that the glut of recent condo tasks in some areas will probably be coinciding with lowered purchaser demand – notably from buyers, he stated.

Investor exercise was already low earlier than the pandemic due to tighter lending restrictions however falling rents and rising vacancies have created an extra disincentive for brand spanking new buyers to buy models.

Unit rents dropped by about 2 per cent in Sydney and Melbourne over the previous three months, CoreLogic information confirmed.

Excessive-profile reviews of cladding points and defects additionally broken the popularity of the off the plan sector, encouraging extra buyers to hunt out house-and-land packages as an alternative, Mr Peleg added.

Traders who had been nonetheless shopping for rental flats unsuitable for households had been taking an unlimited gamble, with each fairness and money movement danger anticipated to materially improve, he stated.

Purchaser advocacy group Consumers Consumers’ co-founder Pete Wargent stated shopping for into oversupplied areas amid worldwide border closures would compound these dangers.

Mascot Towers in Mascot, the place cracks had been found within the constructing final yr.

He defined this was as a result of worldwide college students and vacationers shaped a big proportion of the standard tenant base in lots of of those places.

Consumers had been higher off contemplating extra supply-constrained markets the place properties supplied “shortage worth”, Mr Wargent stated.

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“Over the medium to long run, it’s the land worth element of the asset that does the heavy lifting for you and, due to this fact, consumers ought to search for a excessive land-to-asset ratio,” he stated.

“The unit oversupply difficulty has been with us for some years now and outperformance has primarily been in household applicable dwelling sorts in markets the place demand is constant and new provide has been restricted.”

Purchaser’s agent and CEO of Wealthy Harvey stated shopping for new flats in outer suburban areas like Rouse Hill made no sense.

A one-bedroom unit on this constructing on Clarence St in Sydney was not too long ago listed for $960,000 after first going to market at $1.05m.

“Whereas it could be good to have a shiny new kitchen and toilet, there’s a vital draw back worth danger as the provision of land for additional growth is plentiful,” Mr Harvey stated.

“In a market the place costs are declining, there’s a settlement danger for the customer in the event that they uncover that the worth paid for the unit has declined considerably.”

For example, Mr Harvey stated somebody who purchased a unit for $650,000 however found it was solely value $585,000 when it got here time to settle the property must stump up the distinction – on this occasion: $65,000.

“This could possibly be a significant issue for some cash-strapped consumers,” he stated.