Inner city apartments in Melbourne are suffering from a glut of oversupply. Analysts are concerned that prices in these CBD dwellings could fall as a result.
Docklands and Southbank, where inner city apartments are prevalent and growing, are recording a vacancy rate of 7 per cent and that is well above the 3 per cent that is considered a good balance between landlords and tenants.
There are plenty of apartment developments still on the boil and managing director of real estate researcher BIS Shrapnel told The Age there could be in excess of 2000 apartments to demand in Melbourne’s CBD.
“To me this is a classic cycle where everyone is overdoing it,” he said.
And the inner city apartment over-supply isn’t limited to just Melbourne. While the vacancy rate in Sydney is currently at a satisfactory 2.5 per cent, it could start rising later this year according to Louis Christopher from SQM Research.
According to Mr Christopher, prices and rents in areas such as Chinatown and Broadway in Sydney’s central district may start coming down due to rising development approvals and low rental yields for apartments.
Applications for over 1500 apartments are expected for inner city Sydney in the next few months and building work is anticipated to begin on some of them before 2015.
The big risk is for first home buyers who buy an apartment with a small deposit and prices fall putting them into a negative equity situation where the property is worth less than the mortgage.
Buyers need to be extra cautious considering interest rates are at record lows and will no doubt be on the rise eventually.