Commonwealth Bank raises oversupply concerns for Brisbane and Melbourne

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Oversupply fears for the Brisbane and Melbourne apartment markets have again reared their head, with a major bank claiming it could be years before the flood of supply is absorbed.

According to an article in Fairfax media yesterday, the Commonwealth Bank’s Commbank Property Insights Summer Edition estimates Australia’s major capital cities have 80,000 apartments under construction, with another 117,000 approved or being marketed in off the plan deals.

Like the Reserve Bank of Australia claimed earlier this year, the report claims inner city Brisbane and Melbourne are likely to be the two markets most affected by the increase in stock.

“These two locations will be subject to rising vacancy and reduced rents, leading to drops in property values and greater settlement risk," Kevin Stanley, CBA’s corporate financial services head of property strategy and research, said in the report.

"It’s likely to be a number of years after the 2017 peak of completions before population growth can absorb these new apartments, so vacancies can return acceptable levels and allow positive growth in prices and values,” Stanley said.

The report predicts Melbourne could see up to 120,000 new apartments over 734 projects completed in the next two years, while Brisbane could see 34,000 apartments across 192 projects.

Sydney could see 88,000 new apartments across 538 projects in the next two years, but the report claims there is a more even distribution in the harbour city with only 7% located in the CBD.

While Sydney is not identified by Stanley as being as at risk of the impact of oversupply, concerns have been raised about its apartment market too.

Last week Sydney real estate agent Douglas Driscoll said he wouldn’t be surprised if investors began to walk away from deposits on unbuilt apartments.

“Towards the end of 2016 we might start to see some investors potentially walk away from their deposits because they perceive that they paid too much for it in 2015 and see that it’s no longer worth the risk,” Driscoll said.

According to Stanley, if all of the apartment projects currently in Australia’s construction pipeline are completed, the country would have enough supply for the best part of a decade.

"Based on the current population growth, this pipeline is sufficient to see construction continue apace for the next seven years," he said.
 

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