RBA raises Melbourne and Brisbane oversupply concerns

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The possible impact of oversupply in two of Australia’s biggest capital cities has again come to the fore.

In their Financial Stability Review released last week, the Reserve Bank of Australia noted that some risks that have been present in the Australian housing market may have decreased as price growth slows in Melbourne and Sydney and investor demand for finance reduces.

“Recently there have been tentative signs of some slowing in the Sydney and Melbourne housing markets: auction clearance rates have fallen and price growth has eased in Sydney of late,” the RBA review said

“Over recent months, lenders have announced changes to a range of price and non-price lending terms and conditions to strengthen lending practices and respond to supervisory expectations. Since then, there have been tentative signs that investor demand has started to cool.”

But while the risk posed by those factors may have minimised somewhat, the RBA still holds concerns about the level of construction spurred on by the price boom.

“While the housing market remains a long way from oversupply nationwide, some geographic areas appear to be reaching that point, particularly the inner-city areas of Melbourne and Brisbane,” the RBA said.

“Apartment approvals remain at very high levels in these areas, even though these rental markets already look soft; apartment prices have been little changed in the past year, rental vacancy rates are relatively high and growth in rents is subdued.”

While the RBA is concerned about Brisbane, Ian Hosking Richards, chief executive officer of Rocket Property Group, believes the RBA is being too broad.

“You need to take a closer look at what’s happening in the city, I don’t think it’s helpful to say that Brisbane is over supplied or Melbourne is over supplied,” Hosking Richards said.

“If you look at Brisbane, a suburb like Newstead probably has too many apartments coming online, but somewhere like Greenslopes, which is still in the inner-city, there is demand that is really outstripping supply,” he said.

For the areas that might be hit by oversupply, Hosking Richards said that is a common occurrence when a market is performing strongly.

“When things are running along, there’s always going to be a few people who get carried away. They see demand growing and try and cater for it and end up overshooting.

“But if you’re careful and you know what’s in the pipeline in a particular area and know what tenants are looking for then you can still find properties that will perform well.”

While Hosking Richards is not very concerned about the RBA’s predictions, some experts have begun to raise the alarm.

Paul Osborne, founder of Melbourne-based buyer’s agency Secret Agent, previously described the number of apartments being built in Melbourne as a “headwind” the city was facing.

“In the City of Melbourne there’s 3,000 individual apartments under construction and that will be 17,000 in 2017, and that’s just in the few suburbs in the middle of the CBD. That’s a huge jump,” he said.
 

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Comments
  • Jo says on 19/10/2015 03:04:32 PM

    ' I don’t think it’s helpful to say that Brisbane is over supplied or Melbourne is over supplied' - I bet it's not at all helpful for his business for the RBA to say that!

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