Following on from a range of concerns that have already been raised about off the plan sales this year, Douglas Driscoll, from real estate agency Starr Partners, believes people may begin to consider their prospective purchases as being overvalued.
“In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins. As market levels fall away slightly, some developers might struggle to cover costs,” Driscoll said.
“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,” he said.
Driscoll described that course of action as “knee-jerk” and he wouldn’t recommend it, but Mark Mendel, chief executive officer of off the plan consultancy firm iBuyNew, believes Driscoll’s prediction is a little off target.
“I think we would only see that if prices in Sydney had a rapid fall. If you look at the history of Sydney property cycles we have a period of strong growth for three or four years and then a period of six or seven years where things slowdown a bit,” Mendel said.
“I don’t think people are at the point where they’re ready to lose their deposits, I mean something like $70,000 or $80,000 is a lot of money. I think people will be more likely to take the rental return and wait until capital growth picks up again,” he said.
While he doesn’t predict that projects are going to be suddenly hit by people walking away, Mendel does believe there will be some projects that never eventuate.
“I think we’ll see a drop in the level of activity. A lot of the developers who bought sites on option aren’t going to go through with it and they’ll hand the land back.
“We’ll see construction drop off, but the bigger boys in areas like Green Square will keep going though.”
While construction activity has been high as developers have looked to cash in on the boom, Mendel doesn’t believe there is much chance of Sydney having any oversupply issues.
“Population growth is still strong enough that there’s room for more housing.
“We might see some little pockets of oversupply, but in places like Melbourne or Brisbane there has been a lot more apartments go up and they’re still selling. Vacancy rates there may be a little higher, but they’re nothing terrible.”
Property valuation firm JLL predicted earlier this year that Sydney will see over 60,000 new aprtments from 2015-2017.
