Beware: 10 suburbs that are at risk of unit oversupply

By Gerv Tacadena | 26 Oct 2021

Experts at BuyersBuyers cautioned about off-the-plan “spruikers” that may advise investors and buyers to buy in areas at high risk of oversupply.

BuyersBuyers co-founder Pete Wargent said the property industry is currently "awash with the promises of easy gains".

"When housing markets are rising, we tend to see the proliferation of spruikers recommending their 'free' services to investors," he said.

"The model often involves a one-stop-shop of advisors recommending off the plan units or apartments to investors, sometimes with rental guarantees and other offerings included to encourage consumers to take the plunge."

Mr Wargent said sale pitches from these “spruikers” are usually based around tax benefits and rental guarantees, a model that is considered flawed.

"What is less promoted is that the advisor is remunerated by lucrative commissions from the developers selling the new stock," he said.

"The problem is that we know that new units have systematically underperformed from an investment perspective, and when the investor comes to sell, there is an increased risk of loss on resale because they are then selling a second-hand property that has lost its shine and newness premium."

This is a pressing problem, particularly in suburbs with the highest risks of oversupply.

RiskWise Property Research CEO and BuyersBuyers co-founder Doron Peleg said the closure of international borders has left some suburbs vulnerable, particularly those with a lot of new units in the pipeline over the next two years.

"Statistically buying off the plan comes with more risks, including construction defects, pre-settlement valuations coming in lower than the contract price, and ultimately a statistically higher risk loss on resale," he said.

"These risks are compounded if you buy into a potentially oversupplied market, of which there are some in all states.”

The following are 10 suburbs that have the highest risk of unit oversupply:

What investors should do

Mr Wargent urged investors to be wary of free advice and services.

“If you're not paying, you are not the client - someone else is. That someone effectively pays for the marketing campaign and the advisor's sales commissions,” he said.

For most of these “spruikers”, they get to earn 5% of the contracted sales price of properties.

Mr Wargent said it is best to stick to established properties, as they carry lower level of risks and are statistically likely to provide with greater capital growth.

“Do your own research, or if you can't perform your research or find and negotiate on a property, then hire someone independent to work on your side with no conflicts of interest,” he said.

“Don't engage with a property salesperson or advisor who provides their services for free.”

Photo by Hiroshi Kimura on Unsplash.

Top Suburbs : dulwich hill , newtown , alexandra hills , trott park , new farm

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