While concerns about oversupply have been raised in the past about Sydney’s inner city suburbs, one market researcher believes the issue is much more widespread.

According to analysis by market researcher and buyers’ agency Propertyology, 18 of Sydney’s 43 local government areas currently have a property supply pipeline that is 100% higher than historical averages, while another 10 Sydney LGAs have a pipeline of supply that is 50% above what is needed.

Propertyology’s figures claim the average number of new dwellings approved in Greater Sydney each year for the 10 years ending 2011 was 22,555, while in the four years from 2011 – 2015 approvals have averaged 38,225 per annum.

Simon Presseley, market analyst with Propertyology, said Sydney’s current supply pipeline is out of sync with demand.

“Sydney is about to enter new territory. Its average annual population growth rate has consistently hovered around 1.6% but supply is really ramping up – things are out of sync,” Presseley said.

“The trend is not abating either. A further 51,106 dwellings were approved in 2015,” he said.  

“The official data analysed by Propertyology leaves us in no doubt that several pockets of Sydney will become over-supplied.”

Pressley said economic conditions in Sydney will help its property market retain some strength; however some owners should be ready to see price falls, especially in areas of dense development and where foreign investors are prominent.

“The significant increase in property holdings to Asian investors does pose some risk if significant destabilisation in Asian economies were to occur” he said.

“We know that, when times get tough, investment properties are often one of the first assets disposed of in order to bring the household budget back in order. High levels of resale stock never plays out favourably on property prices.

“Some off-the-plan buyers with settlements due in 2017 and 2018 also risk losing their deposit as a result of tighter credit policies subsequent to the initial exchange of contracts or lower valuations in some of the potentially over-supplied pockets of Sydney.”

While Presseley believes there is a looming oversupply issue for Sydney, not everybody is so sure the city will see the tens of thousands of new dwellings predicted for city actually appear.

Mark Mendel, chief executive officer of off the plan property marketing firm iBuyNew, believes approval numbers often skew people’s perception of the supply pipeline.

“A lot of developments actually aren’t proceeding. While there might be a very high number of approvals, a lot of developers are struggling to get the finance they need or the presales they need because the banks keep moving the goal posts,” Mendel told Your Investment Property.

“So what you’ll find is that while there are a lot of approvals in place, a lot of those developments won’t happen. People should be looking at project starts, not approvals,” he said.

Mendel isn’t the only one who believes oversupply concerns for Sydney may be overblown, with Domain Group senior economist Andrew Wilson saying conditions are still stable in the city.

“If we look at unit prices versus house prices [in Sydney], you can see they’re clearly tracking each other. It’s the synchronisation of the macro drivers of those particular sub markets. If we saw units behaving differently to houses it would mean we had a structural disconnect, not a cyclical disconnect,” Dr Wilson said at the Mortgage & Finance Association of Australia Broker 2020 Conference last week.

“Units are operating in the same cyclical environment as houses. If we had an oversupply we would see a differential in that market, but we don’t. If I showed you the Brisbane model of this you would see that has a clear disconnect. There is an oversupply of apartments in Brisbane and it is pushing prices down and that is a structural disconnect,” he said.

“The Sydney market, clearly on the price data, doesn’t have that same relationship."