It seems wherever you turn right now property investors are being singled out as the cause of pretty much everything to do with real estate. From escalating dwelling prices causing the latest affordability crises to above average clearance rates and everything in between, whether you’re a local property punter or an international player, chances are you have been part of the catalyst for the latest ‘record high’.
Okay, perhaps that’s a slight exaggeration, but investor activity is certainly being scrutinized closely and with great interest in particular from property developers.
Favourable market conditions often bring construction companies out of the woodwork, as they crank up the wrecking balls and look to cash in on renewed buyer activity. And this upward swing in the cycle is no different.
Sydney and Melbourne are the usual suspects when it comes to high-rise apartment booms. So it’s not surprising to learn that historically high numbers of apartments are currently being built in Victoria’s capital city than at any other time.
According to recent development activity data from the City of Melbourne, almost 6000 new dwellings have been completed or are set to come on line by the end of this year, which is nearly three times the annual average over the past decade. A further 5,774 properties are due for completion in 2015, with much of these concentrated around the CBD, Docklands, Southbank and Carlton.
Too much, too soon
Experts suggest that off the plan developers are creating a worrying glut of ‘investor grade’ (read ‘cheap’) high rise stock to profit from recent spikes in investor demand, particularly from offshore interests.
According to some local real estate agents, overseas developers are responsible for around 40% of all new stock set to grace the Melbourne skyline over the next 12 months.
BIS Shrapnel’s senior manager Angie Zigomanis has warned this is creating the very real potential for a dangerous oversupply that will catch out unsuspecting off the plan purchasers.
He told the Sydney Morning Herald recently, “If you’ve bought something new, off the plan today, I suspect you’ll find…three years from now, it’ll be less than what you paid for it if you tried to resell it.”
Sydney to follow suit?
Not to be outdone by its ‘little sister’, the Harbour City looks set to take on an expanding number of high-rise projects of its own in the not too distant future, if proposals to rezone numerous areas in and around the CBD for higher density development are any indicator.
Although the New South Wales government can look forward to an avalanche of opposition to the multi-storey residential towers they’re making way for, as local residents fight against the inevitable traffic congestion and extra burden on existing amenity such as schools and hospitals, they are pushing forward with the intention of boosting housing supply and improving affordability.
Much of the changes in the tightly constrained city are set to occur in three new areas along the future North West Rail Link in Sydney’s Hills district, which are being touted as ‘Urban Activation Precincts’.
Meanwhile in the Sunshine State, veteran developer David Devine is in the throes of negotiating a sale on the South Brisbane former TAFE college site he paid $22million for last December. It’s expected the Chinese group he is in negotiations with will take the parcel off his hands to build a new apartment complex, for the tidy sum of $46million.
Devine’s company Metro Property Development is itself responsible for 1465 new apartments currently under construction in the Brisbane CBD, with a further 1000 in the planning stages.
Buyer beware
While there is no denying that Australia needs further accommodation to house our growing population, particularly in and around our perennially popular major cities, investors should tread carefully when considering an off the plan purchase of this type.
Much of this generic stock can cause headaches when it comes to obtaining mortgages, with values often falling at completion due to the high volume of product coming on line all at once. In turn, the banks can leave you high and dry if they decide the risk is just too great or if your LVR ends up pushed beyond capacity.
Then there’s the competition you face when finding a tenant, along with the other 500 landlords in your building, and the ‘investor grade’ construction that sees these monoliths quickly lose that ‘new building lustre’ and in turn, favour with anyone but the cash strapped overseas student population.
In reality, the only profit made from this type of stock is generally that of the quick turnaround developers who reel you in with glossy marketing and the promise of enticing minimum deposit deals.
Don’t get me wrong; inner city apartments can be goldmines for investors. But as with everything, you need to know what you’re buying into and make sure it ticks all of the necessary investment boxes. Otherwise, you run the very real risk of ending up with a lemon in your portfolio.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).