RBA Cautions About Rapid Growth Rate Of New Apartments

The Reserve Bank of Australia cautioned about the impact of the fast rate of high-rise apartment development in many of Australia’s metropolitan areas to the nation’s real estate sector. The RBA stated in its recently released Monetary Policy Statement that the rising concentrations of apartments in Brisbane, Melbourne, and other metros could result in excessive supply. According to a report by The Australian Broker, local area prices in the nation would feel the greatest effect of an oversupply. This situation would then result in lower apartment costs, which would, in turn, cause developers to suffer great losses. RBA also warned about the supply glut that currently exists, a condition that could be made worse by developers who would not be able to adapt to the weaker demand. The failure to adjust could arise from the fact that they have to go through extensively long processes when developing an apartment. Companies that plan to build just one apartment will have to one year and a half. The duration is three times longer than building detached houses and twice as long as creating a townhouse. The RBA also emphasized that the situation of the overall housing supply would become more unpredictable due to the long gap between securing an approval for the proposal, development of the structure, and the completion of the project.

The Property Observer reported that residential building approvals increased by 50% in terms of their long-term average over the past 24 months. Despite this reported figure by the central bank, a slowdown in the sector was also noticed. But, this won’t affect the sector that much. Dwelling investments will continue to soar because of the several projects that are currently in the pipeline.

Sydney Faces Risks

Sydney was not mentioned in RBA’s monetary policy. That may be true but, it does not mean that they are out of danger. The city is still at risk, especially in its inner city suburbs. Herron Todd White or HTW, a valuation company, showed in its latest update that there are certain valuations that failed to reach the plan prices during their settlement. This happened in suburbs with concentrated new projects, which has led to a huge difference between the prices of newer and older style units. HTW also said that this trend was typical in a few second tier suburbs in Western Sydney and in the northern suburbs. Other areas are also in danger of excessive supply and these include Wentworth Point, Carlingford, Epping, Olympic Park, Macquarie Park, and Parramatta.

Economists Share Similar Fears

Three of Australia’s four biggest metropolitan areas are expected to face excessive supply of apartment buildings. According to the survey performed by comparison website Finder, 26 housing experts and economists have a great feeling that this is oversupply is already happening in Brisbane and Melbourne. Three-quarters of those who believe that this is already happening also said that Melbourne is currently swamped with residential units. Despite these concerns, the city is still on track to completing 140,000 apartments until 2018.

Among the industry professionals who took part in the survey, 70% of which believed that Brisbane is facing a similar problem. About 40% of them think that Sydney is facing an oversupply. Because of all these expectations, they also predict the prices to drop by as much as 20% in a few suburbs by 2018. The plunge would be a $140,000 decline from the median price of a Sydney apartment, $90,000 in Melbourne, and around $70,000 in Brisbane.