A leading real estate figure has issued a warning over the apartment boom in Australia’s largest city, arguing that falling rents and increasing vacancy rates are only the beginning of investors’ woes.
Douglas Driscoll, CEO of real estate group Starr Partners, has warned that Sydney’s apartment boom has changed the dynamics of the supply and demand equation, with increasing demand for freestanding houses set to fragment Australia’s property market.
Mr Driscoll believes that the investor-driven property boom has inflicted serious damage upon Australia’s housing diversity and is set to divide the future buying population on socioeconomic grounds. Average home buyers face the prospect of no longer having the option to buy a detached dwelling, but having plenty of stock to choose from in the apartment market.
“We are forcing buyers into considering apartments because the reality is that they have very little other option in a semi-affordable price range.
“There’s an apartment boom but where is the foundation? If we look at supply and demand a year ago, apartments were in demand mainly because of the investor boom and many owner-occupiers were priced out of purchasing a family home,” he said.
Mr Driscoll argued that increasing vacancy rates and recent slow-downs in rental growth are signs that Sydney’s apartment market is approaching oversupply – warning that houses and apartments will not attract the same value growth in the future.
“We are starting to see some ill effects from an oversupply of apartments, such as rents falling for the first time in three years, as well as vacancy rates rising. A number of reports show that this is already happening, but this is not the only issue. There are also huge socioeconomic issues that will arise from this boom.”
Mr Driscoll believes that the focus on providing apartment designs to “feed the investor boom”, instead of to owner-occupiers seeking low-maintenance properties, is set to compound the issue.
“What I want to know is are we building the right course for the right horse? Think about housing diversity five years ago and look at where we are heading by 2020: we’ll have a remarkable number of apartments by then. The size and scale of this issue is much bigger than we even realise,” he said.
Mr Driscoll’s comments come as The Australian Financial Review reported yesterday that apartments in Melbourne’s CBD – long touted as an area of apartment oversupply – are being revalued at up to 23 per cent less than their off-the-plan purchase prices.
AFR reported that in one case, a two-bedroom, one-bathroom unit purchased for $740,000 on 3 August last year was revalued at $600,000 (a 23 per cent discount) 16 days later.