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When property investors hear oversupply, chances are an oversupply of units come to mind. However, the head of a real estate consultancy firm says more attention should be placed on the oversupply of houses instead as it’s having a knock-on effect on lending.
Recent fears from investors with risky portfolios about cuts to lending are in large part due to the effects of oversupply, Ayda Shabanz, managing director of Grow Consulting Group has said.
“APRA has revealed an increase in higher risk loans in the past three months and is now trying to rectify that by putting pressure on lenders. This situation is obviously a huge concern particularly to investors who are on interest-only arrangements and have high loan to value ratios,” Ms Shabanz said.
Ms Shabanz, however, does not mean an oversupply in the unit market, but in the housing market due to land supplies, a trend she has noticed across the country.
“For the past decade, a large amount of new developments and parcels of land are being sold, cropping up further and further away from the city as the population increases,” Ms Shabanz said.
Going back to the tried and true economics of supply and demand, an area’s profitability goes further when supply is low and demand is high, but these developments are able to increase the levels of demand.
“Another developer could sub-divide his parcel of land and build brand new property on it to sell for the same price you are asking,” Ms Shabanz said.
“Buyers then have the choice of a brand-new home over your older one. This scenario decreases demand for your home, which results in no gains on value until the land supply diminishes.”
With the oversupply of houses, Ms Shabanz suggested apartments should not be counted out, as they typically are located in areas of high demand, higher than the demand for land.