It is not all bad news for the unit market – Nerida Conisbee

It is not all bad news for the unit market – Nerida Conisbee

 
Investors and foreign buyers of Australian residential property are being hit hard by two forces, with the apartment market already feeling the heat. While money is cheap, getting access to funds is getting more difficult for local investors and foreign buyers. Foreign buyers are also being hit by additional taxes that are now being implemented in Victoria, New South Wales and Queensland.
Given that these groups account for well over 50% of all new apartment purchases, restrictions to finance and new taxes are going to hit the apartment market harder than other forms of housing, such as established dwellings and house and land packages.
It’s likely that most apartment markets will continue to see demand; however, there are three criteria that put a suburb at risk, and these are detailed by Nerida Conisbee.

Transcript:

Kevin:  Investors and foreign buyers of Australian residential property are being hit hard by two forces, with the apartment market already feeling the heat, but it’s simplistic to assume that all apartment developments are at risk. While money is cheap, getting access to funds is getting more difficult for local investors and foreign buyers. Foreign buyers are also being hit by additional taxes that are now being implemented in Victoria, New South Wales and Queensland. This is from an article within The Australian, written by Nerida Conisbee.
Given that these groups account for well over 50% of all new apartment purchases, restrictions to finance and new taxes are going to hit the apartment market harder than other forms of housing, such as established dwellings and house and land packages. It’s likely that most apartment markets will continue to see demand; however, there are three criteria that put a suburb at risk, and these are detailed in the article within The Australian written by Nerida Conisbee who joins me.
Nerida, thank you very much for your time.
Nerida:  Thanks, Kevin. Thanks for having me on.
Kevin:  What are the three criteria?
Nerida:  The first one is the amount of supply. Areas where we’re seeing very elevated levels of supply compared to population growth will be the most hit. The second is the number of offshore buyers. Given that this group is the most affected by financing restrictions and additional taxes, those areas that attract high levels of offshore buyers will also be impacted.
And thirdly, the cost of apartments is the third criteria that puts a suburb at risk. What we’ve found is that buyers of lower-priced apartments are going to be hit harder than those buying more expensive apartments.
Kevin:  These areas that are going to be hit in this way, how will we see that? What will we see in the market, Nerida?
Nerida:  We’ll start to see rental levels drop as they struggle to get tenants for those apartments. Already, in markets such as Melbourne’s CBD, we’ve started to see rental levels flatten out. We’ll also start to see prices drop, as well. Again, the resale values will probably be reduced, as well, because remember that with offshore buyers that can only buy new apartments, so that secondary market becomes a little bit problematic.
Kevin:  Is purchaser default another area that we should be concerned about?
Nerida:  Definitely, because if you have a look at a lot of these apartment developments, the purchasers have put down deposits on the apartments but they haven’t completely paid for the apartments. So as these projects complete, we do expect to see a higher risk of default. We’re not seeing it at the moment, but I think there are quite a few concerns – particularly by the banks – that we will see a higher level of defaults.
Kevin:  I’d love to get your feedback on this, do it on the website. There is an opportunity for you to make some comment just below the text version of this interview with Nerida Conisbee. Give us your thoughts: what are you thinking about the apartment market?
Nerida Conisbee is chief economist at the REA Group, owner of RealEstate.com.au, and has written an article in The Australian. Nerida, thanks for your time.
Nerida:  Thanks, Kevin. Thanks for having me on.

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