Published: 10:00 BST, 16 September 2020 | Updated: 12:29 BST, 16 September 2020
Investors are being warned not to buy an apartment in four areas across NSW due to an oversupply of new developments.
Parramatta, Mascot and Rouse Hill, in Sydney, are predicted to have a 13 per cent increase in the number of apartments in the next two years
Gosford, on the NSW Central Coast, is expected to have an extra 1,900 apartments built creating a 73 per cent increase on the current number of units.
The oversupply has the potential to cause ‘dangerous’ price reductions for people looking to buy a unit off the plan.
Experts have revealed an oversupply of apartments, like in Mascot (pictured), Parramatta and Rouse Hill would have an impact on investor confidence because it creates ‘dangerous’ price reductions in property value
RiskWise chief executive Doron Peleg said the impact of the COVID-19 pandemic, which has caused a drop in rent prices and buyer demand, was also a key factor.
Mr Peleg said falling rental income coupled with a rise in tenant vacancies was reducing the incentive for investors.
He said the sector took a hit with recent high profile cases where defects were found in some new apartment buildings.
He said as a result many investors are turning to home and land packages because of the ‘high land-to-asset ratio’.
Mr Peleg said the equity and cash flow risks for apartments were both expected to ‘materially increase’, which would create an enormous risk for buyers.
Buyers Buyers’ co-founder Pete Wargent said the risks in oversupplied suburbs were compounded by border closures due to the COVID-19 pandemic.
He said as a result of the lockdown there were less tourists and international students to take up tenancy in apartment blocks.
RiskWise chief executive Doron Peleg said a drop in rental prices and buyer demand, as a result of the COVID-19 pandemic, was also a key factor in investors avoiding apartments in oversupplied suburbs (Rouse Hill pictured)
‘Over the medium to longer term, it’s the land value component of the asset that does the heavy lifting for you and, therefore, buyers should look for a high land-to-asset ratio,’ he said.
Meanwhile, propertybuyer.com.au CEO Rich Harvey told the publication it made ‘no sense’ to buy an apartment in ‘outer suburban’ areas.
‘While it may be nice to have a shiny new kitchen and bathroom, there is a significant downside price risk as the supply of land for further development is plentiful,’ he said.
‘In a market where prices are declining, there is a settlement risk for the buyer if they discover that the value paid for the unit has declined significantly.’
Many investors were turning away from apartments, especially in oversupplied areas, and instead were starting to invest in home and land packages because of the ‘high land-to-asset ratio’ (Parramatta pictured)
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World news – AU – The suburbs you SHOULDN’T invest in