Melbourne and Brisbane apartments selling at a loss

Melbourne and Brisbane apartments selling at a loss

31 March 2017

 

Surprising numbers of apartment investors are selling at a loss in Melbourne and Brisbane, reports The Australian.

Since 2011, some 60 percent of apartments purchased off the plan in inner Melbourne are breaking even or reselling at a loss. Brisbane is feeling the heat too, with 40 percent of resales losing money, notes a BIS Oxford Economics report.

On a brighter note, the Sydney apartment market is still booming, with only 4 percent of apartments reselling at or below the original purchase price.

Some property developers fear that the poor results in Melbourne and Brisbane could spook potential investors who fear that tougher times are ahead, especially in a climate of higher bank mortgage rates and stricter lending criteria.

Veteran realtor, Kevin Seymour (Seymour Group), recently investigated the Brisbane inner-city apartment market to identify selling locations that were strong or soft.

Seymour discovered that 90 percent of new units in two inner suburbs, Fortitude Valley/Bowen Hills and Newstead, had resold at a loss over the past two years. Most of the apartments were sold by investors.

“It’s no good building in the face of what is a disaster for resales,” Seymour told The Australian.

Nevertheless, Seymour also unearthed some good news. Some boutique projects in Newstead featuring larger apartments generally saw values rise.

“There is some good buying there (Fortitude Valley), but it will take a couple of years to soak up the surplus,” Seymour said.

He also noted that investors could face “fiercer headwinds” as banks increase their investor lending rates.

According to Seymour, smaller developers are finding it increasingly difficult to get traditional funding from banks. On the other hand, he noted that new tiers of non-bank lending are emerging, backed by high net worth investors and second tier lenders.

Melbourne’s building cycle is expected to peak this year at 18,350 new high-rise apartments, compared with 13,453 last year. Brisbane will see 10,350 apartments completed this year, double last year’s 5,435 high-rise apartments.