Suburbs with apartment prices below peak,
Unit values are currently lagging behind their peak in several suburbs of Sydney and Melbourne.
This trend is particularly evident in areas with significant new apartment developments.
During the investor-driven boom of the 2010s, a surplus of homes was created.
These properties often prove less suitable for long-term owner-occupiers, which impacts price growth.
As a result, even amidst a housing crisis, owner-occupiers are not actively bidding up prices.
According to new analysis by CoreLogic, there are 65 unit markets in Sydney and Melbourne where values remain below their record highs.
In some of these markets, vendors are facing losses when selling their units.
For example, in Epping, Sydney, the median unit value is currently 18.4 percent lower than its peak in May 2017.
Similarly, Sydney Olympic Park has experienced a decline of 14.8 percent in median unit value.
This area notably includes Opal Tower, which was evacuated due to cracking in December 2018 before repairs were completed.
In Melbourne, the CBD is 8.4 percent lower than its peak in May 2017.
Additionally, Southbank has dropped by 4.2 percent, while Docklands is down by 5.1 percent.
The most significant decline in Melbourne occurred in East Melbourne.
Here, the completion of luxury apartments at The Eastbourne previously inflated the median value.
Eliza Owen, CoreLogic’s head of Australian research, noted that many units were developed primarily for investors during the off-the-plan apartment boom.
Consequently, these properties are often not appealing to owner-occupiers, which affects demand and prices.
Suburbs with the largest declines in median unit values from their peak.
| Suburb | Difference from peak | Peak date | Current median |
|---|---|---|---|
| Epping, NSW | −18.4% | May, 2017 | $797,796 |
| East Melbourne, VIC | −17.2% | Nov, 2018 | $737,686 |
| Beecroft, NSW | −16.5% | Oct, 2017 | $968,057 |
| Abbotsford, VIC | −16.0% | Apr, 2017 | $534,165 |
| Sydney Olympic Park, NSW | −14.8% | Jun, 2017 | $748,964 |
| West Melbourne, VIC | −13.9% | Jan, 2018 | $515,858 |
| Kensington, VIC | −13.5% | May, 2017 | $548,655 |
| Granville, NSW | −12.8% | Sep, 2015 | $523,568 |
| Middle Park, VIC | −12.5% | Jun, 2017 | $807,790 |
| Armadale, VIC | −12.4% | Apr, 2018 | $658,967 |
| Merrylands, NSW | −12.2% | Oct, 2017 | $513,593 |
| South Melbourne, VIC | −11.9% | Dec, 2017 | $593,455 |
| Cairnlea, VIC | −10.8% | Apr, 2018 | $444,903 |
| Harris Park, NSW | −10.7% | Sep, 2015 | $478,481 |
| Parramatta, NSW | −10.2% | Jun, 2017 | $611,537 |
| Guildford, NSW | −10.1% | Oct, 2017 | $480,669 |
| Parkville, VIC | −9.9% | Jun, 2017 | $590,799 |
| Burwood East, VIC | −9.9% | Jun, 2017 | $689,698 |
| Regents Park, NSW | −9.9% | Sep, 2017 | $484,785 |
| Chatswood, NSW | −9.7% | Jul, 2017 | $1,151,473 |
In 2015, the share of new housing finance allocated to investors reached a record high of 46 percent.
However, this figure dropped sharply after bank regulators imposed restrictions on property investment lending last decade.
Once the pandemic began, the share fell below 25 percent.
This decline contributed to a construction boom in units during the last decade.
Apartment approvals peaked at 123,000 in the year ending August 2016.
According to experts, there is now an oversupply of relatively affordable properties in Sydney and Melbourne.
Nevertheless, these properties often do not meet the current needs of buyers.
This mismatch arises because the developments were aimed at a specific buyer demographic during a particular time period.
As the cycle matured, it became evident that many homes were not suitable for living.
In extreme cases, this situation was highlighted by the issues faced by Opal Tower.
The influx of new supply did lead to a reduction in rental prices.
However, many of these new apartments tend to be smaller units located near universities or city centers.
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“They unfortunately represent a waste in some of Sydney and Melbourne’s most valuable locations, especially amid a housing crisis,” Owen stated.
She emphasized that governments should learn from this situation as they work to boost the supply of new homes.
“Focusing solely on housing as a wealth-generating asset can negatively impact the quality of life for residents,” she explained.
This narrow perspective can also lead to underutilization of available housing, which is a significant concern.
“The ideal supply should accommodate various household types, ensuring long-term livability,” she added.
This includes options for both wealthy downsizers and young families seeking sufficient bedrooms and outdoor spaces.
Residential property expert Angie Zigomanis pointed out that new apartments often command a premium due to their novelty.
Moreover, these properties offer depreciation benefits, yet they tend to perform poorly in price during their first resale.
“Domestic investors are currently below their levels from 2017 and 2018,” he noted.
Additionally, there are significantly fewer overseas investors contributing to market demand.
He indicated that potential investor buyers are now more practical regarding rental prices compared to their higher mortgage repayments.
Many units currently available are small and have suboptimal layouts.
For instance, some feature borrowed lights in bedrooms or open directly into living rooms rather than hallways.
Additionally, many lack balconies, which diminishes their appeal.
“Building more desirable apartments will require higher investment,” he remarked.
These larger units are less efficient, making it challenging to maximize the number of apartments on a site.
This poses a significant challenge for developers aiming to maintain affordability while enhancing quality.
Buyer’s agent Rich Harvey, CEO of Propertybuyer.com.au, mentioned that units can still be excellent investments in certain areas.
Particularly in locations with limited rezoning potential, high supply tends to pressure prices downward.
Units with desirable features, like art deco style, balconies, and internal laundries, can be particularly valuable.
“I believe higher rezoning around transport nodes is a beneficial idea for the state government,” he suggested.
“However, the design of these units should be of utmost importance.”
He expressed a desire to see design competitions that prioritize spacious floor plans, study nooks, and natural light.
Cross ventilation is another feature he believes should be integral to new developments.
