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Report challenges “persisting oversupply myth” for Melbourne apartments

 

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Graphic taken from Charter Keck Cramer, Residential Apartments in Melbourne’s CCR (32nd Edition)

For months the Australian media have regularly touted tales of Melbourne’s ‘risky’ apartment market. Words such as ‘oversupply’ and ‘apartment glut’ have been used to create a furphy that has permeated the industry and left investors feeling uncertain and nervous.

However this week leading property advisory and research firm Charter Keck Cramer have released their State of Market Report for the Melbourne Central City Region (CCR), which opposes the notion that the market is at risk. The report includes a range of findings from the 15/16 financial year that “challenge some of the broadly held perceptions” about the market’s status and suggest mislabelling it as oversupplied is “incorrect and too simplistic.”

Yes, there has been an unprecedented amount of both supply (completed apartments) and future supply (apartments in new marketed projects) over the past 12 months. What most articles don’t mention though is that this supply has been matched with unprecedented levels of purchaser demand. The primary (purchaser) market is stronger than ever, whilst the secondary (renter) market has remained stable with vacancy rates tightening since January 2016.

Whilst there has been an influx of recent project releases, many of these have yet to proceed to construction. The report indicates that some of these projects will not eventuate for  a variety of reasons, which will diminish the anticipated levels of future stock and thus ensure consistent demand.

Fears of oversupply have only been exacerbated by a reactive government who have attempted to cool the market with increased taxes and FIRB restrictions for foreign investors. This, combined with stricter lending policies from banks and restrictions by the Chinese government on capital outflow, may well slow the market. However it is important to note the the report shows “evidence of significant settlement defaults is yet to emerge.”

Regardless of these measures, there are various market and other factors that maintain Australia’s leading status as a prime investment destination for foreigners. The report also points to recent changing foreign investment regulations in similar markets (such as Vancouver and Auckland) that are “likely to have a positive effect for the flow of investment into Melbourne.”

When looking at the future of Melbourne’s apartment market, investors should be careful to balance the facts against the fear mongering.

More information, including how to access the full report, can be accessed here.

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