A senior economist has stated that the glut of excess supply of apartments in cities like Melbourne, Sydney, Brisbane and Perth is likely to drive “significant increases in vacancy rates” over the next 12 months.
BIS Shrapnel Managing Director Robert Mellor stated that "even though demand for property is weak, we have a record number of dwelling construction supply" (or over-supply)
There are several reasons why demand for apartments has declined, these include:
- Demand for apartments will likely get weaker with lower population growth over the coming 12 months
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Not enough demand to meet the significant surge in dwelling construction
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Demand for apartment dwellings is weaker today than it was two years ago
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There is falling overseas migration, who are usually popular purchasers of these types of properties
This is a view of many economists over the last couple of years. Some cities in Melbourne may have peaked in the quarter (July to October 2016) and demand may start to decline from the December quarter onwards.
There is still a lot of supply and this supply will continue to come onto the property market well into the second half of 2019. A property developer will always think from the point of view of sales to an investor, but a property investor should ultimately be more interested in who is occupying the property, unless they have a massive increase of property investors that are prepared to have vacant investment dwellings.
The large excess supply of apartments won’t be completely known until these construction projects are completed however expect to see a significant increase in vacancy rates over the next 12 months. Perth was down to 2% vacancy rates 3 & 4 years ago. Today, it's around 4.5% so that’s DOUBLE the vacancy rate over two years.
Under the current over-supply boom of apartments in cities like Melbourne, Brisbane, Perth and the inner suburbs, don’t be surprised to see vacancy rates increase to double their current levels hitting 4.5% and possibly even higher given the magnitude of the “apartment supply glut”.
If you’re looking to invest in property, make sure you seek professional advice and DO YOUR RESEARCH when deciding to purchase apartments. Property developers and estate agents will always be keen to off-load one of their apartments to you even when the potential for capital growth and tenancy may be very low over the next 5-10 years but YOU are the one left to clean up the mess if things go wrong!