Published 17 April 2006
Investors in Australia’s 3 main inner-city apartment markets will face challenges for some time as Sydney & Melbourne struggle to absorb an oversupply of stock and Brisbane comes out of a long shortage of rental apartments, says analysis & forecasting firm BIS Shrapnel.
The BIS Shrapnel reports indicate price & rental growth in the inner-Sydney apartment market will be constrained out to 2007-08 until the current oversupply is absorbed.
In Melbourne, it’s forecasting the market will move through a period of recovery during the next 2 years as excess rental stock is absorbed and the market moves back towards balance.
It says Brisbane is a different story, with rental growth likely to slow after 5 years of strong rises as a record number of apartment projects is completed, providing relief to pent-up rental demand.”The story to watch over the next 12 months will be the rental market,” BIS Shrapnel analyst and author of the apartment reports Angie Zigomanis said.
“Melbourne rental growth has been stagnant, the Sydney vacancy rate has peaked and the Brisbane market is experiencing a record number of completions. Investors will want to know when they will see evidence of improving rents in Sydney & Melbourne, and whether the tight rental market in Brisbane will be affected by the completion of the current round of apartment projects.
“While rental growth will return sooner, BIS Shrapnel does not foresee a substantial improvement in prices for Sydney & Melbourne until 2008-09, when the current low yields strengthen to become more attractive to investors. Although rents in the Brisbane market are expected to continue to show improvement over this financial year, BIS Shrapnel expects to see this drop off in 2007-08.”While Mr Zigomanis said investors had been spooked by flat rents, low rental yields & little prospect for short-term capital gain, owner-occupiers had generally held up better than the investor market. Although demand from this segment was also below peak levels, owner-occupiers had responded to low unemployment, solid job prospects & strong wages growth and had remained in the market in greater numbers.”Across all 3 cities, those apartment developments that rely on investor purchasers will continue to be impacted by weak investor sentiment, with more limited price growth, or even declines forecast to continue in the short term. Price prospects for apartments that are more conducive to the owner-occupier market will be more positive over the next 5 years, as price performance will be more connected to affordability rather than rental & investment returns.
“BIS Shrapnel expects to see the first stages of the subsequent upturn begin from 2007-08, although significant price growth is not expected to re-emerge until 2008-09.”
Attribution: Company statement, story written by Bob Dey for this website.