Sales and rentals of established apartments in Perth’s inner city are stalling as the rollout of new stock intensifies.
Sales and rentals of established apartments in Perth’s inner city are stalling as the rollout of new stock intensifies.
Perth's inner-city apartment market is heading for oversupply, but it’s established stock, not new projects, that are causing concern for leading property agents.
Momentum Wealth managing director Damian Collins said he expected the boom in new apartments construction, which has been driven by a significant amount of pre-sold product, would cause a serious glut on the rentals side of the market.
Median weekly rentals in the CBD have fallen 2.5 per cent on average during the past 12 months, according to Psaros Research, with the average rental in the inner city now $515 per week, down from $535 per week at the end of last year.
The number of properties available to rent has increased during 2014, resulting in a marginal decline in the average returns, which fell from 4.6 per cent to 4.4 per cent at the end of June.
“The rental market, particularly in the inner city, that’s where I see the real problem, because that rental market is already very soft,” Mr Collins told Business News.
“A lot of these people who have bought are investors, and they are going to be in for a bit of a nasty surprise when they can’t get anyone to rent their properties, or they are going to have to substantially cut their rentals.”
MLG Realty director Cindy Lee said current market conditions were marked by buyer nervousness, primarily around the amount of new supply coming into the city.
“Vendors are reading about all this supply coming in, so they’ve all decided it’s time to cash in and make some money on their investment,” Ms Lee said.
“Which is fine, but it’s all happening at once, and the new buyers, the new owner-occupiers that want to come in and take up residence in the city, they have a lot of choice.”
Ms Lee said traditionally the CBD apartment market had been skewed towards investors, with owner-occupiers taking up as little as 20 per cent of the available stock.
“We’re seeing a shift in that now, at all of the home opens that are going on, at least 50 to 60 per cent of the enquiry is coming from owner-occupiers,” she said.
“People are getting a little bit nervous because traditionally it has been all investors, and they’re saying ‘there’s not going to be enough tenants and I need to get my property on the market otherwise it’s going to sit vacant’.”
On the current sales rate, Hegney Property Group managing director Gavin Hegney said there was about 18 months’ worth of stock in established CBD markets.
Mr Hegney said the softness in established market sales and rentals had the potential to be an Achilles heel for new apartment developers.
He said declining values of established properties had serious consequences for developers, especially those that had pre-sold to buyers who had borrowed a large percentage of the purchase price.
“The problem is when they settle in 12 months’ time, an established property might not be worth $650,000, so for a new apartment, which may have looked good value at $750,000, it now looks expensive relative to the established market,” Mr Hegney said.
“Even though the new apartments are covered by pre-sales and are selling well, it’s the enforceability of the pre-sales contract that’s a concern.
“If a buyer hasn’t saved a substantial deposit over that time, they could be faced with the situation of not being able to borrow as much as they thought they could because the banks won’t finance to $750,000.
“The worst-case scenario could be if values came off more than 10 per cent, people could consider walking away from their contracts and the presales fall over.”
