Price correction looming in wake of Melbourne apartment boom: BIS Shrapnel

Melbourne's appetite for inner city apartments will soon be outpaced by their supply, according to economic researchers BIS Shrapnel.

At their Melbourne business forecasting conference yesterday, BIS Shrapnel's managing director Robert Mellor and associate director of building forecasting, Kim Hawtrey, both warned of impending oversupply in the Melbourne multi-residential market.

According to BIS Shrapnel's forecast, by June 2016 there will be a surplus of 14,300 multi-residential dwellings in Victoria, with the majority in Melbourne.

"Now is certainly the time to start sounding the alarm," said Hawtrey.

"If we keep on going at this rate, maybe not a year from now, maybe two years from now, the market is going to start to feel it."

The effects of the mismatched demand and supply will be seen in prices, said Mellor.

"If construction doesn't begin to ease back significantly in the next 12 to 18 months, then that will exaggerate the oversupply," explained Mellor.

He predicts either a "long, long downturn" where prices are depressed for a period of up to seven years, or a "very significant correction in price".

A recent BIS Shrapnel report on the inner-Melbourne apartment market noted that an annual average of 6,212 apartments are set to be delivered between 2012/13 and 2016/17, which is more than double the long term average of 2,563 apartments a year in the 16 years to 2011/12.

"Furthermore, there are already approximately 2,000 apartments in projects currently under construction that are scheduled to be completed in 2017/18", writes BIS Shrapnel.

Hawtrey warned yesterday that it wasn't just the inner-city that would be affected by an apartment market correction, but middle-ring suburbs, with tenants leaving for cheaper rents close to the CBD.

He noted that construction of high density dwellings in Melbourne is beginning to spread throughout the suburbs, with upticks in development in suburbs like Brunswick, Armadale and Doncaster.

While Hawtrey believes that the shift to apartment living will be permanent, predicting that multi-residential dwellings will one day makeup more than half of national dwelling commencements, in the short term, "we're overdoing it".

"Get ready for, two years from now, for that market to have a correction," warned Hawtrey.

"For me, if I was buying property now, I'd buy a detached house, rather than an apartment."

While former Victorian Planning Minister Matthew Guy approved many of the larger residential towers set for the Melbourne CBD, including the record-breaking Australia 108, Hawtrey said it is yet to be seen whether new Planning Minister Richard Wynne will continue the trend for high-density apartments.

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