Sydney risking the slippery slope into oversupply: Terry Ryder

Inner city Sydney shows every sign of following the bad example of Melbourne down a slippery slope to oversupply.

 
Indeed, over-building of apartments in and around capital city CBDs is a major danger for consumers all around Australia.

 
Melbourne’s serious inner city oversupply is well documented. Canberra also has an apartment surplus, though not of Melbourne proportions. Darwin is shaping up for another unit surplus, with 500 new units entering the market in the next year or so and 2,000 more approved (remembering that this is a city of only 120,000 people).

 
Sydney’s situation may end up as crazy as Melbourne’s – and for similar reasons. Developers continue to bring on new projects around inner Melbourne despite big vacancies, because they’re able to flog their apartments to ill-informed offshore investors at high prices.

 
Sydney developers clearly want a piece of that action.

 
And, in keeping the careless manner in which they report real estate issues, newspapers are characterizing the looming construction frenzy as a renaissance in city living leading to an exciting boom time.

 
What I wouldn’t give for some reasoned, balanced analysis of a situation by media.

 
This is a clear and present danger for Australian buyers. Developers don’t care who buys their units as long as someone does, nor are they concerned if their buyers later find themselves unable to tenant their units or sell without taking a capital loss.

 
But it is a concern for the market and for real estate consumers.

 
So I urge investors to stay away from the inner city Sydney apartment market. There are many other, better places to buy around Australia.

 
The trap for investors is that the current statistics suggest this is a healthy market. The vacancy rates are acceptable and the research suggests solid increases in median apartment prices. And if supply remained at current levels, this might well be a good place to invest.

 
But the danger lies in what’s coming up. According to a weekend report, the City of Sydney says the number of residential towers completed or proposed since 2010 is more than the total for the preceding decade.

 
We’re meant to be impressed, but we should be alarmed. The report characterised this as developers responding to pressing demand for “people who want to be urban dwellers”.

 
But high-rise apartment developers don’t respond to demand – they attempt to lead it. That is what’s happening in the Sydney inner-city.

 
And it extends beyond the CBD. Reports suggest there are 25,000 units planned in the inner south, with predictions Sydney is moving into the biggest apartment building cycle since the 1970s.

 
We’ve recently seen investors clamouring to buy in the early apartment stages of Barangaroo, with the first 159 apartments reportedly sold within four hours of release.

 
We can expect to see more stories like that, as real estate consumers indulge that overpowering impulse to follow the herd, which these days is described as the FOMO syndrome – fear of missing out.

 
Real estate consumers should indeed be fearful – but not of missing out. The ones who miss out may well be the lucky ones.

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Terry Ryder is the founder of hotspotting.com.au and you can contact Terry via email or on Twitter.