RBA warns investors of risks of Melbourne student micro-apartments
The Reserve Bank of Australia (RBA) has warned investors about the risks of buying student apartments.
Reserve Bank officials are concerned the number of smaller apartments targeted at student rentals will be hard for investors to resell in future years.
"This could place downward pressure on apartment prices if student demand weakens or if there are other shocks that reduce foreign investors' appetite for these apartments," it said in the RBA's twice-yearly Financial Stability Review released on Wednesday.
Micro-apartments of 15 square metres to 20 square metres may attract the budget-minded investor, but they seriously lag behind in price growth when compared with larger apartments.
Recent PRDnationwide data shows the value of Melbourne micro-apartments increased 10.7% over five years, while prices for two-bedroom apartments had increased 35%.
The data analysed mirco-apartments in the Melbourne CBD inner ring from 2009 to 2014 with the sample including studio apartments and one-bedroom, along with one-bathroom apartments with no car parks.
From 2009 to 2014, the median price of micro-apartments increased from $365,000 to $404,000, while two-bedroom apartments increased from $400,000 to $540,000.
PRDnationwide research manager Dr Diaswati Mardiasmo said micro-apartments fell short when appreciating over a long time.
The RBA suggested yesterday the risk of localised oversupply seemed "somewhat higher" in Melbourne where there has been greater geographic concentration of building activity recently.
"Apartment construction in the inner city has been at high levels for some time and, given the time lags in completing higher density constructions, is expected to remain elevated for the next few years.
"That said, liaison suggests that construction in Melbourne continues to be driven by strong demand, including from foreign investors, with pre-sale levels remaining high.
"A related risk, which is likely to be currently most pronounced in Melbourne, is that some new developments may appeal to a relatively narrow segment of tenant or owner demand.
"For example, some new developments involve smaller-sized apartments that are targeted at international students, which could be harder to sell in the secondary market than more traditional-sized apartments.
"This could place downward pressure on apartment prices if student demand weakens or if there are other shocks that reduce foreign investors’ appetite for these apartments."
The RBA noted the momentum in investor housing activity had been concentrated in Sydney "and to a lesser extent Melbourne."
It noted investor housing loan approvals are almost 90% higher in New South Wales than they were two years ago and are 50% higher over the same period in Victoria.
As a share of approvals, both are back around previous peaks.