Burwood on oversupply watchlist as APRA changes to slow investors in Sydney: HTW

The oversupply of units caused by diminishing yields and possible increased borrower costs could be a major factor for the Sydney unit market, according to HTW's February 2017 update.

The valuation firm noted minor price declines in 2016.

It said Waterloo’s median price fell 0.3% after three years of double digit growth, according to data from pricefinder. com.au.

"This decrease in the median price in developments in the Waterloo area such as Rosebery and Zetland are from a lack of quality and size in each individual unit," HTW's report suggested.

"As these areas are highly driven by investors, the changes the Australian Prudential Regulation Authority (APRA) made to investor borrowing in 2016 will continue to slow the investor market," it forecast.

The APRA changes slowed investment in these areas more than a highly owner occupied market, such as the detached housing market in the $1.5 million to $3 million price point.

HTW predict strong growth for the detached housing market as high demand and low stock drive the market upwards and push affordable housing further out of reach within this region. It expects the $1.5 million to $3 million detached housing market to remain strong with the continued issue of limited supply throughout all suburbs in the inner west.

The report says the firm is seeing many up-sizers active in this price range, especially families who want to remain within the inner west. Traditionally these up-sizers would relocate to further out suburbs that represented far better value.

"However, these suburbs are now matching price points to the inner west suburbs closer to the CBD mainly due to now been linked by improved infrastructure such as the Inner West Light Rail.

"Purchasers may get slightly more land by up-sizing to these suburbs, but the gap seems to have closed over the past few years."

Burwood, Strathfield and Homebush are on HTW’s watch list for 2017 as unit oversupply and more development proposals are predicted.

It has seen longer selling periods in some of these completed new unit complexes compared to 12 months earlier.

"There also tends to be a trend towards the construction of smaller, low quality units which heightens the already talked about concerns in this new unit market sector."

An oversupply of units in certain inner city suburbs represents the greatest threat to Sydney property investors, according to HTW's February 2017 update. However, the general overview is rosy.

The firm says it has noticed a number of valuations for new units upon settlement not meeting their off the plan prices when purchased during stronger market conditions. It says this is more commonly in some second tier suburbs in western Sydney and additionally in some pockets of the northern suburbs particularly with concentrated new stock and a distinct difference in value ranges between the new and original older style unit prices.

Whilst mostly occurring for overseas buyers, this could trigger a flow of sales post settlement due to difficulties obtaining finance and rental yields not meeting expectations to service mortgage repayments thanks to high investor participation, HTW say.

The areas with the lowest predicted growth for the inner city are where there may be an oversupply of new units around the city fringe areas, as it appears there will be less demand and more supply in these areas so more completion for the purchaser dollar. Developments that have been completed to cash in on demand will fall short in quality and therefore appeal to both owner occupiers and potential tenants.

Other areas we believe are at risk of oversupply or heavily investor led include Wentworth Point, Carlingford, Epping, Olympic Park, Macquarie Park and Parramatta. The supply of new units in these areas is well above long-term averages.

On average, HTW considers that 2017 will see a steady growth across all areas with buyer confidence generally high. The areas it will be watching with the most growth potential appear to be the $2 million plus price bracket which in some pockets will represent land value and opportunity to develop or value add and in some will be properties with a high standard of finish and high appeal to just unpack the family bags.