Sydney apartment market could see price correction: research

Parts of Sydney's booming apartment market such as Mascot, Zetland and Waterloo could be in for a price correction next year due to oversupply, according to a property consulting firm Opteon Property Group.

With nearly 20,800 apartments this year and a further 26,000 expected to settle in Sydney next calendar year, the tide is turning for landlords and developers as price growth slows and buyers of off-plan apartments sell for less into an oversupplied secondary market, said a report in The Australian Financial Review based on valuation firm's research.

Sydney is constrained by a lack of sites in the city centre, unlike Melbourne and Brisbane, and new projects have spread out to the metropolitan area. 

"There are numerous new developments in some areas and there is a risk of an oversupply issue which looks to bite around 2017-2018," Opteon said in the analysis. 

"Suburbs to watch are Mascot, Zetland, Waterloo and Alexandria which are considered high density suburbs, with high rates of new off-the-plan apartments and potential over supply," it said. 

The oversupply - and pain - will not be uniform, it says. Sydney doesn't face the widespread price apartments expected to result from the wave of looming settlements in Melbourne and Brisbane, as it still suffers a shortage of homes and unaffordable prices of detached homes mean many buyers have no choice but to go for an apartment. 

But the analysis is the strongest sign to date that even Sydney is hitting the ceiling of housing construction this cycle, the AFR report said.

NSW has approved more new apartments than Victoria every month on an annualised basis every month since June 2013. Data from the Australian Bureau of Statistics show that in the year to March, NSW gave the green light to 40,770 new apartments, townhouses and semi-detached homes, while Victorian planners approved 32,679. 

Other observers think parts of Sydney's apartment markets are in for a correction. Development in the Northern Districts is surging ahead of the planned North West Rail Link but it could prove too much, said Angie Zigomanis, forecaster BIS Shrapnel's senior manager for residential property. Parramatta in the west could also find itself with too many apartments, he said. 

"In general, it will only be localised pockets if there is oversupply," Zigomanis said. 

Any correction will not be immediate. Buyers of recently completed off-the-plan apartments - those purchased around 2013/14 - are generally in the black because the subsequent surge in prices has already pushed market prices above what they paid, Opteon said. 

But apartments sold since last year - "in large numbers to overseas investors at a premium" - are the ones at risk as they will not see the capital growth earlier purchasers have enjoyed, Opteon said. 

"As we head into a more steady market, a concerning factor will be 2016 purchasers paying a premium for new product, and not seeing growth in the market towards completion of the complex two to three years down the line, with potential valuations lower than the purchase price," it said. 

Sydney's residential property market has defied expectations of a slowdown, with an auctions market that is strong. But price growth is slowing on the supercharged figures of last year and property in Australia's largest city will be part of a national fall in prices that will come in 2019 and 2020, consultancy Capital Economics said this week.

While Sydney's eastern suburbs were at no risk of oversupply, some southern suburbs were, Opteon said.

Opteon also singled out the suburbs of Asquith and Mount Colah, a recently rezoned growth corridor on the Pacific Highway near Hornsby. 

"Currently there is an oversupply of off the plan development stock currently listed for sale with some of these developments being sold with incentives that are outside of the norm," Opteon said.

"It appears that this market segment may be heading into a period of over supply by late 2016/early 2017 which is likely to have a negative impact on both value levels and rental returns."