Oversupply of inner-city apartments will lead to drop in prices
Property may be the hottest investment right now, but economist Chris Richardson of Deloitte Access Economics recently warned it would become the “worst investment” over the coming decades.
Deloitte Access Economics forecasts that over-supplied inner-city apartment markets in Brisbane and Melbourne will decline by as much as 15% in value by 2019. Coupled with the fact that official interest rates won’t stay low forever, the projected bust in apartment prices seems imminent.
Richardson predicted that the Aussie property market’s fortunes will reverse as pent-up demand starts to wane. “People get less excited about being [wealthier] and start to realise that they’ve signed on to a very large mortgage that they have to pay for a number of years,” he said. “House prices will start to go from a positive for economic growth to a headwind.”
“You won’t have [a] crash and boom, but you are having [too many inner-city apartments] being built relative to the number of likely buyers.”
Richardson’s comments followed a warning issued last Friday by the Reserve Bank of Australia about the possible oversupply of inner-city apartments. The RBA said about 16,000 apartments were expected to be completed in Melbourne over the next two years. The projected numbers are somewhat lower in Brisbane and Sydney (12,000 and 10,000 respectively).
Richardson warned that some buyers who’re starting to get into the property market will be hurt by the downturn. “That’s always the way, as booming housing prices starts to [decline], the last people through the door are the ones who end up getting hurt,” he said.
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