Sydney heading for apartment oversupply

Real Estate

Australia’s biggest city could be headed for an oversupply of apartments in 2017. BIS Shrapnel’s report, titled Inner Sydney Apartments 2014 to 2021, says booming construction will reach historic levels and supply pressures could emerge following the peak. The economic forecaster estimates inner Sydney now has 5,800 apartments under construction and 11,500 new apartments will hit the market over the next three years. Should the supply come on as expected BIS Shrapnel predicts the sustained level of additional stock has the potential to tip the inner Sydney apartment market into oversupply. However, price growth is forecast to continue at about 3 per cent per annum until 2021. 

Sydney apartment market is a supply story

BIS Shrapnel’s Senior Manager – Residential Angie Zigomanis: “We think the momentum in the Sydney apartment market is expected to continue over the next couple of years. So from a developer perspective demand, off-the-plan demand, will remain strong. And, from an investor perspective we still see another couple of years of price growth taking place. However, this strong demand will lead to further increases in new supply. And, beyond the next two years there is potential for an oversupply to emerge which will in turn put pressure on rents and ultimately prices. However, this is really a supply story. Demand for existing apartments will stay strong. There will be a peak in supply which will take a couple of years to be digested. But, it’s really just the normal actions of a property cycle and the long term fundamentals of the inner Sydney apartment market we expect to be relatively strong.” 
 
Record home building offsets mining falls
 
A lift in home building has offset a fall in mining construction over the June quarter. The Australian Bureau of Statistics (ABS) reports total construction work fell 1.2 per cent. Home building rose 2.9 per cent to a record $11.7 billion in the three months to the end of June. 
 
New home sales slip into new financial year
 
New home sales have posted a soft start to the new financial year after reaching a four-year high in April. The Housing Industry Association says new home sales took a step back last month, easing 5.7 per cent in July after gaining 1.2 per cent in June. Chief economist Harley Dale says the last financial year saw the recovery in new home sales gather strong momentum and the latest data shows new home sales and building approvals may have peaked for the cycle. 
 
Australian auction results
 
Sydney recorded an 83 per cent clearance rate from 440 properties for auction
Melbourne posted a 75 per cent clearance rate from 647 properties for auction
Brisbane booked a 46 per cent clearance rate from 97 properties for auction
Adelaide saw a 62 per cent clearance rate from 42 properties for auction 
 
Listed property group earnings results
 
Property company Mirvac Group (ASX:MGR) is eyeing higher dividend payouts after lifting its annual profit over the last 2014 financial year to $447.3 million on the back of a number of acquisitions and disposals. 
 
Property developer Sunland Group Limited (ASX:SDG) has attributed a higher annual profit to its return to the multi-storey residential sector and improved sales activity, settlement volumes and development margins.  
 
Shopping centres operator Federation Centres Limited (ASX:CER) has forecast higher dividends after more than doubling its annual net profit over a year 25 shopping centres were rebranded. 
 
Following their restructure shopping centre owners Scentre Group Limited (ASX:SCG) and Westfield Corporation (ASX:WFD) have confirmed their second half distribution guidance. 

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