The Stable Group`s Ed Horton is in front of Rosebery`s The Burcham apartment project,. Picture: Britta Campion.
Half of the new apartments delivered last month-bought from once-popular markets in Sydney and Melbourne-were valued at less than the price the buyer paid for the flowers.
The oversupply of apartments comes amid falling prices, tight loans and uncertainty over the coming federal government. Sydney and Melbourne will experience an oversupply of apartments over the next two years, according to a study by CoreLogic for the Australian newspaper, although approval of new projects has plummeted and development projects have been put on hold.
"A lot has happened to the buildings that were purchased two years ago-fewer investors, fewer foreign investors, and harder access to financing," he said. Tim Lawless, head of research at CoreLogic, said.
CoreLogic found that 45 percent of the new apartments delivered in Sydney last month were delivered at a price lower than the purchase price-up from 18 percent last year. In Melbourne, the figure was 46%, compared with 23% a year ago.
Mr. Lawless said the fall in apartment prices had caused a "financial shock" in the delivery of new homes-a low real estate valuation and banks requiring buyers to make up for down payments.
"not many people have an extra $10, 000 or $20, 000 to make up for the difference," Mr. Lawless said.
"given the large number of apartments being built in Sydney and Melbourne, as well as Canberra and Adelaide, we expect delivery activity to peak in the next two years as it is completed."
UBS (UBS), an investment bank, said the value of the new apartment could be 20 percent lower than the purchase price.
James Druce, an analyst at UBS, said: "more and more apartments are not as expensive as before-that`s the problem with delivery." As the apartment was completed and ready for delivery, he noted, private developers saw "significant problems".
The bank`s economics family, Carlos Cacho, said one hundred thousand apartments were under construction at the end of the quarter in September-the latest data from Australia`s Bureau of Statistics.
Mr. Cacho said the peak of the completed apartment project would come later this year. "We are making up for the lack of construction."
Mr. Lawless said construction reached unprecedented highs as a result of surges in construction in New South Wales and Victoria, as well as near-historic highs in Canberra`s Capital Territory and South Australia.
UBS and CoreLogic both expect oversupply and delivery difficulties to be relatively concentrated as approvals for new apartment developments in January fall to half a year ago.
"We don`t think there is a long-term problem of oversupply," Mr. Cacho said.
Both agencies point to the lead in Brisbane`s battered apartment market, which is now showing signs of stabilising, as well as its peak construction about two years ahead of Sydney.
Opportunistic buyers are entering the market because apartment prices are 11 percent below their 2010 peak, Mr. Lawless said.
Ed Horton, the co-founder of developer The Stable Group, did not cut prices or advertise a few of the 98 apartments to be sold on the The Burcham project at the site of Rosebery`s old Wrigley`s factory in inner Sydney.
With new projects stalled, Mr. Horton said the oversupply of apartments would be "temporary" and not yet reflected in Australia`s Bureau of Statistics data.
"talk to any market pulse estimator, and they`ll tell you the numbers are far from predictable. I`ve never seen so many projects out of work, "Mr. Horton said.
As land prices fall, Stable Group expects to buy land later this year, but when it comes to oversupply, you can`t "generalize the whole of Sydney." The company will avoid areas like Parramatta, where there are lots of new apartments.
"if you`re crazy, you`ll do projects in the air full of cranes," he said.
