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Oversupply to put pressure on rents

Posted on 16 November 2016

Source:  Australian Property Journal


OVERSUPPLY of new residential property led by Brisbane, Sydney and to a lesser extent, Melbourne, will push rental growth down in the year ahead.

SQM Research's Housing Boom and Bust Report forecasts Brisbane and Sydney will be affected more than Melbourne, which will have its oversupply tempered by population growth.

The report expects apartment completions in Brisbane will fall by 11% in 2017 to 8,000 apartments, before rising by 12.5% in 2018.

As in Melbourne, the bulk of these completions will be in inner-city areas.

"However there is strong evidence that Brisbane is already in oversupply and this may become obvious due to an expected surge in new house completions," SQM Research managing director Louis Christopher said.

He said Brisbane there will be 12,000 freestanding dwellings completed in Brisbane this year, making for a total surplus of 8,000 dwellings in 2016, which will rise to 13,000 surplus dwellings in 2017.

"The Brisbane vacancy rate is already elevated at 2.9% and this will rise towards 4% next year," he added.

Apartment completions for Sydney are set to increase by 33% this year, with further rises over the next two years expected to add to moderate oversupply.

Around 21,000 new Sydney apartments will be completed by the end of 2017, up a further 5% from 2016. Completions for 2018 are expected to increase by 19% in 2017, with a total of approximately 25,000 new apartments entering the market.

It is expected that house completions will be steady at 15,000 to 17,000, with the bulk of those in Sydney's north-west. The surplus of dwellings will remain moderate, but may become significant in 2018 where the total dwelling surplus is expected to reach 9,000.

"So while vacancies in Sydney may remain steady in 2017 at approximately 1.8% to 2.0%, we think vacancies will rise in 2018 to above 2.5%, eventually taking pressure off rents," Christopher said.

He said Melbourne will record a 29% increase in completions as 2016 ends, with around 18,000 new apartments making their debut, to be offset by surging population growth in the city. In total, 35,000 dwellings will be completed, including new houses.

"It may not come as a surprise that the CBD, Southbank and Docklands are the hot spots for development. These will be the epicentres of the apartment oversupply come later 2017 and 2018, though a growing population will absorb much of the new stock in time," Christopher said.



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