The Sydney and Melbourne Suburbs Likely to Underperform: Report

Declining property prices, rising vacancy rates and easing rents are indicative of oversupply in parts of Sydney and Melbourne, a new report has revealed.

A recent analysis of housing supply across capital cities, conducted by national property market research firm and buyers agency Propertyology, has identified a number of areas that are likely to underperform across the next three years.

Residential construction has been on steroids in Sydney and Melbourne over the past few years, Propertyology’s Simon Pressley says, and due to this a number of areas will bear the brunt more than others.

“Analysis of building approval volumes at a granular level provides insight into individual municipalities where property values and rents, primarily apartments, are likely to soften most,” Pressley said.

In the harbour city, the report identifies suburbs Rockdale and Sutherland in Sydney’s east; Canterbury and Liverpool in Sydney’s south; Ryde, Hornsby and The Hills to the north; Blacktown and Parramatta in Sydney’s west; and the inner west’s Botany Bay, Leichhardt and Marrickville, along with outer south-west suburb Camden.

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In Melbourne, Pressley identified Melbourne city, Boroondarra and Yarra; Melbourne’s eastern suburbs Glen Eira, Whitehorse, Casey, Cardinia; Maribyrnong in Melbourne’s west and Darebin, Moreland and Hume in Melbourne’s north,as areas likely to underperform due to oversupply .

“As for future supply, while there’s been a slight easing in Sydney building approval volumes over the past 18 months, it’s still well above historical averages,” he said.

“Of even more concern is the spike in Melbourne’s building approval volume over the past 12 months. While it’s highly likely that many of these projects, especially high-rise apartments, will be put on the shelf for a few years, developers don’t lodge building applications for practice.”

Last week AMP Capital chief economist Shane Oliver said he now expects a 20 per cent decline in Sydney and Melbourne house prices spread out to 2020, thanks to tighter credit and falling capital growth expectations worsened by fears of a change in tax.

Oliver, however, ruled out a house price crash as unlikely.

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Across the country, Pressley says Brisbane’s housing supply is “back to equilibrium”.

“The 7,718 apartment approvals last financial year in Brisbane represents half of the 15,835 approved two years earlier.”

While Perth’s housing supply appears to be back at “normal levels” with the state’s economy showing stabilisation and “signs of better years ahead”.

Pressley said the housing supply pipeline remained balanced in large parts of regional Australia, although there were signs of potential oversupply in areas Geelong, Gold Coast, Gosford, Ipswich, Sunshine Coast and Wollongong in the next few years.