Download Established stock an Achilles heel

18 I November 10, 2014 I businessnews.com.au
FEATURE
APARTM ENT
"lllllDEVELOPERS
BUSINESS NEWS
4 •4 % Average yield for inner-city apartments at June 30
Source: RP Data/Psaros Research
Established stock an Achilles heel
Sales and rentals
of established
apartments in
Perth's inner city
''
The worstcase scenario
could be if
values came off
more than 10
per cent, people
could consider
walking away
from their
·contracts and
the presales fall
o:yer - Gavin Heg ney
are stalling as the
rollout of new
stock intensifies.
Dan Wilkie
[email protected]
PERTH'S inner-city apartment
market is heading for oversupply,
but it's established stock, not new
projects, that are causing concern
for leading property agents.
Momentum Wealth managing director Damian Collins said
he expected the boom in new
apartments construction, which
has been driven by a significant
amount of pre-sold product,
would cause a serious glut on the
rentals side of the market.
Median weekly renta ls in the
CED have fallen 2.s per cent
on· average during the past 12
months, according to Psaros
Research, with the average rental
in the inner city now $515 per
week, down from $535 per week
at the end of last year.
The number of properties available to rent has increased during
2014, resulting in a marginal
decline in the average returns,
which fell from 4.6 per cent to 4.4
per cent at the end of June.
-The rental market. particularly
in the inner city. that's where I see
the real problem, because that
renta l market is already very
soft," Mr Collins told Business
News.
CHANGING MARKET: Cindy Lee says established CBD
apartment sellers are getting th e jitters from th e increasing
amount of new additions to the market. Photo: Attila Csaszar
"A lot of these people who
have bought are investors, and
they are going to be in for a bit
of a nasty surprise when they
can't get anyone to rent their
properties, or they are going to
have to substantially cut their
rentals."
MLG Realty director Cindy Lee
said current market conditions
were marked by buyer n ervousness, primarily around the amount
ofnew supply coming into the city.
' "Vendors are reading about all
this supply coming in, so they've
all decided it's time to cash in
and make some money on their
investment," Ms Lee said.
"Which is fine , but it's all happening at once, and the new
buyers. the n ew owner-occupiers
that want to come in and take up
residence in the city, they have a
lot of choice."
Ms Lee said traditionally the
CED apartment market had been
skewed towards investors. with
owner-occupiers taking up as
little as 20 per cent of the available stock.
"We're seeing a shift in th at
now, at all of the home opens
that are going on, at least so to 60
per cent of the enq uiry is coming
from owner-occupiers," she said.
"People are getting a little bit
nervous because trad itionally it
has been all investors, and they're
saying 'there's not going t o be
eno ugh tenants and I need to get
my property on the market otherwise it's going to sit vacant'."
On the current sales rate,
Hegney Property Group managing director Gavin Hegney
said there was about 18 months'
worth of stock in established
CED markets.
Mr Hegney said the softness
in established market sales and
rentals had the po tential to be an
Achilles heel for new a partment
developers.
He said declining values of
established properties had serious consequences for developers,
especially those that had pre-sold
to buyers who had borrowed a
large percentage of the purchase
price.
"The problem is when they
settle in 12 months' time, an
es tablished property might not
be worti, $650,000, so for a new
apa rtment, which may have
looked good value at $750,000,
i t now looks expensive relative
to the established market," Mr
Hegney.said.
"Even though th e new apartments are covered by pre-sales
and are selling we ll , it's the
enfo rceabili ty of the pre-sales
contract that's a concern.
"If a buyer hasn't saved a s ubs t antial deposit over th at time,
they could be faced with the situation of not being able to borrow
as much as they thought they
could because t he banks won't
finance to $750,000.
~ Th e worst-case scen ario could
be if values came off more than
10 per cent, people could consider
walking away from their contracts and the presales fall over."
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