Monthly Archives: May 2015

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Apartment over supply affects Melbourne

By | Market View | No Comments

It has been a hot topic lately with talk about the number and size of newly built Melbourne apartments, but what I think needs to be talked about is how all the new developments in Melbourne are affecting existing investment properties; more specifically existing apartments and units.

When I carry out an appraisal on a apartment or unit that is in a block more than 10-15 years old it always starts with the client telling me that 2-3 years ago they were getting a much higher rental and that they are disappointed they have had to reduce the rent to get Tenants.

There is one main culprit in the difficultly to secure Tenants at a higher rate for inner city and surrounding areas and that is the huge supply of newly built apartments in Melbourne.

With new apartments being built everywhere you look within the 10 km radius of the CBD it is no wonder the supply is high, developers are building more amenities into the complexes to make them more attractive to potential Owners and Tenants alike. Gyms, sauna’s and swimming pools are almost expected when looking at a new complex, some are even putting in cinemas, roof top BBQ’s and simulated driving ranges for the golf enthusiast.

The second problem with the over supply of new apartments is that when the complex is complete there is a large influx of vacant/available properties ready to move into, so new owners are offering prospective Tenants discounted rental or weeks free rent to lease their property before the 30 or so other properties that are similar in the same block.

It is all this and more that is putting pressure on the older apartments and units ability to deliver high rentals, without the bells and whistles the location doesn’t sell the property as well as it once did. Renovated kitchens and bathrooms in an older apartment are expected and without an update it will surely make it even more difficult to attract potential Tenants.

According to BIS Shrapnel’s forecast, by June 2016 there will be a surplus of 14,300 multi-residential dwellings in Victoria, with the majority in Melbourne. A recent BIS Shrapnel report on the inner-Melbourne apartment market noted that an annual average of 6,212 apartments are set to be delivered between 2012/13 and 2016/17, which is more than double the long term average of 2,563 apartments a year in the 16 years to 2011/12. http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/41216-price-correction-looming-in-wake-of-melbourne-apartment-boom-bis-shrapnel.html

At some point and hopefully soon there will be a slow down in the approval of developments, the market needs it to balance out the over supply. In the meantime for investors of older apartments it might be time to renovate that original kitchen.

If you have any thoughts to share on this topic please feel free to comment.