Property market oversupply looms across Australia
After a strong 2015, supply will continue to meet demand, but will demand hold up in the long term? Australia on the whole is not necessarily in oversupply.
However, market-to-market evaluation shows varying degrees of risk in each city.
Perth is experiencing conditions that pose risk to the health of its property market. Oversupply is a hard pill to swallow for vendors trying to sell.
The combined economic effect of employment instability, the mining downturn and a reduction in consumer confidence has resulted in a significant volume of properties for lease and sale in metropolitan Perth and the Peel region.
In 2016, supply will increase further in Sydney, specifically the supply of new developments.
Investors who have bought and made money may look to sell at the completion of the apartment development in the hope of avoiding any falls as the Sydney market cools during the year.
However, prices are already declining in some property classes, giving cause for caution to those mortgaging against their home. In a self-fulfilling fashion, the further departure of investors will accelerate the market decline.
In Australia's largest markets, Melbourne and Sydney, apartments represent less than 10% of all dwelling stock - a far cry from international cities New York, London and Hong Kong, where up to 40% of all properties are apartments.
Stricter lending conditions for investors continue to fuel that group's withdrawal from the marketplace, with implications for the performance of both new and established apartments. Couple this with ever-decreasing unit sizes aimed at maximising developer profit margins and the off-the-plan market has a dubious outlook.
Though some pockets of any market may display characteristics of an oversupply, there are three key factors that investors should keep in mind to protect themselves: scarcity, land value and lifestyle. These are the golden rules of any investment property.