The huge supply increase in Brisbane apartments has resulted in a fall in unit values of 2.7% in the 12 months to 31 January, according to new CoreLogic estimates published yesterday (see Chart 1, based on data available in the CoreLogic report you can download at the link provided). Perth also saw a decline in unit values, no doubt due to ongoing weakness in WA’s economy after the end of the mining investment boom. At the same time, Sydney has experienced double-digit growth in unit values, approaching the growth rate for houses, as the property price bubble in that city continues to expand.
It has been widely reported that the decline in unit values is raising issues at settlement time, with unit valuations coming in below contract values, and buyers hence having to provide larger deposits to secure loans (see Warning over unit values coming in under contract price). On the issues of the huge unit supply shock and settlement risk, Realestate.com.au economist Nerida Conisbee has made some interesting and insightful comments, as reported in the Courier-Mail article I linked to:
‘Realestate.com.au chief economist Nerida Conisbee said unit supply was at a very high level, with Brisbane seeing 10,000 come on-stream over 18 months while Melbourne was seeing 18,000 in the same period.
“That, in itself, isn’t a problem,” she said. “The problem is when people start defaulting on apartments and when that becomes a bit of a flood as multiple people decide to walk away from their units.”
Ms Conisbee said Brisbane was in a better position than Melbourne, given it had already turned the corner.
“One of the good things for Brisbane is that the pipeline of supply coming beyond this year is pretty low so that’s good news for Brisbane. My concern is for Melbourne which continues to see more units in the pipeline, that’s a worry.”’
Ms Conisbee is right to highlight the smaller pipeline of unit supply beyond 2017 in Brisbane. While this will stabilise unit prices, it is a concern from a macroeconomic perspective, because residential apartment construction has been a major stimulus to growth in SEQ over the last couple of years. The sector will start dragging on economic growth, as it falls from its currently elevated levels, and it is unclear to what extent activity in other sectors, such as non-residential construction (e.g. on the new Queen’s Wharf development), will make up for it.