The Australian property market is patchy at the moment. There’s growth in some cities, no growth in others and overall, it’s a tough market for first home buyers.
But one segment of the property market is booming.
That’s the market for inner city apartments in Sydney and Melbourne. Prices are taking off as investors snap up wave upon wave of new developments.
According to ABS data, at the end of last year there were 17,461 units under construction in Melbourne. Of those 21,546 had received approval. In Sydney, there were 14,595 units under construction and another 24,546 had received approval.
The craze kicked off in 2012 when apartment high-rises in Melbourne’s CBD outnumbered office buildings for the first time. And it hasn’t slowed down since.
The high rises in the Australian property market
that could leave you ‘high and dry’
But while apartments are booming across Sydney and Melbourne, you need to be careful about following this Aussie property trend.
Melbourne in particular is at risk of an over-supply.
Small, cheap and poorly designed apartments are clogging areas of the city as developers capitalise on the city’s stable geography and jam tall buildings in tight spots.
Developers have shrunk the median floor size from 52 to 44 square meters in five years…
And as more apartments come on market, it’ll be harder to find positively geared buys.
Many banks and mortgage lenders just won’t finance apartments that are too small. 30m2 is about the benchmark for approval, but this doesn’t include studios.
You can expect councils to take a harder line on approvals too.
Melbourne City Council is proposing minimum floor space requirements to prevent what it says is the risk of landlords ripping off renters.
Some advice when buying into this Australian property trend
So if you’re looking to buy, there are three bits of advice. Check out the floor size and make sure it’s a well-designed building in an area in demand.
If the floor sizes appear small, find out occupancy rates in other developments with similar sized apartments.
It’s basic advice, but as this Australian property trend continues and people lose their head in the apartment boom, it’s worth remembering.
Callum Denness
Contributing Editor, Money Morning
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