- Posted By Koala Invest
Ian Kingsford-Smith and Berni Joseph in front of their new apartment, near Parramatta in western Sydney.
Despite house prices rising at their fastest pace in 32 years, apartments in Australia's most oversupplied cities aren't getting as much love from buyers.
In some areas, unit prices have tumbled in the past year and still haven't recovered from their COVID-19 slump — with Sydney and Melbourne the worst hit capitals.
Those cities, in particular, have relied heavily on international students and foreign workers being able to pass freely through Australia's borders, to rent out apartments that their investor landlords don't want to live in themselves.
That's how Ian Kingsford-Smith and his partner Berni Joseph were able to buy their first home together, in Sydney, two weeks ago.
"If we bought this property six to 12 months ago, the price would have been 5 to 10 per cent higher," Mr Kingsford-Smith told ABC News.
Like many Australians, they had been renting for many years, and hadn't been able find any properties they liked within their price range near Parramatta, in Sydney's western suburbs.
To his surprise, the pandemic presented the couple with an opportunity to buy a newly-built apartment (at a slightly distressed price), in an area with lots of empty units.
In the past year, the median price of a Parramatta unit has fallen 3 per cent (to $574,963), according to figures provided by CoreLogic.
That's a huge drop when you consider Australia's median unit price rose (+2.3pc) to $547,543 in the last 12 months — while the median house price jumped (+7.4pc) to $643,203.
All this pales in comparison with regional house prices, which skyrocketed (+11.7pc), as more flexible work arrangements during the pandemic triggered an exodus to the countryside (and smaller cities).
But when you dig deeper into those figures, certain areas of Australia's capital cities are lagging well behind.
Biggest falls in areas popular with migrants
When comparing apartment markets, Sydney and Melbourne saw the most anaemic gains in the past year — up 0.2 and 0.9 per cent respectively.
The smaller capital cities fared much better, including Brisbane (+1.9pc), Perth (+4pc), Adelaide (+5.1pc), Canberra (+5.8pc), Darwin (+9.8pc), and Hobart (+11.2pc).
However, there are certain suburbs that still haven't rebounded from the pandemic, and have become a lot cheaper, particularly in the nation's two largest cities.
The following data was provided by CoreLogic, which defines "unit" as any property that is on a strata title. So it doesn't just include apartments, but also villas and townhouses (which are generally more expensive).
Here are the Sydney and Melbourne suburbs which had a big drop in unit prices, in the 12 months leading up to March 31 (with at least 80 sales during that period):
Sydney and Melbourne suburbs experienced the biggest falls in unit prices because they're "our most international cities", said CoreLogic's head of Australian research Eliza Owen.
"Prior to the pandemic, Sydney and Melbourne accounted for 63 per cent of overseas arrivals to capital cities.
"So the closure of international borders has created a greater demand shock there."
Eliza Owen says Sydney and Melbourne units are performing worse than other capitals.
Ms Owen said there were a few other reasons, in general, why certain apartment suburbs fell harder than others.
"The biggest trend is proximity to the CBD, as overseas arrivals are more likely to settle at big international centres."
'Don't buy apartments'
Even within an under-performing apartment suburb, there are some units which manage to buck the trend (and sell for a very high price).
"I had a three-bedroom apartment that went for $300,000 over the reserve [and] it was a penthouse with views," said Hazel McNamara, a real estate agent from Raine & Horne, based in the northern Sydney suburb of Lane Cove.
"The standard one or two-bedroom apartments have stagnated. Apartments with a second bathroom and second car spot haven’t really dropped off — they’re sort of OK."
Meanwhile, buyer's agent Catherine Cashmore says the main problem with apartments, particularly in her home city (Melbourne) is simply oversupply.
There are "too many apartments" and "not enough people renting them" — which has led to lower rents and waning interest from investors, she said.
In recent years, newly-built apartments have had some bad publicity — involving flammable cladding and poorly built high-rises like Opal Tower and Mascot Tower (in Sydney).
Although some property experts have warned people against buying apartments that were built in the past two decades, Ms Cashmore's advice is more extreme.
Buyer's agent Catherine Cashmore says "don't buy apartments".
"If you want to buy property and want to see price go up, don’t buy apartments.
"Apartments are not a good investment if you’re searching for capital growth. The newer ones, especially, see their prices go backwards — before you see any appreciation at all."
Her advice to buyers who can't afford a house is to "rent and invest elsewhere", also known as "rent-vesting".
Essentially, she recommends renting a home, and buying a house "a little further" — in areas that are attractive to families with children (even if it's an area you don't want to live in).
Falls in almost every capital city
Despite Sydney and Melbourne's oversupply issues (with its higher dependence on international students and foreign workers to fill those vacancies), nearly every major city has at least a few problem apartment markets.
The only exceptions were the capital cities of Tasmania and the Northern Territory, according to CoreLogic's figures.
Darwin and Hobart
According to those numbers, the 'worst performing' unit market in Darwin was the suburb of Leanyer. Its median price jumped (+4.5pc) to $260,021 in the past year.
Similarly for Hobart, there were no suburbs where apartment prices went backwards. Battery Point was the laggard and its median price surged (+5.6pc) to $703,180.
Meanwhile, apartment suburbs in Queensland's capital (with at least 80 sales in the past year) experienced some hefty falls:
While these smaller capitals are not as reliant on international renters — compared to Sydney and Melbourne — an oversupply of units (and preference for detached houses since the pandemic struck) are factors at play.
"Many of the outer fringe suburbs have a predominance of detached houses over units," said CoreLogic's research director Tim Lawless.
"With a preference shift towards lower density housing options, many of these areas will be experiencing less demand for apartments.
"Additionally, investors have been relatively thin on the ground.
"With a larger component of demand for unit style dwellings coming from the investor sector, its likely demand is waning in these middle ring and outer fringe areas."