Just where is the high-rise glut happening?
Take a look at this chart here. This is the Halloween's Day special:
What it shows is sales of new apartment buildings (the grey bars) and approvals (the orange line). Right now, they're going in totally different directions, with approvals moving higher, and new sales falling off a cliff.
Keep in mind too that the reality is probably worse than this. The sales data only goes up to September last year. Since then, it seems that things have gotten worse.
How do I know that? Intuition. That and the fact that every day we here some crazy stories about developers tripling their sales incentives, throwing in luxury fittings for free, or even offering 5-year settlements!
That last one is interesting. You settle in 5 years, but you have to lease the apartment in the mean time. Effectively, the developer is offering rent-to-own.
So, it definitely doesn't look like the apartment market has bounced back in the new year. Sales have probably maintained their downward trajectory. Especially as the banks black-list some of the worst-affected areas.
And at the same time, we continue to build into the glut. The construction peak seems to have passed, but we're still adding a lot of stock.
And so with sales falling and more supply coming online and in the pipeline, it's very hard to see apartment prices holding ground.
Some areas will obviously be worse hit than others.
The AFR published a list of the ten riskiest suburbs – the suburbs where apartment construction is adding the most supply, relative to existing stock.
The brunt of it looks like it will be borne in NSW and Queensland, but this is a national phenomenon, with Perth and Adelaide CBDs also making the list.
Interestingly, only Southbank in Victoria is in the top ten. Melbourne was home to original high-rise anxiety, but largely it's sorted itself out, thanks to super-charged population growth into Melbourne in recent years.
The guys over at MacroBusiness have given us a more detailed look at this data. I've pulled out the supply coming on line over the next 24 months relative to existing stock, as I think this best captures the risk.
However, some of these suburbs are new and starting from a very low base, so this may overstate things a little.
Anyway, here's the picture for Sydney:
Cranebrook is massive, but really, all of those numbers are. To add 20% to the apartment stock in 24 months, after several years of solid building, is huge.
Over in Melbourne it looks like this:
That's a bit more balanced, but still, we're averaging around 15%. Not quite as cray-cray as Sydney, but still big.
Finally, let's have a quick look at Brisbane:
Holy smokes would you look at Woolloongabba! Epic.
Now this doesn't mean that prices in these areas will necessarily take a hit. For example, the Gabba is close to the city in Brisbane. It's going to be an attractive place to live.
But if there's a lot of supply going up there, then that's going to pull population from other centres.
So the real question is not just where is the most supply being built, but where is the inconveniently located supply? That's where I expect to see prices to fall first, and hardest.
So.. is this a problem for the broader market?
The general view of analysts seems to be, no. This isn't going to be contagious. We're going to see the apartment market struggle for a couple of years, but detached housing should remain isolated.
I'd probably agree.
But man, I'd be watching these markets closely.
And if you're tempted to take the bait of free Smeg appliances or 60-months interest fee, think again.