It’s no secret that property prices have been skyrocketing in Australia, particularly in major cities such as Sydney and Melbourne. But as much as property owners and developers want to get onto the gravy train and take in all the profits they can, the way the current market prices are going may put many out of the affordability bracket and in turn cause a supply glut as fewer buyers are able to afford the exorbitant prices of homes in Australia. Property prices have risen 7.5 per cent in the last year alone, boosted by low interest rates and foreign investment monies flooding in mainly from China.
In Sydney and Melbourne, the market trend has moved away from landed homes or houses to high-rise apartments and as the number of units per square metre increase, analysts worry that the competition coupled with the high property prices may create a situation of oversupply of apartment units. This in turn could deflate the property market and see apartment prices falling 15 to 20 per cent within the following 2 years. How would this then affect those who have taken loans to purchase homes at higher prices prior to the deflation, and would that mean trouble for the banking and finance sector?
High-rise residential developments enjoying the most attention now are those near the railway stations or in the already crowded inner city areas. In Melbourne, 18,000 apartment units will be built within the next year and a half. Some analysts are however not overly worried about the apartment boom as overseas buyers are limited to purchasing only new homes and do favour apartment units closer to the city than landed houses future out in the suburbs. With the continued population increase and the number of foreign students or labourers coming into these cities, the demand may cool but a sudden fall seems unlikely.