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BFCSA: Brisbane has 10,000 more apartments in pipeline than it should: RiskWise

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Brisbane has 10,000 more apartments in pipeline than it should: RiskWise

Australian Financial Review Jul 11 2018 11:45 PM

Matthew Cranston

 

Brisbane's inner-city apartment market has about 10,000 more homes in the pipeline than it should, says property research outfit RiskWise, and the city is expected to face more defaults on settlement.

RiskWise chief executive Doron Peleg said developers and lenders were "failing to properly assess the risks" when it came to supply and demand, and the inner-city Brisbane apartment market was a prime example.

"What we are seeing now is the realisation of the risk that should have been identified at least a couple of years ago. Defaults have been rising and will continue to do so," he said.

RiskWise argues that, as early as June 2016 in the Statistical Area Level 4 of Brisbane inner city, price growth was -1.8 per cent with 17,417 units in the pipeline – an addition of 24.5 per cent to the stock.

In 2017 price growth was again negative at -2.2 per cent, but pipeline supply crept up to 19,194 units, accounting for 27 per cent of existing supply.

This year RiskWise has price growth at -2 per cent, with the pipeline at 14,813 units, accounting for 20 per cent of the supply.

RiskWise said a healthy level for any market should be no more than 5 per cent of existing supply.

"The issue of oversupply is not a new problem and has been there for a few years, and the continuous weakness of the unit market in inner-city Brisbane should have raised red flags for developers and lenders," Mr Peleg said.

"Overall, it seems they were too optimistic about the projected market value, and it is highly likely that the price they paid for the land was also too high."

Banks are aware of the problem. Suncorp announced a crackdown on high-rise apartment purchases, flagging Inner Brisbane City, including Brisbane City, New Farm, Teneriffe, Fortitude Valley and many others, on a blacklist last year.

Bank of Queensland has also recognised "potential for an oversupply in the Brisbane market and future pressure on unit prices and reduced rental yields", while major developer Lendlease says Brisbane is the most challenging inner-city apartment market in the country.

Mr Peleg said it must be remembered the value of off-the-plan property could decrease between the contract date and settlement, resulting in capital loss, as equity in the home could be reduced, and this was well known in inner-city Brisbane.

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