Fears Sydney, Melbourne and Brisbane may open doors to too many apartments

A major national property developer has flagged concerns over a possible oversupply of apartments in some of Australia’s hottest markets, warning that some capital cities are set for a slowdown.

An expected surge in apartment development in south Sydney, inner Brisbane and inner Melbourne is threatening to outstrip demand, ASX-listed developer and funds manager Folkestone has warned in its 2015 annual report.

For the next 12 months, it would turn to mixed-use developments, projects near transport hubs and house and land projects,former managing director of Mirvac and current Folkestone director Greg Paramor says in the report.

Across Australia, 41 per cent of new property completions in the year to March 2015 were for apartments.

Folkestone head of funds Adrian Harrington said many apartment developments were concentrated in specific areas.

Source: Folkestone

For Melbourne, Mr Harrington told Domain that Docklands and CBD apartments were facing a future oversupply.

“In Melbourne, there’s a strong pipeline of apartments being built, development applications and land being acquired,” he said.

In Sydney, the locations at risk of oversupply included the southern locations of Mascot, Zetland, Rosebery and Green Square.

“There’s significant gentrification of south Sydney industrial activity areas,” he said.

“A lot of apartments are being built all at once; we’re concerned about levels of development and whether it might saturate the market.

“Developers are paying big prices for industrial sites.

“They’re still close to the city with reasonable transport, but there’s still a lot [of apartments] coming.”

Yet Domain Group senior economist Andrew Wilson said demand was at such high levels in Sydney that there was no risk of an oversupply.

“There’s plenty of demand in Sydney, particularly in the south,” he said.

“Green Square is a master-planned community and investors are riding a tidal wave into the market.”

He agreed there might be issues ahead for Melbourne, citing weaker rental growth for inner-city apartments.

Nationally, Mr Harrington said restrictions on investor borrowing could dampen demand.

He also suggested that fewer developers might be marketing property offshore.

In Brisbane, Mr Harrington said the rezoning of industrial sites in the inner suburbs of Fortitude Valley and Newstead could also cause an oversupply.

Despite this, he didn’t foresee residential property prices in any of these locations “falling off a cliff”. 

Mr Harrington said the market was set to lose momentum over the next year.

However, St George chief economist Hans Kunnen said he wouldn’t be calling it a “slowdown” for Sydney yet.

“Auction rates have come off a touch, building approvals are still hot; it’s not going to be the same frenetic pace as last year,” he said.

Whereas Folkestone had highlighted south Sydney as a concern, Mr Kunnen said the Sydney-wide statistics did not support suggestions of oversupply.

“While we’re building at a rapid rate, we’re also growing [the population] at a rapid rate,” Mr Kunnen said.