For quite some time we have been discussing the notion of a pending oversupply of units in big city markets being on the not-too-distant horizon. This horizon now seems to have drawn even closer, with a major bank recently placing heavy lending restrictions on up to 120 postcodes, mainly located in the inner city apartment markets. This will have a direct and immediate impact not just on potential investors, but also those already holding units in these markets.
These restrictions are coming to pass due to the enormous amount of unit developments being approved in current and future projects. This is especially clear to see in Melbourne and Sydney, where another 200,000 units will come online over the coming 12 months.
But the first evidence of the tangible impact this oversupply is creating has already come to light in the Brisbane CBD market, where earlier this year half-full buildings forced vacancy rates so high that landlords found themselves in the unenviable position of desperately trying to secure a tenant. In some reported cases this included giving away free iPads upon lease signing... and in other cases the first full month was rent free.
To be clear, mainly high-rise unit developments in inner city markets are facing unit oversupply, with house and land properties, medium density buildings, and quality boutique units in undersupplied areas should also not be effected.
Now, it seems that it is not just us taking caution, but one of the countries most well known and respected banking institutions, who have started taking this problem very seriously by changing their lending procedures in order to protect themselves.
Earlier last month, the Australian Financial Review reported that Macquarie Bank will curb high-rise and high-density apartment lending. Why? Because they share the same concern regarding falling demand and oversupply in the high rise unit market as we do.
These changes in lending procedures from Macquarie Bank specifically state that from the 23rd of May, 2016 they have altered the required maximum loan-to-value ratio of 70 per cent, down from the usual 80 per cent.
In real terms, that would mean that to buy a $1 Million property as an investment in one of these markets (the Sydney property market average), your typical Mum & Dad purchaser would need to reach into their pockets and find an addition $100,000 for the $300,000 deposit.
Macquarie bank has also named names, outlining the suburbs that will be directly affected by their new lending policies. These include Sydney’s The Rocks, Haymarket, Millers Point and southern suburbs, Melbourne’s Docklands and South Wharf, and more than 40 postcodes spread throughout Queensland, including the Gold Coast and Brisbane’s CBD.
There has been some talk that this oversupply issue is nothing more than the latest headline designed to sell newspapers, but by "blacklisting" these suburbs, and some of them very popular ones, Macquarie Bank has well and truly weighed in on this oversupply discussion with some very clear thoughts of their own on what appears to be a unit glut in some of our major city property markets.