Bad news for investors with apartment rent to fall in Sydney, valuer WBP says

Sydney renters are in for a better time but investors and developers will suffer as the growing supply of apartments in the NSW capital pushes rents down and weakens banks’ willingness to lend for new developments.

The near-halving in the pace of price gain in the Sydney residential market to 9.4 per cent in the 12 months to August from a year earlier has been accompanied by a faster growth in the value of houses than apartments that is likely to continue, valuer WBP Property Group said in its State of the Market Report.

“Amid the current credit environment, Sydney’s deteriorating rental market will drive prices down, particularly those areas in which there is ample supply of apartments – areas like Botany LGA, Auburn, Lane Cove and Ryde,” the report says.

“Caution is also advised for investors considering Parramatta, which has the highest vacancy rates in Sydney. Meanwhile, Bondi continues to experience growth, with certain pockets remaining tightly held.”

In contrast to the mid-2000s when rents were surging up to 6 per cent a year, rents in Sydney are already only growing at a basic 1 per cent a year, the UNSW Centre for Applied Economic Research said last month. SQM Research managing director Louis Christopher has said tenants in Sydney’s CBD and inner rings can expect “bargains” in 2018.

The WBP report does not predict how much rents will fall, but says that at a time when Sydney developers are reconsidering their development pipeline amid expectations of large numbers of new apartment completions, areas such as Sutherland, 30km south of the CBD were increasingly seeing permitted development sites being put back into the market.

“Emerging areas like Sutherland are witnessing an increasing number of multi-unit sites now being offered to the market, with some developers facing profit concerns in the long-term – an issue further exacerbated by borrower difficulties obtaining finance for off-plan properties,” the report said.

The latest official approval numbers back up the picture of developers putting on the brakes. In September, new apartment approvals in NSW slumped 20 per cent month on month, the largest fall in more than a year. Total apartment approvals in NSW over the year to September, however, rose to a new record 46,590. There is no indication how many of those approvals will turn into projects on the ground.

A further challenge for developers will come from imminent building design regulations, WBP said.

“Where once a site might have accommodated 80 units, it may now only allow 50,” it said.

This story was originally published by Australian Financial Review

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