Sydney's reduced settlement risk V Melbourne and Brisbane: Tim Lawless
CoreLogic RP Data's Tim Lawless has noted the mature nature of the Sydney unit market has actually seen houses underperform compared to units, with growth of 8.4 percent and 11.5 percent respectively over the past twelve months.
It is this strong performance from the Sydney unit market which is largely driving the higher growth rate across the combined capitals average.
“This growth differential can likely be explained by the higher supply levels of units in the inner city markets of Melbourne and Brisbane,” he added.
CoreLogic’s latest Settlement Risk report shows approximately 31,000 apartments are due to settle across Melbourne’s inner city region over the next 24 months, while Inner Brisbane has almost 17,500 units due to settle over the next two years.
According to CoreLogic research analysts, settlement risk implies that units sold off the plan could show a valuation at the time of settlement that is lower than the contract price, creating the risk for developers that contracted buyers may look to seek ways in which to avoid completing the contract to purchase the property.
Buyers of the off the plan units who find their valuation at the time of settlement is lower than the contract price may face a higher than expected financial outlay as lenders seek to ensure an 80% loan to valuation ratio.
"This risk may have been exacerbated in recent weeks with three of the big four banks reportedly limiting the extent to which they are willing to lend to non-residents," Lawless suggests.
"Of course non-residents are a material segment of persons buying new units off the plan."
CoreLogic reported rental markets have continued along their soft path, with capital city rents holding steady over the month, but down 0.2 percent compared with a year ago.
As welling rents are broadly flat at a time when dwelling values continue to rise, rental yields are lower.
The gross rental yield for capital city dwellings pushed to a new record low of 3.4 percent in April, while Melbourne’s gross yield profile is even lower, averaging 3.0 percent.
“The low yield profile across Australia’s two largest cities, which are also the cities that attract the largest investment demand, suggests that most recent investors, despite the low mortgage rate settings, are likely to be utilising a negative gearing strategy to offset their cash flow losses against their taxable income.
"Buyer demand continues to be supported by mortgage rates that are close to historic lows, as well as high levels of investment demand. Even though investor demand has eased since May last year, investors still comprise approximately 46 percent of all new mortgage commitments.
"With the likelihood of interest rate increases in the foreseeable future almost non-existent due to the negative March quarter inflation reading, buyer demand is likely to remain high for housing. Similarly, as long as taxation policy continues to support investment in the housing market, we are likely to see investors remain as a substantial component of housing demand due to the lacklustre returns evident in other asset classes such as cash, bonds and equities,” Mr Lawless said.
