May 27 2016 at 12:56 PM - Updated May 27 2016 at 4:22 PM – Financial Review
New apartment resale prices tumbling
in Melbourne
by Larry Schlesinger
Apartments in Melbourne's Docklands, CBD and Southbank are being resold up to
24 per cent below their previous off-the-plan purchase price, catching out vendors,
many of whom bought them from investment companies or spruikers.
AFR Weekend has found numerous examples of such apartments, most of which are
small studio or one-bedders, acquired after the global financial crisis.
The revelations come as concerns build about an oversupply of apartments, as a
record number of completions loom, and following Macquarie Bank tightening
its lending to high-rise apartment postcodes, including in Docklands, the CBD and
Southbank.
In one example, a one-bedroom apartment measuring 56 square metres in the Site
One Complex at 757 Bourke Street has an asking price of $290,000 to $319,000,
having been bought off-the-plan for $380,000 in 2009.
Some Docklands apartments are being sold for 24 per cent less than their off-the-plan purchase
price HARROWFIELD
Other examples of big price falls include one bedroom apartments in Upper West
Side, the enormous four-tower complex on Spencer Street, and one-bedders in
Prima Pearl, a glitzy Southbank high-rise completed last year. In these towers,
asking prices are off 11-13 per cent.
Negative equtiy
Bruce Warburton, a director at Greg Hocking Real Estate, told AFR Weekend: "We're
seeing this a lot, often where the vendor has bought the apartment through an
investment channel or through a spruiker.
"The worry is for vendors with negative equity who are forced to sell. When they sell
they crystalise that loss. When they own it, with the current low interest rates they
can hide that loss and rental return is still good," he said.
Apartment asking prices are down 24 per cent in some instances
Another problem for vendors who are selling is the drop in the volume of buyers.
"This has fallen dramatically," Warburton said. "In Albert Park [a blue-chip Melbourne
suburb], we have had about 160 open-for-inspections and about 1000 people
coming through. In the city, over the same period, we've had 24 open for inspections
and about 32 views.
"It's a one-offer market," he said.
Average loss of 9.4 per cent
Evidence of falling apartment values was identified broadly by valuation firm WBP
Property Group last year. The firm conducted a research study on off-the-plan
sales following a growing number of transactions falling short of purchase price at
time of settlement.
The study, which included 1794 off-the-plan sales in Victoria between December
2009 and August 2015, found that half of all off-the-plan properties were valued at a
minimum of $1000 less than the purchase price with the average loss being $40,000
or 9.4 per cent.
In Central Melbourne, the fall was greater at 11.5 per cent.
"In real terms, this loss equates to the cost of a typical deposit, which most people
take several years to save," said WBP Property Group chairman Greville Pabst.
In one extreme example, a two-bedroom apartment in Abbotsford suffered a loss
of $623,000, a decline of 46 per cent.
Andrew Lean from Pagan Real Estate is selling an apartment in
the Lacrosse Building in Docklands with an asking price of $225,000 to $250,000. It
was bought off-the-plan for $295,000 in December 2010.
"The off-the-plan market is a bit of a false market because you have the stamp duty
savings and depreciation for investors," Lean said. "When it's re-sold its real market
value is based on other comparable properties in the market."
In the case of the Lacrosse building values were also impacted by a fire in 2013
which caused damage to about 100 apartments in the 23-level tower.