Thank you, Eliza Owen, Head of Research Australia at CoreLogic, for sharing the latest Property Pulse Report. It explores the unit markets in Melbourne and Sydney, revealing 65 areas where 2024 values are lower than their peaks in 2010, indicating "The buyer’s markets where no one wants to buy.”

CoreLogic's new analysis shows 65 markets in Sydney and Melbourne where property values are below their peak from the 2010s. Many sellers are willing to take a loss, yet buyers remain uninterested. Below is a list of these underperforming unit markets, showing their current values, peak values, and changes over the past year.

Where are these more affordable units located? And why have they under performed?

How long will it take to save up for a deposit?

Sydney's has 51 unit markets at values lower than their peaks from 2017 or 2018. Overall, Sydney unit prices have increased by 8.7% since mid-2017. However, Epping's median unit price is just under $800,000, down 18.4% from May 2017. Housing affordability has improved in the Pennant Hills-Epping region, with the time needed for a median-income household to save a 20% deposit dropping from 9.8 years to 7.6 years between mid-2017 and 2024. Even with rising mortgage rates, the income needed to service a mortgage stayed low at 36.0% as of mid-2024, down slightly from 36.1% in 2017.

In Greater Melbourne, unit values rose 6.5% from mid-2017 to September 2024, but in the Melbourne City area, which includes eight suburbs, they remain 8.6% below their 2017 peak. The median unit price in this area is $514,000, and buyers only need 5.4 years to save for a deposit and spend 34% of their income on a mortgage. Many buyers in this market benefit from this, as data shows that 42.2% of unit sellers in the Melbourne City area experienced a loss in the June quarter of this year.

Why have these markets underperformed?

Poor-performing unit markets in Sydney and Melbourne are mostly linked to too many investment-grade units built in the 2010s. After interest rates fell following the global financial crisis, residential property investments became popular, especially in the inner and middle suburbs of Sydney and the inner cities of Melbourne and Brisbane. In 2015, the share of new housing finance for investors reached a record 46%. Foreign buyers increased purchases of off-the-plan apartments, and many investors took out interest-only loans for tax benefits, possibly driving speculation in the apartment market. This is based on gross median household income and a 15% annual savings rate.

Australia’s off-the-plan apartment boom

This resulted in a surge in apartment construction, with most investors interested in this area. Nationally, apartment approvals reached 123,000 by August 2016, surpassing approvals for detached houses, indicating high investment activity. Data from the ABS revealed that most home buyers preferred houses, with about 80% choosing to buy a house in the 2015-16 financial year.

In the 2015-16 financial year, nearly 5,000 units were approved in the Melbourne and Southbank areas. During the same time, 1,300 units were approved in Epping - North Epping and 770 in Liverpool - Warwick Farm.

Apartment investment growth stopped around 2017 when a temporary limit on interest-only loans was introduced to reduce risky lending. At that time, about 70% of new investor loans were for interest-only terms. With this limit and stricter lending rules, investors left the Australian property market, lowering the value of newly built units.

The apartment market lost trust because of poor construction quality, which was highlighted by issues like Mascot Towers and the cracks in Opal Tower at Olympic Park.

The wrong kind of supply

• The apartment boom in the 2010s led to investors using prime development sites.

• 2010 investment surge may not fit today’s buyers’ needs.

• First-time home buyers are hesitant to consider these units due to concerns about defects and the small sizes of the properties.

• Current investors are also cautious, as these markets have not shown much capital growth for nearly a decade.

• Even though rents have increased recently, higher interest rates compared to the 2010s may force prices lower to attract buyers looking for good rental yields.

Where are the bargains?

• Some unit markets are now experiencing significant capital growth.

• Transport is the key. In Tallawong, where a metro line opened in 2019, unit values rose by 11.9% in the past year.

• Affordable areas like Punchbowl, Lakemba in Sydney, and Parkville in Melbourne have also seen decent growth while maintaining median unit prices below $600,000.

• Buyers may reconsider investing in medium-to-high-density unit markets if the price is right.

To read the full property pulse report, click on the link below.

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