Melbourne high-rise apartment prices have underperformed houses by more than 50 per cent in most suburbs in the past 10 years, amid concerns construction defects and cladding issues could lead to further falls in units.
Analysis by Propertyology, a company that researches property markets on behalf of investors, shows that while house prices in Melbourne grew on average by 91 per cent over the 10 years to May 31 this year, prices of apartments in most suburbs dominated by high-rise unit blocks have risen by less than half of that
The analysis using CoreLogic data shows Melbourne’s high-rise apartment market has performed significantly worse than every other Australian city.
It found apartments in Abbotsford, South Yarra and Balwyn, St Kilda and Richmond had value growth of between 3 per cent and 35 per cent over the 10 years. Price growth for Docklands apartments was 10 per cent and for Southbank 24 per cent.
Propertyology’s managing director and head of market research, Simon Pressley, said a huge number of “Lego” high-rise apartments had been built over the past 20 years.
“This poor performance has nothing to do with the structural and cladding problems that are coming to light, but that is likely to compound the underperformance even further,” he said.
“It’s taken about 250 years to build the 10 million dwellings which house 25 million people, but we’ve built 1 million apartments just within our eight capital cities over the past 16 years,” he said.
In the past three months dwelling prices in Melbourne have risen by 3.4 per cent after two years of price falls, according to CoreLogic figures.
But in a sign that the price recovery might not be as strong for apartments, a survey of 1200 property investors with at least one property looking to buy another shows they are shying away from off-the-plan purchases.
The survey by Property Investment Professionals of Australia (PIPA) found only 5 per cent intended to buy off-the-plan units, which also included asking them about house and land packages. In 2018 the figure was 6.4 per cent.
While investors understand there can be an oversupply of apartments and a developer’s margin is reflected in the sale price, the fall was likely due to the publicity surrounding the construction defects in high-rise apartments, said PIPA chairman Peter Koulizos.
Propertyology’s Simon Pressley said the sluggish performance of high-rise apartments comes amid concerns over of enormous repair bills for owners of apartments in buildings with major structural defects.
He said the several highly-publicised buildings so far are likely to be “just the tip of the iceberg”.
Mr Pressley said he had advised buyers to avoid high-rise apartments built in the last 20 years. “There is no due diligence that a potential buyer can do that would give them comfort [about the purchase],” he said.
The analysis covers suburbs that have a preponderance of apartments and the price performance of suburbs with fewer apartments could be better.
Returns on property come from capital gains and rental income. Not all investors are looking to maximise capital gains. Some, such as retirees, are looking to maximise the rental yield from their investment properties, particularly at a time of interest rates at historic lows.
John Collett, Sydney Morning Herald, 13 October 2019