- extremely high level of construction of high rise apartments in some areas, many with a large number of small apartments
- low population growth
- apartments targeted at investors, not owner occupiers, so a more limited market segment of buyers and renters
- apartments being constructed in second and third tier areas.
However, I don't think that all the apartments currently "in progress" will actually be built. This includes apartment projects that have good pre-sales and where "construction has started". This is because:
- some developers are unable to obtain the level of finance needed to commence the project
- construction costs have increased dramatically, especially for union built projects, and so the project is no longer viable, even if the project is sold out
- simply because the site has been cleared, and some work has started, does not mean the that project is underway -- it may never be built.
- the number and percentage of presales in a development is often overstated by the developer in advertising and market surveys, and so the developer will not in fact be able to obtain finance at all.
So I think that the level of oversupply may be overstated. There will still be oversupply, just not as bad as some people are predicting.
There are other risks in the high-rise apartment market:
- off-the-plan buyers may have trouble settling, because valuations may be lower than contract price, because banks are not lending to offshore buyers, and because banks are requiring a higher cash contribution.
- rents are likely to fall, which means that valuations will fall
- some projects are overpriced, and it is likely that after settlement sales prices will be less than the contract price
- some constructions companies are in financial difficulties, and so are cutting corners -- the end product many be different, and lower quality, to what is expected by the buyer
- many buildings are being built close to other buildings, impacting light, view and ventilation
- foreign buyers may evaporate.
The question in my mind is whether this will impact the high quality buildings in good locations that have large apartments with good aspect?