The Suburbs You SHOULD NOT Invest In: Real Estate Expert Reveals Danger Zones Buyers Should Avoid Due to Oversupply of New Apartments – And Why Remote Areas Are A Bad Idea
- Investors are being told to stay away from areas of oversupply of apartments
- Parramatta, Mascot, Rouse Hill and Gosford, classified as ‘danger zones’
- Buyers warned that oversupply affects property values and rental income
Investors are being warned not to buy apartments in four areas of NSW due to an oversupply of new developments.
Parramatta, Mascot and Rouse Hill, in Sydney, are projected to increase the number of apartments by 13 percent over the next two years
The suburbs are already oversupply, according to real estate experts, realestate.com.au reported.
Gosford, on NSW’s central coast, is expected to have 1,900 additional apartments built, representing a 73 percent increase from the current number of units.
The oversupply can potentially cause “dangerous” price reductions for people who want to buy a unit of the plan.
Experts have revealed that an oversupply of apartments, such as in Mascot (pictured), Parramatta and Rouse Hill, would impact investor confidence as it creates ‘dangerous’ price reductions in property value
RiskWise CEO Doron Peleg said the impact of the COVID-19 pandemic, which has led to a drop in rents and buyer demand, was also a key factor.
Mr Peleg said falling rental income coupled with an increase in tenant vacancy rates are reducing the incentive for investors.
He said the industry took a hit with recent high-profile cases where defects were found in some new apartment buildings.
He said that as a result, many investors are resorting to house and land packages due to the ‘high land-to-asset ratio’.
Mr. Peleg said equity and cash flow risks for apartments are both expected to “ increase significantly, ” which would create enormous risk for buyers.
Pete Wargent, co-founder of Buyers Buyers, said the risks in over-supplied suburbs were exacerbated by border closures as a result of the COVID-19 pandemic.
He said that as a result of the lockdown, there were fewer tourists and international students to live in apartment buildings.
RiskWise CEO Doron Peleg said a drop in rents and buyer demand due to the COVID-19 pandemic was also a key factor in avoiding apartments in oversupply suburbs (Rouse Hill photo)
Mr. Wargent encouraged buyers to look for investments that offered “scarcity value.”
“In the medium to long term, it is the land value component of the asset that does the heavy lifting for you and therefore buyers should look for a high land to asset ratio,” he said.
Meanwhile, propertybuyer.com.au CEO Rich Harvey told the publication that there was ‘no point’ in buying an apartment in ‘suburbs’.
“While it may be nice to have a shiny new kitchen and bathroom, there is a significant downside price risk as there is plenty of land for further development,” he said.
“In a market where prices are falling, there is settlement risk to the buyer if he finds that the value paid for the unit has fallen significantly.”
Many investors turned away from apartments, especially in oversupply areas, and instead started investing in house and land packages due to the ‘high land-to-asset ratio’ (Parramatta pictured)