Is there an apartment oversupply and what it means for buyers

October 26, 2016
Melinda Halloran

There are an increasing number of cranes on Brisbane’s skyline and most of them will soon be replaced by apartment buildings. But is Brisbane ready for high-density living?

Fears of apartment oversupply have been building for some time as more property developers commit to building apartments in Brisbane. It’s a complete back flip from recent years, when the GFC and the end of the mining boom saw investment in Brisbane subside. 

Now, however, with developments such as Queens Wharf going ahead, more investors choosing Brisbane over southern capitals and the property market recording 4.2% growth last year, it looks as though things are changing.

Our housing market needs to keep up with growth, but the question remains: is there really enough demand for all these apartments?

Why are so many apartments being built? 

With so much happening in the local and national economy, it’s difficult to say exactly why so many apartments are being built in Brisbane, but the boom in construction does show that there is confidence in the local property market. Brisbane is not alone either, similar conversations are also happening in Melbourne and, to a lesser extent, Sydney.

In Brisbane, the council is obliged to assess every property application that is presented and Lord Mayor Graham Quirk believes there will be a record number of applications this financial year, but there is no guarantee how many will be approved. The council operates on a philosophy of supply and demand, believing that when demand drops, developers will stop building.

What are the benefits of buying an apartment now?

Apartment living may not be for everyone, but it makes sense for a lot of home owners and downsizers. The reality is that not everyone can afford to buy a house and with so many apartments currently being built, there will be more affordable options for first home buyers to take advantage of.  

When purchasing a newly built apartment, first home buyers are also entitled to the first home owners’ grant, which has increased to $20,000 until the end of this financial year, making new apartments even more attractive for those trying to get into the property market.

It is not yet clear what impact the supply of apartments will have on property prices, however, it is likely that it will be some time before we see a spike in the price of apartments. If you are a first home buyer and you want to make a profit from your apartment, you will need to be willing to hang onto it for at least a couple of years until demand catches up with supply.

Downsizers are the other buyers who stand to benefit from the variety of apartments coming onto the market. Downsizing isn’t for everyone when they retire, especially if selling your home will affect your pension. But if you have been thinking of selling your house for something smaller, you may be able to find yourself a competitively priced, brand new apartment that requires little maintenance. 

Related: Should you buy off the plan? 

Things to look for when purchasing an apartment

When purchasing an apartment in this environment, you really need to do your research. Some lenders are asking for 30% deposits for apartments purchased in the inner city, where the greatest amount of apartments is being built.

It’s a different story for suburbs in the middle ring (6–15 km from the city). These areas are also in the midst of the apartment boom, but with fewer new apartments being built here and growth predicted for areas outside the inner city, apartments in this ring are not only more affordable, they are also becoming increasingly attractive to buyers. 

When buying an apartment, there are a number of factors to consider. 

  • Location: One of the biggest drawcards of apartment living is a low-maintenance lifestyle. Look for apartments in convenient locations with public transport, shops and restaurants nearby. 
  • Vacancy rate: If you are looking to invest, the vacancy rate will give you an indication of the demand for rental property in an area. Seek out areas that consistently have low vacancy rates. 
  • Tenant to owner-occupier ratio: This isn’t a hard-and-fast rule, but apartment buildings with a higher percentage of owner-occupiers are often better cared for.
  • Sinking fund: When you have found an apartment you are interested in, research the body corporate as well as the health of the sinking fund. This is the money set aside for maintenance and building improvements.
  • Strata fees: How much will you be expected to pay each year in strata fees? Buildings with more facilities such as pools and elevators typically have higher strata fees.   

Related: Brisbane remains unaffected by the property bubble

– Luke Cashin

0419 733 862 | 
Your Garden City Mortgage Broker, Brisbane 

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