Much of the inner city’s new apartment supply is being built in the Waterloo-Zetland area.
Nearly a third of Sydney’s newly completed units are now worth less than what their buyers will have to pay for them.
Many of the homes were purchased at inflated prices agreed during the housing boom two years ago but dropped in value as the market slumped over the time it took to build them.
To add to the pain, buyers now face an uphill battle to pay the full purchase price since lending policies are preventing banks from issuing mortgages that exceeded the market value of homes.
Without a large enough mortgage to cover the full contract price, the buyers would have to cover the shortfall with additional savings or be forced to surrender 5-10 per cent deposits already paid to developers.
And the trend could get worse. Cordell-CoreLogic figures show the supply of new apartments is set to increase by up to 144.4 per cent over the next two years in the city’s construction hot spots.
Many more housing projects will be completed across Sydney over the next two years. Picture: Britta Campion
CoreLogic head of research Tim Lawless said many pockets of Sydney were already oversupplied. With the current slump expected to continue into next year, this suggested more off-the-plan buyers would get negative valuations in the months ahead, he said.
Just 11.9 per cent of valuations returned a value below the contract price in January this year, but this nearly tripled to 31 per cent by October.
“It would be tempting for many these buyers to walk away but they usually can’t,” Mr Lawless said.
Bannermans Lawyers principal David Bannerman said the worst affected buyers would be investors who bought off-the-plan with intentions of selling them for a profit before settlement but failed to attract a buyer.
“They may never have considered how they’d finance these properties because they always intended to flick them on,” he said. “Now they have to find that money somewhere else.”
The off-the-plan sector has become a growing area of concern for the Berejiklian government given it now accounts for nearly 12 per cent of all residential sales in NSW.
This month new laws were passed affecting cooling off periods, holding of deposits and sunset clauses.
Finance, Services and Property Minister Victor Dominello said the new protections would give buyers greater confidence and certainty when entering into off-the-plan contracts.
“We know of so many cases where things have gone wrong and buyers (were) stung,” Mr Dominello said.
Sydney has a greater geographic spread of high-density housing than most other capitals.
Development approval data showed 2469 multi-units projects were due for completion in Greater Sydney over the next two years, lifting the supply of medium to high-density homes by 9.5 per cent.
Regions getting the biggest injection of new units included Blacktown-North, Penrith, Merrylands-Guildford and Parramatta. Mr Lawless said the long pipeline of units heightened risk for buyers relative to previous years.
Mr Lawless said the long pipeline of units heightened settlement risk for buyers relative to previous years, but the broad geographic distribution of multi-unit projects would help ease some of that risk.
INCREASE IN HOUSING SUPPLY OVER NEXT 2 YEARS
Ryde-Hunters Hill 13%
Sydney Inner City 5.9%