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RBA warns over rising vacancies and slowing rent growth

27 March 2015 Staff Reporter

The Reserve Bank of Australia has warned that strong investor demand could lead to an oversupply of units in Melbourne and Brisbane.

In its latest Financial Stability Review, the RBA flagged the risk that “robust investor activity” could lead to an excessive rise in construction and a supply overhang.

The review noted a “strong increase in higher-density dwelling approvals in inner-city Brisbane” in recent months.

“Some reports suggest that the vacancy rate has started to drift higher and that growth in rents has slowed of late,” the central bank said.

“In liaison, banks and other firms have conveyed some concern about possible future oversupply in this market.”

The RBA also warned the Melbourne property market was at risk of oversupply.

“This appears most evident in inner-city Melbourne, where the level of high-rise apartment construction has been elevated for a number of years,” it said.

“The rental market already looks fairly soft, with relatively high vacancy rates and little growth in rents.”

Building approvals are at record highs after reaching a 30-year peak in 2014, when the Australian Bureau of Statistics recorded 197,571 approvals over the 12 months to 20 August.

Housing Industry Association economist Geordan Murray said a sharp spike in unit approvals in Queensland had combined with solid levels of unit approvals in NSW and Victoria to lift the national total.

“These three states typically account for around 80 per cent of all multi-unit residential building and when you have all three performing strongly, it’s a recipe for a strong national result in this segment of the market,” Mr Murray said.

The RBA said significant new supply would continue to come on line over the next few years, given the recent strength in building approvals and the time lags between approval and completion.

“Liaison suggests that a large amount of activity has been driven by foreign developers and foreign investors, with some of these developments consisting of smaller-sized apartments targeted at international students,” it said.

 “These apartments may be difficult to sell in the secondary market if investors’ expectations of future student demand are not met, which could place downward pressure on prices, including in the broader Melbourne apartment market.”

[Related: Vacancy rates hit 10-year high]

RBA warns over rising vacancies and slowing rent growth
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