Schofields, Gosford and Rouse Hill are among the top Sydney and NSW suburbs most at risk of unit oversupply and potentially poor metrics for landlords, new research has revealed.
Figures released by RiskWise Property Research and buyers agency BuyersBuyers shows more than 6000 new units are in the pipeline for the trio of suburbs.
In Schofields, in Sydney’s outer north-west, 3397 new units are in the pipeline, which accounts for 115.7 per cent of existing stock.
In Gosford, on the NSW Central Coast, 1169 new units are due to be completed in the next 24 months, which equates to 28.2 per cent of existing stock, while 1274 new units are in the pipeline in Rouse Hill.
In Melbourne, Box Hill, Footscray and South Melbourne take out the top three spots on the list of “danger zone” suburbs, with more than 4000 new units in the pipeline.
In Box Hill 1833 new units are expected to be completed, while 1531 are expected in Footscray and 1056 are in the pipeline in South Melbourne.
RiskWise Property Research founder Doron Peleg said unit supply was a factor landlords need to be wary of.
“We have compiled our top 10 danger zone suburbs in Sydney and Melbourne where investors should be wary about the risk of rental vacancies and capital loss, particularly investors considering new or off-the-plan purchases,” he said.
“The CBD areas of the capital cities have been a risk area for some time, but in Sydney, the risks are spread quite broadly across the city, from Liverpool to the inner-south and Zetland, and up to parts of the Central Coast such as Gosford.”
Laing + Simmons Quakers Hill Principal Lyndell Pilkington said the current unit rental market in Schofields was solid and the most recent unit they had leased was snapped up in just three days.
“All of those things (higher vacancy rates, capital loss) might happen, but if you look back 24 months ago everyone was saying the same thing then and it hasn’t happened,” she said.
“Provided landlords are realistic with their pricing, there hasn’t been a vacancy issue thus far.
“The market is really busy, the school holidays were crazy.
“I haven’t got a unit on the books in Schofields at the moment.”
Ms Pilkington said Schofields was a swiftly changing landscape and when she started in the real estate industry 30 years ago there wasn’t a unit block in the suburb.
“Three years ago there was only one block of units in Schofields,” she said.
“There has been a lot released over the past 12 months and there are a lot more coming.”
But Ms Pilkington said she expected there would be good tenant demand for the units, particularly at the Tallawong Station development near the transport hub.
In July, the NSW Planning Department approved plans for almost 1000 homes in 17 high-rise towers to be built as part of the development.
Ms Pikington said a new shopping centre at Tallawong was another drawcard.
“It’s very popular with the immigrant market, who like to be close to their community,” she said.
Ms Pilkington urged landlords to crunch the numbers when considering any investment property and for new units she suggested talking to local property managers to get a good idea about rental yields.
“Go on the conservative side and then anything else is a bonus,” she said.
Other Sydney suburbs on the list include Zetland, Liverpool, Epping and Burwood.
Mr Peleg said in Melbourne the higher risk areas were more concentrated in the inner suburbs.
Others on the top 10 list include Coburg, Preston, Docklands, Brunswick, Burnley, Blackburn and Collingwood.
“We have seen high vacancy rates around Docklands, the CBD, the inner south, and other parts of inner Melbourne for some time,” Mr Peleg said.
“However, with interstate migration to Queensland also taking its toll we have seen double-digit declines in unit rents for inner Melbourne.”
Belle Property Balwyn Head of Property Management Chris Johnson said there was a lot of construction happening in Box Hill and with the impacts of COVID-19, including multiple, long lockdowns, many of the international residents and students had left and vacancy rates had increased.
“COVID-19 has had a big effect on the apartment market,” he said.
“If you’ve got these high rises coming up in Box Hill, like the Sky One on Station Street, with 100-odd apartments there, it may very well have a flow-on effect.”
Mr Johnson said weekly rents had fallen in many suburbs across Melbourne with some areas taking a 50 per cent hit at the height of the pandemic.
He said things were turning around now with a bit more light at the end of the tunnel.
“I think there’s a little bit more security,” Mr Johnson said.
“A lot of people that moved back to live with family last year are now starting to come back.
“But I think it will take at least another year before it gets close to where it was.”
Mr Johnson urged investors considering adding to their portfolio to do their homework.
“You need to have a look and see what’s there, see how many properties are online, how many are vacant and, if you have a property manager, speak to them and get their opinion on likely rental,” he said.
“Don’t buy just for rental yield. All investors should be buying with the intention of capital growth and improvement.”
BuyersBuyers Co-founder Pete Wargent said investors shouldn’t forget about units altogether.
“Established units can still be a solid investment in supply-constrained areas, especially in the largest capital cities, but it’s generally the rising land values that deliver the returns in Australian real estate so units in boutique blocks with a high land-to-asset ratio and a point of scarcity value tend to fare best,” he said.