The inner-city Brisbane unit market was suffering from oversupply before COVID-19 struck, but now researchers are warning it has become a “huge danger zone” for potential investors.
According to RiskWise Property Research CEO Doron Peleg, things have become much worse over the past few months, and will continue along these lines.
“RiskWise reported in July 2018 that there were 14,813 units in the pipeline in inner-city Brisbane for the next 24 months, being an addition of 20.1 per cent of the current stock,” Mr Peleg said.
“Two years later and there is still a very high level of supply with 5431 units in the pipeline, making up an addition of 5.9 per cent of the current stock.
“The issue of oversupply is not a new problem and has been there for a few years and the continuous weakness of the unit market in inner-city Brisbane should raise red flags for developers and lenders.”
The number of defaults continues to rise, and will do so for the foreseeable future, according to Mr Peleg.
“One of the key factors has been developers’ lack of foresight regarding unit oversupply as well as the impact of lending restrictions introduced from 2014.
“It seems there has been no methodological and structured risk-management approach including identification, assessment, and mitigating action plans to address those risks.
“This takes us back to the feasibility stage which includes the assessment of the projected fair market value and the likelihood of defaults and their potential consequences. Developers and lenders must find the right balance between taking risk and making profit.
“COVID-19 has only served to increase the risk. Currently, there are many high-rise properties being offered to a smaller number of investors. This is because there are less investors in the market due to the pandemic.
“The point is that if developers and lenders had put more proper risk-management practices in place, this could all have been avoided.”