New data from CoreLogic has revealed 65 unit markets in Sydney and Melbourne where property values remain below their record highs from the 2010s.
These underperforming markets are all unit markets that have been impacted by oversupply and reduced demand for apartment living in certain areas.
Eliza Owen, head of research at CoreLogic, said: “A supply glut of apartments in the early 2010s impacted prices across a vast array of Australian markets.”
While demand has increased to stabilise prices in most markets, some pockets in Sydney and Melbourne continue to see weak buyer interest.
Sydney accounts for 51 of the underperforming unit markets, with values sitting below peaks from 2017 or 2018.
In Epping, the median unit value of just under $800,000 is 18.4 per cent below its May 2017 peak.
Beecroft unit values are 16.5 per cent below their October 2017 high, while Sydney Olympic Park is 14.8 per cent under its June 2017 peak.
In Melbourne, East Melbourne unit prices are 17.2 per cent below November 2018 levels, Abbotsford is 16 per cent under April 2017 prices, and West Melbourne has a 13.9 per cent gap from January 2018.
Owen explained: “As interest rates moved lower post-GFC, residential property investment became particularly attractive in the inner and middle ring suburbs of Sydney, and inner-city suburbs of Melbourne and Brisbane.”
This led to a boom in apartment construction, with national apartment approvals peaking at 123,000 in the year to August 2016.
The boom ended around 2017 when a temporary cap on interest-only lending was introduced.
Owen said: “With the cap in place, alongside other tightening in lending conditions, investors quickly came out of the Australian property market, undermining the value of newly built units.”
The apartment market was further impacted by high-profile construction faults in buildings like Mascot Towers and Opal Tower.
Owen noted that today’s buyers, including first home buyers, are wary of defects in these builds or turned off by high density and small unit sizes.
Despite poor capital growth returns, Owen suggested interest could return to these markets from both investors and owner-occupiers, “but only if the price is right”.