UNIT SETTLEMENTS A TICKING TIMEBOMB, SAYS REPORT

UNIT SETTLEMENTS A TICKING TIMEBOMB, SAYS REPORT

APARTMENT settlements, and the ongoing strength of the national construction boom, are about to be tested over the next 24 months, and according to one forecaster the picture isn't pretty.

The CoreLogic RP Data Property Pulse reveals that sales records will have to be smashed in some markets to avoid a massive glut of supply.

The report has identified Brisbane and Melbourne as most at risk of settlement defaults, even though Sydney and Melbourne will have the greatest supply increases of any markets.

It also warns that tighter lending rules by banks, particularly for overseas investors, will compound the problem, the first signs of which could emerge in the next few months.

The report has revealed that 92,102 new apartments are due for completion in capital city markets over the next 12 months. This will surge to 231,129 over the next 24 months.

"Looking at new unit supply across our capitals, Sydney and Melbourne are predicted to have the greatest increases in stock over the next two years," says the report.

CoreLogic research analysts Cameron Kusher describes a 'big disconnect' between these numbers and average annual apartment sales over the past five years.

"The large volume of new stock, coupled with an ever-growing supply of existing stock means that historic high levels of unit settlements are due to occur over the next two years in most cities," says Kusher.

"In fact, even a recurrence of the peak year for sales in Melbourne and Brisbane over the next two years wouldn't represent enough demand to cater for all of the new units set to settle over the coming 24 months."

Kusher says most of the stock due to settle in Melbourne, Brisbane and Perth is located within 10km of the CBD.

However, he believes Sydney could be shielded to some extent from a potential settlement fallout due to the geographical diversity of projects under way.

"In some respects this spreads some of the risk around the city rather than other cities where new supply is much more centralised," says Kusher.

The CoreLogic RP Data Property Pulse says the surge in apartment supply is putting the brakes on capital growth in the sector, with house prices rising at a faster rate.

"Many off-the-plan unit buyers would have expected a level of capital growth between contract and settlement," says the report.

"Mortgage lenders have recently tightened their lending criteria; subsequently some people who have committed to off-the-plan units may not be able to borrow as much as they could at the time of signing the contract.

"To compound the situation, three of the four largest banks have announced they will no longer be lending to overseas home buyers which may result in a larger number of contracts not progressing through to settlement, considering a larger proportion of off the plan unit sales are to overseas buyers."

Kusher says settlement risk is a trend he will be keeping an eye on in the next few months, and in the year ahead.

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