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Why are regulators worried about new apartments?

The Reserve Bank of Australia and the Australian Prudential Regulatory Authority have both expressed concerns over the number of new apartment buildings in both Melbourne and Brisbane, says Bakos.

“We’ve got an oversupply of new and off-the-plan, if we had a stronger blend of established properties (in those areas), regulators may not be quite as concerned. But regulators are worried about off-the-plan for a few reasons. Obviously having a longer range settlement means that the buyer is taking a risk, so the risk is if the market contracts or the market changes they may have a valuation shortfall.

“Also, lenders may find that they are exposed to a high number of apartments in a certain building or a certain area – so there’s a concern there, they don’t want to be exposed to or vulnerable to specific pockets or segments of the market. Also, some of those new apartments in both cities have particularly small floor plans, it’s counter to what the majority of the market wants and it’s counter to what the banks want,” she says.

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