According to research from CoreLogic, there are 65 micromarkets in Sydney and Melbourne where values are below record highs from the 2010s, and vendors are even willing to sell at a loss.
All of these are unit markets that have dropped due to an oversupply and lack of demand for apartment living in the area.
According to Eliza Owen, head of research at CoreLogic, a “supply glut” of apartments in the early 2010s impacted prices across a vast array of Australian markets. But while demand has risen to even out prices in most of those markets, certain Sydney and Melbourne pockets continue to see a less-than-robust level of buyer interest.
Despite Melbourne dwellings currently being the weaker of the two capital city markets, it is Sydney that accounts for most of the list, with 51 unit markets sitting below a peak from 2018 or 2017.
Epping is one such example, with a median unit value of just under $800,000, which is 18.4 per cent below its peak in May 2017.
Also in the harbour city, Beecroft’s unit values sit 16.5 per cent below its Oct 2017 high. Sydney Olympic Park is 14.8 per cent under its peak in Jun 2017, and Granville hasn’t yet hit September 2025 prices, lagging by 12.8 per cent.
East Melbourne is 17.2 per cent below the prices recorded in November 2018. Abbotsford sits 16 per cent under April 2017, and West Melbourne prices have a gap of 13.9 per cent off January 2018.
The vast majority of these markets have experienced declines in value for units over the past 12 months, or seen only very minor gains.
The results stand in contrast to performance across each city’s unit markets more generally. In Sydney, median unit values have risen 8.7 per cent since mid-2017. Similarly, in Melbourne, unit values across the greater city area have increased 6.5 per cent from mid-2017 to September this year.
The difference in these suburbs, according to Owen, is that they’re still suffering from an “oversupply of investment-grade units built in the 2010s”.
She explained that a confluence of economic factors resulted in a very particular type of apartment construction dominating building activity for a number of years, which is now not suiting current buyers’ needs.
“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,” she said.
A boom in investor activity resulted in a substantial unit construction – where investor activity is generally far more concentrated – to cater to their appetite.
“Nationally, apartment approvals peaked at 123,000 in the year to August 2016. Notably, apartment approvals eclipsed detached house approvals during this period, another sign that the market was shaped by elevated levels of investment activity.”
But the boom in apartment investment came to an end around 2017, when a temporary cap on interest-only lending was introduced.
“At the time this cap was announced, around 70 per cent of new investor loans were taken out on interest-only terms. 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,” Owen explained.
Compounding this drop-off in appetite, the apartment market also suffered a crisis in confidence after high-profile construction faults were found in buildings like Mascot Towers and Opal Tower.
“The result of the 2010s apartment boom has meant some of the most convenient and well-located development sites were utilised for a specific type of buyer at a specific point of time – however, supply built during an investment boom may not meet needs of today’s buyers. Instead of first home buyers rushing to this relatively affordable stock, many are likely to be wary of defects in these builds, or turned off by the high density and relatively small size of the units,” Owen said.
Now delivering poor capital growth returns, Owen noted that even today’s investors are deterred from these markets.
But with supply expected to continue being a pain point for years to come, Owen noted that interest could flow back into these markets from both investors and owner-occupiers, “but only if the price is right”.
