The Barefoot Investor has blamed the construction boom and distrust in the quality of new construction for a sharp fall in property prices in some parts of the country.
Scott Pape highlighted an apartment at 883 Collins Street, a huge waterfront complex in Docklands, Melbourne, which has just been listed this past week.
The two-bedroom apartment was listed online for months with an “urgent sale” description for $630,000-$650,000.
But the sale could result in an eye-watering loss of as much as $230,000 for the owner who bought it for $860,000 shortly after construction finished in 2017.
Mr Pape said in his weekly column the numbers “are only getting worse… it would have to be worth at least $1.1 million to keep up with inflation.”
“That loss is before you take into account inflation, body corporate fees, council rates, land tax, maintenance, estate agent sales commission and of course ten years of interest on your loan,” he told readers.
“Guess who the real winner is in our scenario? It’s the tenant!’
Mr Pape said tenants had enjoyed a landlord’s amenities for ‘a decade’ while their properties fell in value and were urgently sold at a huge loss.
Barefoot Investor, Scott Pape (pictured), has revealed the shocking losses being suffered by homeowners in dozens of suburbs
The Barefoot Investor also pointed out that the apartment is not an isolated problem, pointing to CoreLogic research that found 65 suburbs in Sydney and Melbourne had average property sales below their historical peaks.
It also found that values in 16 suburbs of major cities had fallen by more than 10 percent.
The sixteen suburbs meeting this standard are also located in previously known inner-city areas in Sydney and Melbourne.
“In some of these markets, housing affordability is improving despite high interest rates and a large proportion of sellers are willing to sell at a loss,” Eliza Owen, head of Australian research at CoreLogic, said in October.
“But buyers don’t bite.”
The research found that the market for units had fallen significantly in value following a wave of investment in new construction between 2010 and 2017.
“The supply built up during an investment boom may not meet the needs of today’s buyers,” Ms Owen said.
“Rather than first home buyers rushing to this relatively affordable stock, many are likely wary of defects in these homes, or put off by the high density and relatively small size of the homes.”
Corelogic research found that property values in 65 Sydney and Melbourne suburbs had fallen from their historic peaks, 16 of which fell by more than 10 percent (stock image)
She also noted that interest rates may need to “fall further” to achieve more attractive rental yields to convince investors to buy units.
The suburb that saw the biggest decline was Epping, in Sydney’s northwest, where the average house price cost 18.4 per cent less than its peak in May 2017.
It was followed by East Melbourne, which fell 17.2 per cent since November 2018, while Sydney’s Beecroft fell 16.5 per cent.
Sydney Olympic Park has fallen 14.8 per cent since June 2017, after Opal Tower residents were evacuated on Christmas Eve the following year for structural repairs.
Ms Owen said recent construction projects had helped reduce rents but were unable to keep the market competitive as they were often smaller apartments near universities or city centres.
“Unfortunately, they sit like a waste in some of our most valuable, convenient locations in Sydney and Melbourne, in the middle of a housing crisis,” she shared. Domain.
‘Viewing housing exclusively through the lens of wealth creation can be detrimental to the quality of life of the people who live there and lead to a lack of utilization of these homes.
‘The right kind of supply is large enough for different types of households to want to live in it in the long term. Whether that’s a wealthy Boomer downsizing or a young family looking for enough bedrooms and outdoor space to raise a family.”