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New apartment sales in Sydney and Melbourne slumped in the September quarter, according to a report from property advisory group Urbis.

Apartment prices have fallen 3.7% and 1.3% respectively in Sydney and Melbourne since the beginning of the year. Many expect the downturn will continue for some time yet.

There’s a huge amount of new apartments being built in both cities, a factor that could place additional downside pressure on prices at a time when demand is weak.

Urbis says that with apartment approvals falling in both cities, the pipeline of supply could be absorbed quite quickly should population growth remain strong in both cities.

New apartment sales in Sydney and Melbourne slumped in the September quarter, casting a worrying outlook for prices with a huge pipeline of new supply on the way.

According to The Australian, citing a report from property advisory group Urbis, only 46 apartments were sold in Sydney in the three months to September, representing just 13% of the available apartments for sale in the projects Urbis surveyed during the quarter.

Compared to a year ago, 381 new apartments were sold in the city.

The news for Melbourne’s new apartment market was just as glum with only 330 units sold last quarter, accounting for just 17% of stock available for sale.

According to CoreLogic’s October Home Value Index, the median apartment price in Sydney and Melbourne has fallen by 3.7% and 1.3% respectively since the beginning of the year.

While prices at the top end of the market have led the declines in both cities, from a broader perspective, some forecasters believe median prices in both cities will continue to fall for some time yet, potentially seeing values fall by as much as 20% from peak to trough.

A combination of higher stock listings for established dwellings, tighter lending standards and less activity from local and foreign investors, along with expectation of an elongated downturn, largely explains the slide in prices since the beginning of the year.

Recent data from CoreLogic revealed 30% of newly-completed apartments in Sydney, and 28% in Melbourne, settled with a valuation less than their original contract price in September, underlining why prospective buyers are cautious about buying off-the-plan at a time when prices are falling.

Urbis national director Clinton Ostwald told The Australian that Sydney and Melbourne’s apartment markets will not turn around overnight due to widespread expectations of further price declines.

“The national apartment market will continue to see lower sales volumes with a less consistent flow of new apartment marketing launches, buyers sitting on their hands and banks slowing the credit flow to developers, resulting in fewer construction commencements,” Ostwald said.

Adding to downside risks for prices in Sydney and Melbourne, the decline in sales volumes comes as a wave of new supply is about to hit both markets.

According to the ABS, 66,511 other residential dwellings, including the likes of units, townhouses and granny flats, were under construction in New South Wales in June quarter, just off the record high of 68,310 that were being built at the end of March quarter this year.

In Victoria, a record 50,085 other residential dwellings were under construction at the end of June.

While these are state figures and don’t just include apartments but other non-housing dwellings, the numbers largely reflect activity in the capitals, Sydney and Melbourne.

Including developments that have not begun construction, Urbis says 58,000 new apartments were still in the pipeline for Sydney at the end of the September quarter. In Melbourne, the pipeline was even larger at nearly 64,000 apartments.

However, with the price downturn now starting to influence new building approvals in both cities, especially for apartments, Ostwald says the surge in supply could be absorbed quite quickly given rapid population growth in both cities.

“While the market won’t be picking up in the short term, the falling volume of new dwelling completions, despite ongoing population growth, may result in an undersupply of new housing within the next 12 to 18 months,” Ostwald said.

According to the ABS, the population of New South Wales and Victoria grew by 113,100 and 137,400 respectively in the year to March this year. Based on recent data, it appears that national population growth may have picked up in recent months due to higher levels of net overseas migration.

While the near-term outlook for Sydney and Melbourne’s new apartment market is looking fairly negative, the Urbis report said there were stronger results in other parts of the country in the September quarter.

In Brisbane, 420 new units, or 57% of available stock, sold during the quarter. In Perth, 236 new units sold, or 82% of supply.

The Gold Coast also performed well with 73% of supply selling during the quarter.

Like so many other housing indicators the underlines the point that there’s no such thing as an Australian housing market with trends in Sydney and Melbourne hardly reflective of those in other parts of the country.

There’s more at The Australian here.

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