A sense of optimism has returned to the Australian property market just as the critical spring selling season begins.

House prices jumped 2% in August – their biggest rise for two years – and clearance rates are back over 80%. Official figures this week showed that mortgage lending spiked at its fastest rate for four years as buyers raced to take advantage of ultra-low interest rates and more relaxed rules around credit.

But although a sunny weekend in Sydney and Melbourne promises to bring prospective house buyers out in force, dark clouds threaten to end Australia’s love affair with apartment living, especially in high-rise blocks.

In particular, concerns are focused on oversupply, construction standards and the potentially lethal issue of combustible cladding.

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Almost 250,000 units were on track to be built across the country last year, more than 60% of them in Sydney and Melbourne, according to CoreLogic. The downturn in the market since 2017 has forced the cancellation of many projects and the industry is reeling from oversupply. Figures from the Australian Bureau of Statistics last month showed the number of unit approvals fell 44% in the 12 months to July.

Apartment prices did not fall as sharply this year as those for houses, but they are not recovering as quickly, and developers are feeling the strain. Last month Ralan Group, a large east coast developer with about 50 subsidiaries, went bust owing $277m to creditors. Many of the hundreds of buyers faced with losing their deposits are Chinese investors who bought units off the plan in the company’s Gold Coast and Sydney projects.

Mark Bainey, whose firm Capio Property specialises in buying distressed units in Sydney that developers cannot sell, says many areas such as Parramatta and Homebush were oversupplied with apartments that all looked the same. “There are too many flats in the same areas, at the same prices, with the same finishes and the same outlook,” he said.

Concerns about cracks in high-rise blocks such as Opal and Mascot Towers had further undermined confidence and made buyers think again about large blocks.

“There is definitely a lack of confidence in high-rise developments. Anything three levels and under is selling and buyers are retreating from high-rise,” he says.

The extent of problems at the Mascot development were laid bare this week in a letter from the development’s strata committee to the New South Wales government pleading for financial help for apartment owners.

It is not fair that I am in financial ruin because I bought an apartment in NSW Resident of Mascot Towers

It said one-third of the 132 owners could not raise the $60,000 they each need to pay into a $7m fund to fix the problem of cracks in the basement. The strata fears that if the work does not start as planned at the end of this month the onset of hot summer weather could make the structural situation worse.

“The rectification cost to the building as a whole would become commercially unviable. Time is of the essence,” the letter to better regulation minister, Kevin Anderson, says.

It quoted unnamed residents who said they feared financial ruin. One wrote: “I don’t know how to source 60K in the next 6 months and I am currently under a lot of stress.”

Another said: “Please help us repair our building. I have been a hardworking taxpayer for many years and I have not done anything wrong. It is not fair that I am in financial ruin because I bought an apartment in NSW. Anything you can do for us will be much appreciated!”

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Edwin Almeida, of Ribbon Property Consultants in Sydney, blames the privatisation of building certification in NSW which was once carried out by independent council officials but is now done by inspectors appointed by the developers or builders.

He believes the sector that once promised to break the Australian fixation with owning a quarter-acre block and a backyard for the kids is on the brink of disaster.

One strata manager told me that he has identified 200 buildings with the problem. And that is just one strata Michael Teys, strata consultant

“Thousands of apartments are still being built so something needs to be done now about building standards,” he says. “Otherwise buyers will walk away from high-rises, banks will take more cautious valuations, and there’ll be no consumer confidence.

“All it takes is another major scenario such as a Mascot Tower or Opal Tower and the whole industry will shut down.”

Sentiment varies across the country. In Melbourne, where the trend towards high-rise living is perhaps even more noticeable, there have been no major construction concerns and unit prices have been more stable. Graham Wolfe, the managing director of the Housing Industry Association, says population growth is still the “trump card” in the major cities and will see the apartment sector through as buyers adjust to the banks’ new lending rules.

The real elephant in the room, however, could be the danger posed by the widespread use of combustible cladding on apartment blocks all over Australia. Ever since flammable cladding was identified as the factor that turned a small fire in Grenfell Tower in London into an inferno that killed dozens of people, there have been concerns about the extent of the problem in Australia.

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It has proved difficult – and in some cases inconvenient – for government, the industry and residents to establish which buildings are covered in the aluminium composite.

Michael Teys, a strata consultant and academic, says government estimates that there are hundreds of buildings with dangerous materials are “laughable”.

“The real number is thousands and thousands,” he says. “Talking to people in the industry, you only have to look at the sheer volume of the stuff that has been imported in order to see the problem.”

Based on ABS data, he estimates that 20m sq m of combustible cladding material has been imported. Each square metre is the equivalent of 5.5 litres of petrol in flammability and some buildings have thousands of square metres. The LaCrosse building in Melbourne, for example, which caught fire in 2014, had 4,000 sq m of the material.

Teys says: “One strata manager told me that he has identified 200 buildings with the problem. And that is just one strata.

“There will be other Ralan Groups. Inevitably there will be and it will be because of cladding. Of the major builders who have built over the last 10 years, how many will fix buildings when the average cost is $3m?”



