Although the drop in rents had affected how much buyers would pay, as rents start to pick up values are likely to see some recovery, Zigomanis said, adding apartments designed for owner-occupiers are likely to perform better than investor-grade product.
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Areas with loss-making sales, and particularly the Melbourne CBD, have also experienced pressure from the supply side after new buildings sprang up in recent years.
“All those markets have probably underperformed from the supply side – they’ve had the double whammy this time round through COVID,” he said.
Melcorp Real Estate director Mark Giuliano said small apartments were the most likely to struggle in the resales market in the Melbourne CBD.
For example, two-bedroom units of 55 to 60 square metres would be harder to sell than one of 80 square metres or more.
Some new buildings had been sold off the plan to international investors who could only resell them to a more limited market of locals because Australia’s foreign ownership laws only allow international buyers to purchase new properties.
Nearly a third of property sales in the Melbourne city council area were loss-making.Credit:Wayne Taylor
“They are the ones that sometimes struggle in the marketplace, and you are having to give the news to a person who might be losing $50,000 to $60,000 or even $100,000 [before costs],” he said.
Anything designed for owner-occupiers with more space and amenity in a better location performs better, he said.
“If it is a good building, it’s well designed, it does really well – sometimes you can’t get enough of them.”
In Melbourne’s inner south-east, the plentiful new apartments near South Yarra train station have been less likely to hold their value, Woodards South Yarra director Luke Piccolo said.
Demand has been stronger for detached homes than apartments.Credit:Peter Rae
“Given the proliferation of newer buildings, those investments don’t necessarily look as good now,” he said.
Buyers in this pocket have also changed since the pandemic, with two-bedroom apartments now largely sought by owner-occupiers, rather than the roughly 60-40 owner-occupier to investor split previously, he said.
He encouraged apartment buyers to prioritise location, views, aspect, natural light, outdoor space and size to find a property more likely to hold its value. With many new two-bedrooms about 60 square metres, he suggested looking for 80 square metres or above.
In Sydney, buyer’s advocate Zaki Ameer has seen apartments in Parramatta, Strathfield and even Homebush more affected because of an oversupply of new homes.
New apartment supply has put pressure on prices.Credit:James Alcock
“Distressed properties haven’t come on the market yet – I’m sure it will with the rate rise,” the founder of Dream Design Property said.
“It’s the flow-on effect through the pandemic because the government put up so many grants, HomeBuilder and all of that, because a lot of people jumped on off-the-plan apartments.”
People who signed contracts a year ago will be coming up to settlement as the Reserve Bank this week lifted interest rates for the first time in more than a decade, and he said when banks value properties for settlement they will need to be realistic about their valuations today.
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He encouraged apartment buyers to plan their finances around rising interest rates and look for quality product.
In Parramatta, for example, one-bedroom apartments can be more in demand from renters than three-bedders because of demand from students at Western Sydney University, but Ameer warned buyers to look for at least 60 square metres with a balcony or terrace.
In other state capitals, loss-making sales also tended to be concentrated in the inner cities.
Loss-making sales were less common in the booming property markets of Brisbane (8.4 per cent), Hobart (Brighton council area in the north, 4.6 per cent) and the ACT (1.8 per cent).
Where homes sold for a loss despite the property boom
Source: Philippines Alive
