The property industry accepts the notion that apartment prices on average will fall, but many developers hasten to say they are not average.
WBP Property Group is now valuing settling apartments "as much as 10 to 15 per cent" below the contract price, but that marks a return to fair value for units inflated by commissions developers paid partners including mortgage brokers, financial planners and overseas students to sell them in the first place, WBP executive chairman Greville Pabst says.
It's most prevalent in Melbourne and Brisbane, but Sydney is not immune either, he says.
"These apartments were overpriced from day one," Pabst says. "It's not like prices are going to fall. They're only going to fall to their true market value."
After warnings about falling apartment prices by the Reserve Bank of Australia, Deloitte Access Economics and other senior economists, many developers say it is different for them.
"Settlement risk over the next two years for us is relatively low as a high percentage of our buyers are local and the growth in Sydney property has been strong," says Jin Lin, the chief executive of developer Aqualand. "There is also a lot of evidence, even from overseas buyers in Sydney, that properties are still settling."
Even in markets such as Melbourne where it is more of a problem – Little Group chairman Paul Little says between 5 and 10 per cent of apartments in the high-rise market he operates in have settlement problems – the system will correct itself, he says.
"Supply of new apartments will significantly slow down over the next year or two as a result of buyers being more cautious," Little says.
It's all about location and the niche, says Paul Fridman, the founder of developer Fridcorp and Young Rich list member.
"Across the three states we're developing in, in different areas of each state there's a gross under supply," Fridman says.
ASX-listed Mirvac makes a similar point.
"At this mature stage of the residential cycle, a key differentiator for Mirvac is our intimate understanding of the customer and sub-market to match product to local demand," says residential head John Carfi. "This is evident in the successes we're achieving on existing projects such as St Leonards in North Sydney, The Eastbourne in East Melbourne, Tullamore in Doncaster, and Woodlea at Rockbank."
But buyers who purchased inflated apartments – such as a $600,000 apartment of which as much as $60,000 could have been spent on commissions – have to bear the cost of that return to fair value, Pabst says.
"In a high percentage of cases, it takes at least six years for the value to level out to what people paid for them," he says. "As an opportunity cost, that's significant."
