Suburbs where home values plunged – and set a trap for buyers

In a market where many investor-grade units are sliding in value, buyers are being warned not to be seduced by the idea of picking up a bargain – which could cost much more in the long term.

If the type of unit, the quality and the location aren’t in demand, then even though the price could be as much as 18.4 per cent lower than its pre-COVID peak, its value might still never recover.

Not all investors made money from property.Credit: Peter Rae

“With units, you need to look at the quality of the building, the age of the property and its location,” said CoreLogic head of Australian research Eliza Owen, who authored a report showing 65 unit markets in Sydney and Melbourne now have values below their earlier record highs.

“Often, mid- to late-20th century buildings are associated with better quality than what we’ve seen in the 2000s. There are a lot of apartments now which have left some markets subdued, but as people increasingly adapt to apartment living and houses become less affordable, there will be an uplift in the market for the good ones.”

Supply of new apartments is steadily dropping too, which will give them a boost later, says Mathew Tiller, head of commercial research at LJ Hooker.

“We’ve seen the gap widen between the median unit prices and median house prices in both Sydney and Melbourne,” he said. The latest Domain figures have the Sydney median house price now at $1,654,668 and its median unit price at $815,258, while Melbourne is at $1,024,243 and $572,491 respectively.

“So there is some good buying around, as long as the fundamentals of the property are good. Houses have been more popular since COVID, but there are low levels of supply, so there is more demand for units.”

The CoreLogic report found, of all the suburbs where the unit value was down, the worst-hit was Sydney’s Epping, which is 18.9 per cent below its May 2017 peak, while Sydney Olympic Park was down 14.8 per cent. In Melbourne, the unit-heavy CBD lost 8.4 per cent, Docklands was down 5.1 per cent, and Southbank down 4.2 per cent. There were even bigger drops in Abbotsford (16 per cent) and East Melbourne (17.2 per cent).

“We’ve also seen a pick-up of investor activity in Queensland, Western Australia and South Australia, as those three states have had the strongest capital growth in some of the cheaper pockets of the market,” said Owen. “And investors tend to follow capital growth.”

Meanwhile, falling unit values in Victoria and NSW are creating opportunities. Chief economist at PRD Real Estate Dr Diaswati Mardiasmo says that’s indicative of Melbourne values still not having fully recovered after the pandemic, while Sydney bounced back faster but has now seen prices soften.

“But when buying units for investment, you shouldn’t purely look at those which have had the most drastic decline in price,” she said. “For other reasons, they might never recover. For instance, an old dark studio unit will never be as popular as two- or three-bedroom apartments that make much better returns.”

Leading buyers’ agent Rich Harvey of propertybuyer.com.au also believes that sliding unit prices can make them attractive to buy, but, again, they have to be good quality, and in the right areas.

“Also, I like boutique blocks of 10, 20 or a maximum of 30 units as then there’s not so much competition when buying, and it’s good to choose something that’s beautiful architecturally or an old art deco block,” he said. “But there are some really good counter-cyclical investment opportunities around now.

“There’s a good buying window at the moment,” he said. “But it has to be a good unit in an area where new stock is limited or where no new stock is being built.”