More than 230,000 brand new apartments are expected to settle within the next 24 months, thanks to record-high levels of construction, but they represent a significant risk for Australia’s big four banks.

More than 80,000 apartments and units are expected to settle in both Sydney and Melbourne, with Brisbane expected to see 44,000 units settle within the next two years, according to CoreLogic RP Data.

banks facing a looming time bomb

The problem comes when you compare the average number of unit sales annually over the past five years with a big disconnect appearing. The historic sales figures include sales of both new and existing apartments, and new stock usually accounts for a smaller slice of total sales than resales of existing stock.

In other words, thanks to builders building record numbers of apartments and units in the past few years, the property market could see thousands of apartment owners forced to slash their asking prices to compete against the wave of units already on the market. As more apartments come up for sale, there’s more downward pressure on prices, perhaps forcing even more apartments onto the market.

It also means that capital growth for units – which is already much lower compared to houses – may be negative or much less than buyers had expected, leaving them in a precarious position. As an example, an investor looking to settle on a new apartment may have expected a $50,000 paper profit, but instead is looking at a $20,000 loss that could impact on their other assets (perhaps forcing the sale of other property investments).

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