Melbourne risks property oversupply

Apartment buyers in Melbourne are being warned of a possible apartment property glut as oversupply threatens funding.

The general manager of developer Australand, Rob Pradolin, told The Age that he predicts that 30 to 40 percent of apartment projects currently advertised for Melbourne would not go ahead.''All those people who have paid deposits are locked in and can't pull their money out until the sunset clause in the contract expires in three, four and sometimes five years' time,'' he said.

He says that banks will limit lending to property investments made in top locations. According to property firm, Oliver Hume, said that proposals for 33,451 new apartments in 293 Melbourne buildings are being advertised to buyers, a huge increase from 18,585 apartments offered in June 2008 although only 13 percent of projects launched in the last two years have actually began construction.

Off-the-plan sales are being hit by fierce competition combined with strict laws for overseas buyers, the strong Australian dollar and the declining migration. The risk of oversupply of apartment properties in the market is leading major banks to reduce exposure to projects lacking equity or those dependent on overseas investment.

''The sheer volume of projects trying to get up at the moment is amazing and there is only a certain pool of money available,'' Freehills property partner, David Sinn told The Age. ''The pool is insufficient to service all those projects.'' He says that banks were now withdrawing from giving out loans to individual buyers for inner-city apartments.