Finance Property Opal Tower saga tipped to drag down apartment market

Opal Tower saga tipped to drag down apartment market

opal tower apartment
A damning report found a series of faults with the apartment building. Photo: AAP
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Property analysts are predicting the Opal Tower effect to hit the value of Sydney’s off-the-plan apartment market in the coming months, contributing to what one expert is calling Sydney’s “feeding frenzy of negativity”.

Hundreds of residents are still unable to get into their homes following a Christmas Eve cracking incident at Opal Tower, the 36-storey apartment development in Sydney’s Olympic Park.

As tens of thousands of new units get set to hit the local market this year — creating an expected oversupply in Sydney — property analysts say the flow-on effect of the Opal Tower drama, combined with softened market conditions, will create a “new reality” for new apartment owners and investors.

“There’s so much uncertainty out there now,” said Andrew Wilson, chief economist at My Housing Market.

“There’s a high-point of supply in the market and a general retreat in buyer confidence.

“And then Opal Tower happened — it couldn’t have come at a worst time for developers.

“It’s a feeding frenzy of negativity out there.”

An independent report released last week suggested “localised structural design and construction issues” caused the crack in the months-old apartment block, with the tower needing “significant rectification works”.

The saga has sparked widespread concerns about the quality of new developments and the approvals process behind high-rise apartment complexes in Sydney and across the country.

Now analysts say the incident will not only affect prices in Opal Tower itself, but across the sector.

Opal Tower apartments
Large cracks appeared in the Opal Tower, prompting its evacuation.

Independent property analyst Martin North from Digital Finance Analytics said the Opal Tower situation had softened confidence in off-the-plan high-rise apartment complexes.

He said property valuers he had spoken to had already pushed down the price of off-the-plan apartments by 16 per cent since the Opal Tower incident.

“We were already seeing in our surveys that people were quite twitchy about the high-rise developments,” Mr North said.

“And now some people who are contracted to buy off the plan may well walk away.

“Forward demand was already shrinking, and there is no doubt we will see considerable slides in prices.”

Apartment prices already sliding

Ecove, the developer behind Opal Tower, rejected the assessment of the property analysts, describing what happened at Opal Tower as a “unique incident”.

When asked if he believed Opal Tower’s prices would remain steady, Ecove director Bassam Afla said: “yes”.

“When the remediation is complete and the building returned to the state it was always intended, I believe the true value of Opal Tower will be evident,” Mr Afla said.

“The reasons people chose Opal Tower remain — the long-term fundamentals are excellent. People close to what is happening know this is a high-quality building.”

Ecove, which still has 30 apartments for sale at Opal Tower, is also behind the nearby Boomerang Tower apartment development.

Mr Afla said the 229-unit, 38-storey tower was “60 per cent sold”. It is due to be finished in September this year.

About 12 kilometres to the north-east along Sydney’s M2, Icon, Opal Tower’s builder, is behind the $148-million, 412-apartment Park One development. It is due for completion in January 2020.

The ABC contacted Icon and the company behind selling the Park One development for comment.

Analysts are also predicting the Sydney market will see more so-called zombie apartment blocks: developments that are predominately empty.

Based on approvals, Core Logic data predicted a further 31,499 units could hit the greater Sydney market this year.

Core Logic’s latest data reported a 6.28 per cent price drop for Sydney apartments for the 12 months to the end of the October.

New data is expected

However the January period is traditionally a quiet time for the housing market, and AMP chief economist Shane Oliver said the true impact of Opal Tower would not be known until February when “normal activity” returned to the market.

“But what we do know is investor and buyer demand has fallen sharply, even before Opal Tower,” he said.

“And now to add to that there’s uncertainty of the finished product — that’s going to make it so much more difficult to sell off the plan.”