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Citi names blackspot suburbs for apartment glut

Citi is imposing tough new lending conditions on high density "blackspots" amid concerns a surge in approvals could add to a large over-supply in hundreds of suburbs around the nation.

Buyers in nearly 90 postcodes, which include large swathes of suburban Sydney and Melbourne, will require deposits of up to 35 per cent and face tougher terms for cash-out loans, which enable a borrower to draw-down a property's equity, according to an update sent to the bank's network of mortgage brokers.

The black list tracks the growth of high density apartments from inner cities to the outer suburbs, particularly in the western suburbs of Sydney and south-east suburbs of Melbourne. It also covers the inner suburbs of Canberra, Brisbane and Perth. Adelaide is also included.

The policy applies to all new units less than two years old, apartments in high density postcodes, regardless of age and any unit purchased from a developer, also regardless of age.

In a separate move, Citi's analysts are warning the 20 per cent rise in private apartment approvals during June will increase the threat of over-supply as construction is completed. "The surge in approvals was heavily concentrated in Sydney, which is surprising given the tightening of lending standards and rise in lending to investors and interest-only occupiers," according to the bank's analysis that was published for the market. Charter Keck Cramer has predicted there will be 25,500 apartment completions in Sydney this year compared with about 17,090 in Melbourne and 10,300 in Brisbane. Industry veterans, such as chief executive of development and construction group John Holland, Joe Barr, are warning there is already a large oversupply of apartments in some parts of Australia.

Valuer's Herron Todd White also claim Sydney's five-year property boom for apartments is over as lenders' demands for bigger deposits and higher lending rates begin to bite, according to national valuer's Herron Todd White. It's midnight for Melbourne's apartment market, which means the next move is down, and houses are approaching market peak, despite continued demand from investors making the most of negative gearing, depreciation and superannuation concessions, according to the valuers. It is also warning off the plan apartment values are increasingly lower than the purchase price when buyers settle. Citi is among the lenders that has increased funding costs for interest-only property borrowers by 30 basis points while reducing costs for principal and interest by 10 basis points. Other lenders, such as ING Direct, is reducing minimum size of apartments it will finance by 20 per cent to 40 square metres, which is equivalent to the internal area of three shipping containers. Commuters, who want to spend a few nights a week close to their office, are driving demand for the micro-apartments. ING, a wholly owned subsidiary of ING Group, will impose a maximum loan-to-value ratio of 80 per cent for investment loans and 95 per cent for owner buyers on the smaller apartments. The size excludes balconies and car spaces.

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