Top danger zones in Sydney and Melbourne

The top 10 danger zone suburbs in Sydney and Melbourne property at the moment, are all areas where units are oversupplied.

There has been a ‘race for space’ over the past 18 months, sending house prices higher, but unit prices in some high-supply areas look riskier. Although demand has dropped sharply given the absence of international students and other visitors, there are still some areas with a high volume of potential new units in the pipeline over the next couple of years.

The danger areas aren’t limited to the CBD but are instead found where there are clusters of new developments.

Vacancy risks for landlords

Unit supply is a factor landlords need to be wary of. We have compiled our top 10 danger zone suburbs where investors should be cautious about the risk of rental vacancies and capital loss, particularly investors who consider new or off-the-plan purchases.

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The top 10 danger zones in Sydney

The CBD areas of the capital cities have been a risk area for some time, but in Sydney, the risks are spread quite broadly across the city, from Liverpool to the inner-south and Zetland, and up to parts of the Central Coast, such as Gosford.

SuburbPostcodeNew Units in the Pipeline (24 months)As % of Existing Stock
Rouse Hill2155127488.2%
Figure 1 – Top danger zone suburbs in Sydney

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The top 10 danger zones in Melbourne

In Melbourne, the higher risk areas have been more concentrated in the inner suburbs, and we have warned about a number of these locations for a couple of years now. We have seen high vacancy rates around Docklands, the CBD, South Melbourne, and other parts of inner Melbourne for some time. With interstate migration to Queensland also taking its toll, we have seen double-digit declines in unit rents for inner Melbourne.

SuburbPostcodeNew Units in the Pipeline (24 months)As % of Existing Stock
Box Hill3128183325.5%
South Melbourne3205105621.1%
Figure 2 – Top danger zone suburbs in Melbourne

Looking forward

Investors in Sydney and Melbourne have turned their attention to houses over the past 18 months, reflecting an understanding of the risks.

Established units can still be a solid investment in supply-constrained areas, especially in the largest capital cities, but it’s generally the rising land values that deliver the returns in Australian real estate, so boutique blocks with a high land-to-asset ratio and a point of scarcity value tend to far best.

There are many uncertainties about the return of international migration at present, and therefore the risks of buying a new unit are even higher than they normally are right now.

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