Here’s a summary of the current apartment market mindset:
There is growing concern that Australia’s apartment market could collapse.
Many Chinese property investors have bought apartments off-the-plan.
But they cannot secure the balance of financing from Australian banks or transfer funds from China.
In the event that these buyers default on their settlement, the apartments could only be sold to other overseas buyers if they are not bought by a local developer and become Australian-owned.
There is also a risk of apartment developers going broke if Chinese buyers default, which would, in turn, have repercussions for the banks that provided financing.
Like most things in life, many see either black or white, not the grey. And it’s all grey, including the status of the new Australian apartment market.
- Melbourne, Brisbane and Perth are rumoured to face the brunt of this pending gloom. Somehow, Sydney escapes most fallout according to most commentators. I think it comes down to project by project rather than by location. Further, it still really comes down to project-product-price. There are good apartments and, well, pretty crappy ones. To read more go here.
- The forecasts are that apartment values and rents are cactus, whilst anything detached is all thumbs up. Hmmm, I wonder. My experience is that it is hard to avoid some cross contamination. Again, it isn’t black and white – apartments bad, houses good – despite what many think.
- A lot of the blame is being levelled at APRA and the tightening of credit in general. A common story is that developers could sell up to half of the new apartment stock offshore and secure bank funding a few years back. This offshore ratio moved to 25% about a year ago and now it is about 10%. I think this contraction actually reflects the overexposure of certain banks to apartment development loans, more than anything else.
- Settlements – they are taking longer – but so far they are closing out. Many overseas buyers – especially from China – will (albeit reluctantly, for sure) accept, say, a 20% fall in value on settlement. This is the price of moving money – a lot of it, hot – out of their country and into a relatively safe property asset. Regardless of current visa rulings, possession is nine-tenths of the law.
- There is little doubt that there is great angst out there. Across inner Brisbane, some great offers are available for those new apartment buyers who can see through the short-term gloom. These offers are the best I have seen since the late 1980s. Yes, really. For example; prices matched to Valex valuation with a 6% rental guarantee for five years (sometimes ten), plus body corporate fees paid for the first couple of years. Some projects are even including furniture packages. A lot of investors buy at the wrong time. Now is a great time to buy an apartment. Pick the eyes out of the offers and hold long term. We aren’t financial advisors – this is just my opinion.
- On the flipside, certain apartment suppliers cannot get enough stock/sites to supply demand. Cbus, for example, comes to mind. Others are now scouring the site market looking for value to help set the next wave of new development. This is what happens. It is a property cycle, after all. The next wave of new apartment development is most likely some time away, but it will come. And of course, not everything that is planned will take place. Not every approved project starts. For more, read here.
- And there is a growing demand for more alternate housing. To read why, revisit here. And just like the common depiction of the current state of the new apartment market, housing demand isn’t black and white – i.e. apartments versus detached houses – but increasingly grey. What’s missing is the housing stock in the middle. Local councils are hell-bent on trying to maximise yield (which means more rates and infrastructure/development fees), rather than letting the market/private industry decide what is the highest and best use of the land. In short, there are not enough new townhouses, duplexes, terrace homes and dual+ living properties being approved in our urban fabric.
In summary, many don’t really know the true state of play when it comes to the apartment market. We don’t. And that is why we are undertaking a detailed study on Brisbane’s inner city apartment market. We have been calling for report buyers for a few weeks now and we remain a few short of our dollar target, so we are looking for a handful more to pre-order our report before we close. Go here to find out more.
- Related: Don’t be an average investor
“Matusik Missive by independent property analyst, Michael Matusik. Every week Michael shares his thoughts on the Australian housing market. Visit www.matusik.com.au to find out more.”