Media Topic

March 2016 – A continuing media topic…

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Potential oversupply of units and a “market correction” of prices continues to be a media topic.

Again there has been a “gen­eralisation” of the data. Brisbane has not seen the price growth of Sydney and Melbourne in the past few years. It has plodded along upwardly, roughly in line with inflation, and remains undervalued.

Development approvals are not a true indicator of what will be built, only what could be built. A number of factors will greatly reduce the number of project starts. Availability of finance will be one of the major limiting factors. Previous property booms were funded by an oversupply of funding. Due to GFC and the reforms which have been introduced there is currently a shortage of funding (more of this in my loan pipeline post).

The inner city of Brisbane is a concern. I was pleased to read in a recent article in the Australian that developers of large apartment complexes, such as Metro Property Development and Urban Construct presently have development sites up for sale.

These developers (who can attract funding) run a risk adverse business model …where they require a substantial amount of the product to be sold prior to commencement of construction.

When presales become harder to achieve then they stop building new projects. If they can sell off pipeline projects then it saves them from the cost of having to warehouse the projects until demand catches up. The difficulty for them in selling future projects to second tier developers is that the second tier developers will struggle to secure finance.

I note that GPS has never been, and is not, in the large apartment development market. We continue to stick to our well proven and trusted model.

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