August 2016 – The flow of information

Newsletter

The flow of information across my desk continues to support my view that any oversupply of apartment issue will be limited to a few suburbs within Brisbane.

This information includes:

1. Applications for finance have increased significantly since the Federal Election, and since the pull-back by the banks has become more entrenched and accepted. An increasing percentage of applications are from traditional bank customers;

2. Valuers have expressed their concern to me that requests for quotes to perform valuations for residential construction projects have dropped significantly;

3. Quantity surveyors have informed me that they are reassigning staff away from residential construction work;

4. Builders have expressed concerns for their job pipeline with residential projects drying up. This is due to either developers not being able to achieve finance, or concerns about potential oversupply in that area;

5. Developers within the GPS stable have commented about builders now being more competitive when quoting;

6. Quite a few GPS developers and developer/builders, who are between jobs, are currently sitting back and making silly offers for new sites. They believe that some good buying is just around the corner; and

7. Finance for larger developments appears to be very scarce. I recently received a call regarding a circa $100 million loan for a project with a 50% LVR and 100% debt coverage from presales. While the person making the query knew GPS was not in that market, the question was whether I knew anyone who was financing such projects. I did not.

Where the market goes from here is all about jobs and job security. People do not buy if they do not have job security and migration will not occur unless there are jobs.

The pleasing aspect to the start of this section of the property cycle is the early pull-back by the banks who are the market driver due to their scale.

I do not see the market becoming super-heated.

I am not expecting much exciting news in the next 12 months. At GPS it will all be about heads down and getting on with it.

At GPS it is a time for hard work, and to become even more conservative. We have reduced our lending budget for the 2017 financial year. It is all about looking after our investors’ interests, which we will achieve by sticking to our knitting.

Our funds under management is at a sustainable and viable level. In the loan pipeline I am looking for quality. There will be a variety of loan sizes for traditional unit and townhouse developments. We will not lend in areas of potential oversupply issues, such as Teneriffe and Fortitude Valley. LVRs and presales will be adjusted in other areas.

In larger loans we will diversify risk by co-funding with other funds management operators. There must be diversity in loan sizes and product type, as concentration in a particular loan size or product type will prejudice quality.

Growth of funds under management will be limited to organic growth to counter inflation, and accordingly, we will continue to appreciate referrals.

I am not expecting much exciting news in the next 12 months. At GPS it will all be about heads down and getting on with it.

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