It was a slower than usual start to the year for GPS. Apparently, most people needed a longer break to get over 2020.
This all changed after Australia Day. It was as if someone turned the switch on. We are now in full swing and looking forward to a much better year than the last one.
I am now a lot more confident in the residential property market. Low interest rates, increased savings and local economic activity have all improved buyer sentiment.
The goal of GPS for 2021 is to get back to where we were at the end of 2019. We remain on track to reopen for new investment. We will keep you informed as to when this will be.
There is still a degree of caution amongst borrowers, which is slowing our loan pipeline. Fortunately, GPS has good depth so we should be able to generate better consistency than during peak COVID.
Looking through the deals which GPS has in its loan pipeline there is an emerging trend for developments in bayside suburbs down to the Gold Coast, and on the Sunshine Coast.
I believe this is largely due to changes in planning policy of the Brisbane City Council. Townhouse developments, particularly in the older suburbs, are now discouraged and car space requirements for units have been increased, making them unviable.
The good Brisbane developments are mostly for projects which achieved their Development Approvals before the Council changed its policies. When this stock runs out, I expect there to be fewer new project starts in Brisbane.
A common theme in conversations with existing and previous GPS borrowers is that they can’t find viable projects within Brisbane. They are now widening their search within South East Queensland.
The media is in a bit of a frenzy and predicting a housing price boom in South East Queensland. As always, it is either boom or bust with them. While I have seen an increase in the velocity of sales (at, or about, valuation) I am yet to see any real price increases.
Traditionally, house prices are the first to rise, with unit and townhouse prices following once houses become less affordable. However, there are many other economic uncertainties which may come into play. While quietly optimistic, I am still in the “wait and see” camp.
Builders are experiencing price increases – especially with imported building commodities such as steel – which is also reducing the number of viable residential projects.
My concern is that the planning changes within Brisbane City Council will slow the velocity of new projects. This will lead to a shortage of new residential dwellings, which leads to excessive price growth. If Council realise this too late before they change their policies, it will eventually lead to a rush of new product coming onto the market.
We all like consistency. Booms lead to busts. I know that Brisbane City Council is coming under pressure to review their policies.
Competition continues from new entrants into the lending market who are backed by the high levels of cash generated from the continuing low interest rate environment. They are yet to learn that residential development lending is a tough game which should be left to the experienced operators.
Fortunately for GPS, borrowers understand the value of the stability, experience, and service levels GPS offers. If we can get close to the competitors pricing, we still win most deals. If it is all about the interest rate for a borrower, then they are not a borrower we want.
I believe this all supports the decision made by GPS to reduce interest rates to borrowers. This means we are competitive and can win the lower LVR deals from experienced developers.
Richard Woodhead | Managing Director