Glut of property in the pipeline

August 2015 – Glut of property in the pipeline

Newsletter

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Glut of property in the pipeline

The current main topic in the property market continues to be whether Australia is heading for a glut of residential property in the market.

In previous articles I have endeavoured to bring some clarity to this discussion and have noted:

  • Sensationalism sells newspapers;
  • The Australian property market is not homogenous. There are different markets and markets within markets;
  • I draw a distinction between the “unit” market which is developments up to approximately 30 units and the “apartment” market which is for developments of over 30 units, and generally hundreds of units in high-rise towers; and
  • The regulators have learnt lessons from GFC and are working to slow the market to achieve long-term and sustainable price growth.

The GPS market is units and townhouses in South-East Queensland. This market has only seen sustainable price growth and is not presenting as being over-supplied.

We have recently seen a large decrease in the number of building approvals in the “hot” markets of Victoria (minus 23.9%) and New South Wales (minus 9.3%). This is evidence of the cooling of supply in those markets.

In the past month we have seen the banks taking further steps to preserve their mortgage books, which includes increasing interest rates for investors and tightening lending for construction of new unit and apartment developments. In particular, this tightening has been of apartment developments. Loan to value ratios have been reduced and, more importantly, there has been an increase in the pre-sale requirements and a reduction in the acceptable percentage of pre-sale contracts from foreign purchasers.

Pre-GFC (subprime) the banks were under intense competition from foreign banks. They did not have their current market domination. In the current market, lenders such as GPS represent an atom on the flea on the tail of the dog. We do not wag the dog, we stay out of their way and concentrate on our niche markets.

The banks have a vested interest in slowing the residential property market. It reduces pressure from the regulators, protects their mortgage books and creates a long-term market for them.

If they increase margin by increasing interest rates (has their cost of money for investment loans increased?) then it is a win/win scenario for them. I expect that the next step will be for an increase in the interest rate for owner-occupiers.

Banks tightening their lending is very good for GPS as it improves the quality of GPS loans. The current GPS mortgage book is the best quality I have seen in over 20 years. My rejection level continues at an all-time high.

On the sales side we continue to see sound depth in the market. This may be in part from my relentless nagging of Borrowers to remain focused on the end game. “Get it built and get it sold”. This is particularly important in larger projects such as Norman Vue and Developments 101. I have worked with both of these developers on their marketing. They have achieved traction and now have unconditional contracts, conditional contracts, and expressions of interest. The performance of their marketing agent is regularly reviewed, and fresh appointments are made when there is under-performance.

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Photo: progress of our Maylily Group project located in Cannon Hill as at 21 July 2015.

GPS is on the move!

In coming weeks GPS will be moving office. Address details are contained on the first page of this newsletter. Tentatively, we have set a move date for Friday 14th August 2015, but this is subject to the telcos getting their act together (at this stage we suggest avoiding our landline number. The best way to reach us is via our toll free number: 1800 999 109).

The move is necessary as we have run out of space at our Toowong office as the business grows and the lease is nearly up.

It was not a conscious decision to move back into the city. It simply came down to the new offices providing the best value for money and the most conducive workspace. The new premises are conveniently located right opposite Brisbane Central Railway Station. Please stop in and say hi when you next visit the city. We look forward to sitting down, having a cuppa and a chat with you.

we are here! (2)

Back from holiday

I have recently returned from a well-earned and fabulous holiday in South-America.

The holiday was made even more enjoyable in the knowledge that there was a strong and competent team running the GPS business in my absence. This allowed me to truly relax and be refreshed for the 2016 Financial Year.

While I am not yet redundant, the manner in which the GPS team got on with business and the minimal amount of work on my desk upon my return validates the strategies and processes we put in place in 2013.

I am looking forward to focusing on good prudential lending and looking after the needs of the loyal GPS investor base in the year ahead.

 

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