November 2016 – Watching and Learning

Newsletter

There is so much being sprouted in the media about undersupply, oversupply, prices rising, prices falling and affordability, that it can make a readers head spin.

When all else fails, I look at what the banks are doing for guidance.

Based on the information coming across my desk, the banks:

• Have a great amount of power in the property market due to their current market share;
• Are still lending to an 80% LVR, and so would not sustain a substantial, across the market, property slump;
• Are rapidly exiting the Brisbane inner-city renewal areas. These are former inner-city industrial areas in Brisbane which are being transformed into residential precincts. Roughly they are in a swathe from West End through South Brisbane, and north through Fortitude Valley and out to Newstead. It may possibly extend to the area in Hamilton between the Brisbane River and Kingsford Smith Drive; and
• Remain keen as ever to fund residential properties for both owner-occupiers and investors in most other areas of Brisbane.

While there are an abundance of opportunities in the Brisbane inner-city renewal areas, from funding development sites, projects and even non-resident purchasers (I have been offered 60% LVRs at 12% interest), my perspective is that when the banks exit a segment of the property market, it is only fools who rush in.

I am also avoiding funding development sites with my focus being on “shovel ready” projects. As the credit crunch for residential development lending intensifies, there will be more pressure on developers who cannot achieve finance for their projects. There are currently quite a few of the GPS stable of builders/developers sitting on the sidelines waiting for some bargains to emerge.

GPS will continue to stick to our knitting.

We have not seen any real settlement risk as the end product of the projects we fund are not in the Brisbane inner-city renewal area, they are purchased by Australian resident owner-occupiers/investors who continue to be funded by the banks.

It is all about continuing with our low profile, being risk adverse, watching and learning.

As always, please contact me if you would like to discuss any of the items raised.

Untitled design

As can be seen in the above heat map of Brisbane (taken from an article “What the future holds for Brisbane apartments” at propertyupdate.com.au) the concentration (dark blue) of new developments is in the South Brisbane, CBD, Fortitude Valley and Newstead areas. The article declares that 72% of new apartment stock will be contained in these areas in the coming years. In comparison, the light grey areas represent a relatively small volume of new stock. The locations marked represent the suburbs with developments currently funded by GPS. As you can see, the majority are completely outside the concentration areas, with a few in the “low concentration” areas.

GPS is also currently funding developments in areas outside this map namely, Currumbin, Oxley, Waterford West, Chermside, Kedron, Redcliffe, Nundah and Daisy Hill, further increasing our diversity of product.

Recent updates

View all updates

What is “subordination”?

Olivia and Jess, from our Investor Services team, have recently received...

New loans are coming

GPS continues to regain traction in our loan pipeline, but it...