Investors frequently ask me to comment on media articles, and so I thought I would get ahead of the game with the latest topic: when will residential construction peak in Brisbane?
The common response in media articles is that residential construction will peak in Brisbane in early-to-mid 2018. This appears to be based on building approval data. However, as we have seen in the recent market, just because a building has been approved does not mean it will be built.
Looking at the loan applications which come across my desk, talking with builders, quantity surveyors, valuers and other building professionals, and by looking around when I am out conducting site inspections, I believe that the peak has already passed.
Banks pulling back on financing new developments in late 2016 has had the desired effect and stopped a large number of projects from proceeding.
There will be some stressed buildings and small pockets in Brisbane. These will mostly be tightly built product designed for non-Australian resident purchasers. They may become stressed from settlement risk due to tightening rules for getting overseas funds into Australia. I expect the media will beat this up as a doom and gloom article. Bad news articles sell newspapers and are good “clickbait”.
Overall, the regulation and controls which have been put in place post-GFC, and to deal with property booms in Sydney and Melbourne, have done a lot to take the heat out of the Brisbane property market. This has limited any potential oversupply. In fact, I expect the pendulum to swing and Brisbane will be in an undersupply situation by this time next year.
Traditional GPS funded projects continue to sell. The market has become very wary of ongoing maintenance costs for large apartment developments and the limited potential for capital growth due to the availability of comparable product.
What does all of this tell us? Say goodbye to the cranes. They are coming down and I believe will be staying down for some time to come.
This is all exceptionally good news for GPS and our investors. The banks are out of the picture and I expect it will be some time before they return, if they ever return. GPS will continue to be able to pick and choose which projects we fund. Selling end product will become easier as the Brisbane market moves back into undersupply.
Thank you for your support during the 2017 financial year. The whole team at GPS is looking forward to another good financial year.