Soft Landing


There will be no silver bullet solution to any potential apartment oversupply issue. Here are five reasons I believe that, if the problem exists and it is not just media speculation, then it should be a relatively soft landing in Brisbane.

1. It’s all in one area
The potential oversupply in Brisbane appears to be centred in the Brisbane city and inner northern suburbs, such as Fortitude Valley, Bowen Hills and Teneriffe. In the Core Logic figures (which most news agencies use) some 35.5% of new units to be delivered in Brisbane over the next 12 months will be in those areas. My view is that sale prices for new product in Brisbane city, and the inner north, are about 10% over the mark. There is, therefore, room for the property values in those areas to drop before there would be a cannibalisation of the residue of the Brisbane market.

2. Not everybody can get funding
Due to credit rationing by the banks there are significant presale levels for developments currently under construction, which substantially reduces the volume of product yet to be sold. Current difficulties in achieving pre-construction, off-the-plan contracts will result in many developments not proceeding, as they will not be able to qualify for the restricted credit that is available.

3. The demand is still there
There is still good underlying demand from investors for residential property in Brisbane. This is due largely to concerns about equity markets, low term deposit rates and limited other areas to invest. Brisbane is still considered quite favourably by investors, as it has not seen the level of median price growth of Sydney and Melbourne. It also produces acceptable rates of return.

4. The banks won’t allow it
The big four Australian banks cannot allow there to be a wholesale collapse of the residential property market in Australia. While we will probably never know the true figures, I have read reports that the big four Australian banks have around $178.6 billion (down 3.5% from the end of December) of capital against around $3.6 trillion of assets. A large proportion of the assets are loans secured by residential property. History has shown that the Australian government will not allow the big four banks to fail. This is why there is such a big regulatory push on banks to increase their capital levels and ration credit.

5. What I term the Harry Triguboff “Meriton” effect
I recently read an interesting article by Robert Gottliebsen in the Australian where he noted that in recent times Chinese buyers have accounted for three quarters of the Meriton turnover. Concerned about banks tightening lending to non-Australian residents, Triguboff trimmed his portfolio so that he now has no debt, and “within reason he will be able to provide . . .  help – probably in conjunction with his bankers”. I note that GPS funded projects have little exposure to non-Australian residents. It is mainly the larger developers who have been able to generate traction in the non–Australian residential market.

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