Sunday, October 23, 2016

Aussie Apartment Meltdown As Chinese Walking Away

Apartment meltdown looming as Chinese think of walking away. Australia faces the potential of Chinese walking away from apartment settlements at the rate of between $1 billion and $1.5 billion a month for a year or two, according to The Australian columnist Robert Gottliebsen.

"In the worst case scenario a large number of apartment developers go to the wall taking with them many unsecured suppliers," he wrote. He advised that Sydney’s Harry Triguboff went into the crisis without debt and can cushion the impact on the city. "Melbourne and to a lesser extent the already depressed Brisbane will feel the full force of any disaster," the veteran columnist advised.

He added that much was being done to reduce or avoid the above scenario taking place. He said that the Australian apartment developments are in three baskets: First, those being developed by large well-capitalised enterprises like Meriton or the listed apartment developer. Second, those being developed by developers with big Chinese backing and funded by Chinese banks. They are highly leveraged. Third, developers funded by Australian banks.

120 Aussie Suburbs could be set for a Price Plunge

Concerns of oversupply and a slowing property market have led one of the country’s leading banks to list 120 suburbs across Australia that will be subject to special lending conditions. Despite a weakening in demand, more than 210,000 units are expected to be built within the next two years in Melbourne and Sydney alone, according to CoreLogic RP Data figures.

While developers continue to argue that the property boom for newly built apartments will not cause a substantial oversupply, Macquarie bank disagrees, drawing up a list of risky locations for apartment gluts.

In a confidential memo sent to brokers last week Macquarie Bank said it would demand a 30 per cent deposit on units in these high-risk areas from May 23, the Australian Financial Review reported. The list includes 20 Sydney postcodes, 15 in Victoria and more than 40 locations in Queensland.

Following suburbs are high density postcode listing across Australia's three major cities:

2000    Barangaroo, Dawes Point, Haymarket, Millers Point, Parliament House, Sydney, Sydney South, The Rocks            NSW
2001    Sydney            NSW
2002    World Square  NSW
2003    -          NSW
2004    Alexandria, Eastern Suburbs MC       NSW
2006    University of Sydney  NSW
2007    Ultimo NSW
2017    Waterloo, Zetland       NSW
2138    Concord West, Liberty Grove, Rhodes          NSW

3000    Melbourne       VIC
3001    Melbourne       VIC
3004    St Kilda Road Central            VIC
3005    World Trade Centre    VIC
3006    South Wharf, Southbank        VIC
3007    -          VIC
3008    Docklands       VIC
3009    -          VIC
3141    Chapel Street North, Domain Road Po, South Yarra VIC
3205    South Melbourne, South Melbourne DC        VIC

Crowded aprtment construction sites in Brisbane.
4000    Brisbane, Brisbane Adelaide Street, Brisbane GPO, Spring Hill       QLD
4001    Brisbane, Central Plaza, Riverside Centre, Waterfront Place QLD
4002    City East, Wintergarden         QLD
4003    George Street  QLD
4004    Spring Hill       QLD
4215    Australia Fair, Chirn Park, Labrador, Southport, Southport BC, Southport Park      QLD
4217    Benowa, Bundall, Bundall BC, Bundall DC, Chevron Island, Gold Coast MC, Isle of Capro. Main Beach, Surfers Paradise,       QLD
4218    Broadbeach, Broadbeach Waters, Mermaid Beach, Mermaid Waters, Nobby Beach, Pacific Fair, Q Supercentre     QLD
4870    Aeroglen, Barron Gorge, Brinsmead, Bungalow, Cairns, Cairns Central, Cairns City, Cairns DC, Cairns MC, Cairns North, Cairns Orchid Plaza, Earlsville, Earlsville BC, Edge Hill, Freshwater            QLD

In Melbourne, the areas listed by the bank as high density include Southbank, Docklands, South Yarra and the World Trade Centre district. In Sydney, the CBA and surrounds, Ultimo, Barangaroo, Haymarket, Dawes Point, Millers Point and The Rocks are all classified as 'risky', as are Rhodes and Parramatta over in the west. Meanwhile, Surfers Paradise, Cairns Central and Brisbane are all listed as high-risk areas in Queensland.

“There is the concern that there is a little too much development going on there and people should be wary,” Corelogic RP Data analyst Cameron Kusher said. Kusher also said that the bank is trying to get ahead of the game by curbing the risk of devaluation as a result of oversupply.

“Macquarie is trying to be in front of the risk, a lot of (the new stock) is being bought by investors and as banks change policies about lending to investors, some will have trouble settling,” he said, according to the Australian. “With so much stock coming onto the market, the properties won't increase in value between being bought and being completed, so the person who settles on it is underwater from the start.”

But Domain Group’s senior economist Andrew Wilson argued that by raising the percentage of deposit buyers need upfront Macquarie may only exacerbate risk in those suburbs by denying them finance. While one lender has taken the cautious approach, another major bank has taken advantage of this surge in apartments and has opened the door to investors. Westpac Bank has announced it will reduce deposits required for investor loans to 10% from 20%.

The Reserve Bank also plays down talk of a glut. “If supply and demand are equilibrating without massive changes in prices, that sounds like a market working,” RBA governor Glenn Stevens said.

Landlords on Notice as Rents Fall

It’s good times for renters with annual rents across Australia falling for the first time in more than two decades, according to figures to be released this Friday. A rush of new building developments in many of our capital cities is among factors leading to a 0.2 per cent decrease across the nation in the past year, according to statistics collated by CoreLogic RP Data.

The slide was the first since the company had begun collecting annual rent figures in 1995, said its Australian head of research Cameron Kusher. In Melbourne, rents rose most strongly, up a relatively low two per cent, followed by Sydney up 1.4 per cent.

Hobart recorded a tiny increase, while Brisbane and Adelaide both recorded small falls in rents. In Darwin, tenants did best with rents plummeting 11.5 per cent as mining projects finished up and workers from interstate and overseas left in droves. It was a similar story in Perth, where rents fell 8.4 per cent.

Nationally, rents remained flat in January and February and the rental market faces  a “huge amount of new supply” leading to more choice for renters, and tougher competition among landlords, Mr Kusher said. Much of the new developments are in the inner-city areas favoured by renters, he said.

Wages fall impacts renters: The property oversupply is being compounded by flat wage growth, leaving people without the ability to pay for rent increases. “Our view is that you’ll probably continue to see rents fall on an annual basis,” Mr Kusher said.

Mr Kusher said it was a renter’s game in much of Australia, and landlords needed to be realistic on rent levels. “Obviously for the renter it’s good news because they’ve got more choice and power to negotiate.”

Angie Zigomanis, senior manager of residential property at BIS Shrapnel, said new building was beginning to outstrip population growth in some areas. “We’re getting to the point now in a lot of markets where vacancy rates have crept up,” he said. He said some landlords were being forced to woo potential tenants by offering “a few items of furniture, a free refrigerator or even a Foxtel subscription”.

Mr Zigomanis said economies in Perth or Darwin were being hit hard by the resources slowdown, and neither Hobart nor Adelaide had any booming industry sectors to speak of. “In terms of (easily) finding a tenant, Sydney’s probably still the one.”

House price growth slows: Meanwhile, statistics released by CoreLogic RP Data last Friday on annual house price show growth had slipped to its slowest pace in 31 months. Melbourne recorded the strongest percentage growth in the past year, with house prices rising 9.8 per cent.

The slowdown in house prices was the most pronounced in Sydney, where annual growth more than halved to 7.4 per cent, down from a high of 18.4 per cent last year. In Melbourne, where the vacancy rate is at 3.1 per cent, rental yields for houses averaged 2.9 per cent – still a record low – and 4 per cent for units. And in Sydney, which has a 1.7 per cent vacancy rate, landlords received a slightly better average yield of 3.2 per cent for houses, and 4.2 per cent for units.

Related posts at following links:
Australia 6-weeks Away From Housing Bubble Bust.
Chinese Are Failing To Settle Their Off-the-plan Apartment Purchases.