February 11, 2016

When Properties Are Basically Commodities

A report from the Australian Financial Review. “The high number of houses for sale in Sydney’s outer suburbs could depress prices, and buyers and sellers need to exercise caution, experts said. In the southwest, where there has been an explosion of house and land packages, there were 1842 listings at the end of January, close to the high of 2100 at the end of last year and August 2008. Lows of 800 listings have been recorded in the past. ‘When there are more listings, there is a perception by some there’s more confidence in the market, but I believe what it means is there are a lot of people competing to sell and that stock is not being absorbed,’ said SQM Research managing director Louis Christopher.”

“Even the private sales are being closed at lower prices, western Sydney agent Just Think Real Estate’s Edwin Almeida said. One of Mr Almeida’s listings, a home with two bathrooms in Stanhope Gardens in the northwest, is being offered for $30,000 less than a similar home with one bathroom sold four months ago.”

The Sydney Morning Herald. “Landlords have long held the upper hand in the rental markets of Australia’s biggest cities, but there are signs that power is receding in 2016. Not only are average property prices slipping in many of the country’s property markets, but recent figures also show key parts of the rental market are also starting to weaken. And in good news for tenants, analysts predict this trend will have further to run this year, after a boom in home construction that has meant there are many more homes up for rent.”

“Sydney rents for apartments fell during the quarter for the first time since 2012. Rents in resources hot spots Perth and Darwin fell by more than 10 per cent in the year. The national vacancy rate is at a 10-year high of more than 2.5 per cent. That is not cause for alarm, but it’s likely to remain there as more home-building projects are completed. ANZ economists Jo Masters and David Cannington say this combination of softer demand for housing and a relatively high vacancy rate is likely to remain. ‘These trends are unlikely to change in the near term, particularly given the strong pipeline of activity in residential construction,’ they say.”

“Commonwealth Bank economist Michael Workman also cites the boom in apartment construction and predicts ‘oversupply’ in some inner suburbs or Sydney, Melbourne, Brisbane and Perth. ‘Residential rents are likely to reflect the oversupply situations relatively quickly,’ he says.”

From In Daily. “Adelaide’s annual rents have slowed slightly amid the softest capital city rental market conditions for 20 years. Weekly rents across the combined capital city increased 0.2 per cent during January, however, they were unchanged over the past 12 months. ‘CoreLogic has tracked annual rental changes since 1996 and over that time, rental growth conditions have never been weaker,’ research analyst Cameron Kusher said. ‘At the same time last year rental rates had increased by 1.7 per cent highlighting that the slowdown in rental conditions has been sharp over the year.’”

“‘For renters there is a lot more accommodation options in the market while simultaneously, landlords are now required to respond to a more competitive environment which, in many cases means keeping rents steady or in some areas reducing rents in order to keep a tenant,’ he said.”

From ABC News. “Dozens of developers are spruiking off-the-plan apartments in capital cities across Australia. Off-the-plan purchases involve putting down a deposit, usually 5-10 per cent of the developer’s asking price for the unit, with the rest of the purchase price due on completion. However, financial advisors warn that, with tens of thousands of new apartments being constructed this year, oversupply is a major issue.”

“In inner-Brisbane the vacancy rate is over 5 per cent and real estate agent Dean Yesberg said that, with 13,000 apartments proposed or built this year, there is a huge oversupply of apartments. ‘Renters have got choice and we’re finding it’s taking longer to rent properties, we’re also finding rents are starting to ease off,’ he observed.”

“For the first time ever, developers and traditional real estate agents are offering sweeteners to compete for prospective tenants. ‘We’re starting to see offers of six months internet free, iPads, we currently have quite a few properties giving a week’s rent free and also $500 Coles vouchers,’ added Mr Yesberg.”

“Buying off-the-plan, investors take the developer’s word at what the apartment will be worth when finished - but banks value only on completion. Banks have recently tightened their lending terms for investors and sometimes will not increase what they are willing to lend. For example, an investor might sign a contract to buy an apartment for $500,000 in 2016 but by the time it’s finished in 2018 the bank values the property at just $400,000. The bank will not lend the investor any more, but the buyer still needs to find an extra $100,000 to pay the developer.”

“This can mean owners are scrambling to secure finance to make up a shortfall - usually at a high rate of interest. ‘They have to find additional money,’ said financial advisor Daryl Dixon. ‘In some cases, if they don’t complete the contract the properties are put up for fire sale again. The purchaser is still liable for any loss involved at the time of the resale.’”

“Any fire sales are likely to end in disappointment. Buyer’s advocate Sam Lally warned it can take years for resale value to equal what was paid originally. ‘There’s just far too many of them. They’re compromised on space, compromised on size,’ he argued. ‘There’s no scarcity value, they’re all the same. So if you have one apartment on the market, there’ll be another one in the same building probably anyway.’”

“The latest real estate data for Western Australia has confirmed a gloomy outlook in the state’s Pilbara region. Amid small rises and falls in the median house price across the state, the premier mining region suffered a fall of nearly 27 per cent over the December quarter. ‘The Pilbara really has taken an absolute battering in its median house price, similarly in its median rents,’ said WA Real Estate Institute president Hayden Groves.”

From Mortgage Business. “A huge number of mortgagee in possession sales are hitting one troubled market with prices being discounted by more than 50 per cent, according to a local real estate agent. Last week, rival estate agent David Hipworth, principal of LJ Hooker Karratha, told the Australian Financial Review that he would get ‘two to three phone calls a week looking for us to value a property for mortgagee in possession.’”

“On top of that, the market has been grappling with the prospect of seeing 2011 prices – when the market was at its peak – reduced by 50 per cent or more. ‘In some instances it’s more than 50 per cent, especially where we’ve got a case of the property being quite old, or maybe if it’s a highly desirable property but it’s sold for a higher price in the boom because of the value that it was achieving through the rent – as we know, back then, properties were basically commodities,’ said Mr Alexander Waters, director of Realmark Karratha. ‘Those are the prices that we’ve seen discounted the most and in some cases even greater than 50 per cent – I’d say up to 60 per cent.’”

Bits Bucket for February 11, 2016

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