June 30, 2016

Investors In­creasingly Face A Funding Gap

The Herald Sun reports from Australia. “One in five apartments in inner Melbourne resold at a loss in the first three months of the year — the highest proportion in over a decade. And experts expect the number to continue to grow, as the ‘huge amount’ of new units coming on to the market impacts the resale of existing apartments. The losses worn by home sellers in council area totalled $5.38 million in the three months to March, or about $39,000 per property. This was the highest total deficit recorded by a council area in metropolitan Melbourne in that period.”

“‘Obviously, this is because of the unit supply,’ said CoreLogic senior research analyst Cameron Kusher. ‘People are probably purchasing these properties off the plan and having to sell when they come up for settlement, and the property is worth less. The huge amount of new supply impacts on existing stock as well. I would expect that we are going to see the number of losses trend a bit higher.’”

The Morning Bulletin. “Central Queensland is the affordable housing hot spot for the state. Domain chief economist Dr Andrew Wilson said prices in towns like Moranbah had been driven up by property speculators in 2011 and 2012 before the coal slump caught out investors who had bought near the peak. ‘A lot of smaller investors were left high and dry,’ he said in the report. ‘(The Moranbah median price) was very high at one stage ($469,000 in 2011, $160,000 in 2016), the mining bust has certainly worked its way into the area.’”

From NT News. “Darwin real estate profits took a dive in the March quarter with one in four units reselling at a loss, according to Core Logic. The number of loss-making sales during the March quarter was up from 13.5 per cent in the previous quarter and nearly double the 11.1 per cent recorded the March 2015 quarter. Real Estate Institute NT chief executive Quentin Kilian said many of the homes that resold at loss in the March quarter were likely bought at the height of the market a few years ago. Mr Kilian said while the reduction in home prices wasn’t the best news for vendors, it was good for buyers.”

“‘It’s a great time for not only first homeowners to get into the market but for investors to buy as well,’ he said.”

From Domain News. “Almost one in four NSW investors have bought an investment property in Queensland, leaving them exposed to a potential oversupply and price drops, new data shows. Sydneysiders are the most active interstate investors in the Sunshine State, with its popularity surging as the harbour city’s four-year property boom wanes, figures provided by Australia’s biggest landlord insurer Terri Scheer show. The figures, which cover those who hold a policy with the insurer, includes about 20,000 NSW landlords in addition to those in other states. The most common location for their Queensland investment properties is likely to be the Brisbane area.”

“The Reserve Bank of Australia, credit ratings agency S&P Global Ratings and property researcher BIS Shrapnel are among those who have voiced concerns over the big pipeline of inner-Brisbane units. Between January 2015 and April 2016, more than 26,000 apartments were approved in Brisbane, Australian Bureau of Statistics data shows. This increased building activity, in conjunction with a sharp decline in net migration into the state, is exacerbating a mismatch between supply and demand, Domain Group chief economist Andrew Wilson says.”

“‘And the growth trend continues to accelerate with the latest data, for April, showing a remarkable 2500 apartment approvals, which is the highest monthly total ever recorded for Brisbane,’ he says.”

From Perth Now. “Squatters are taking advantage of Perth’s highest residential vacancy rate in 20 years by moving into empty rental homes and barricading themselves inside for weeks. Trespassers were also changing locks, breaking door handles and threatening landlords to squat in empty rental properties or vacant homes that were up for sale. EBM RentCover executive general manager Sharon Fox-Slater, whose company is one of Australia’s biggest providers of landlord insurance, said while she used to see a squatting related claim every few years, incidents were becoming commonplace in WA. There are more than 10,000 properties available for rent in Perth, up 35 per cent from this time last year.”

“Judy Luxton, who is based in the UK, had squatters evicted from her two-bedroom apartment in the Perth CBD this week. The property had been rented but the tenant illegally sublet the home. The subletters didn’t pay rent and barricaded themselves within the unit. The Sunday Times joined the property manager in an inspection of the building after the eviction this week which revealed the apartment had been trashed with food left to rot, furniture dissembled and carpets stained beyond repair.”

“It is believed about five people had been living in the unit. ‘I know people are people, but I don’t understand how someone can think it’s OK to do that to a half-a-million-dollar apartment,’ Ms Luxton said.”

The Australian. “Rich-listers and wealthy private investors are setting up funds aimed at lending to foreign apartment buyers left stranded by the banks’ lending bans, in a move that will create a new tier of subprime lending. The apartment market faces the perfect storm of a wave of new development, banks pulling back lending to both apartment investors and developers, rising building costs and recently increased state taxes on foreign buyers.”

“Meanwhile, offshore and local investors are expected to ­in­creasingly face a funding gap as banks revalue off-the-plan units approaching settlement, leaving many below their purchase price. Bill Moss, former head of property for Macquarie Group, expects Asian banks, particularly from China and Malaysia, to enter the Australian market in a bid to bridge the funding gap. The loans were made against the value of the asset, not the borrowers capacity to repay the debt, he noted. ‘This is subprime lending,’ Mr Moss said. ‘It is no different to what happened 10 years ago on low-doc lending.’”

“Deloitte Real Estate partner Damian Winterburn said he was aware of two separate ­$100 million-$300m funds established in the past month by wealthy private investors to fill the funding gap, while a US-based fund was looking at entering the Australian market. These funds were targeting foreign buyers looking to borrow 60-70 per cent of the purchase price. They were charging ­between 8 and 12 per cent, he said. ‘I don’t want to name the funds as they are already being overwhelmed by demand from largely Chinese and other Asian investors,’ Mr Winterburn said.”