The Housing Bubble

A report from Radio Australia. “Less than a decade ago this coastal Queensland town was on property investors’ wish lists, but today 80 per cent of homes are selling at a loss. Young couple Philip and Aleisha bought their first home in Gladstone in 2012, when their central Queensland town was still high on an unprecedented LNG construction boom. Philip and Aleisha had some reservations about buying during the boom — but Philip was earning good money as a tradie and they wanted to start a family. Their four-bedroom home in one of Gladstone’s newly built housing estates cost them $650,000. ‘We wanted to bring our children up somewhere we owned. A place where we could do up their bedrooms, paint rooms, and make it nice for the kids,’ Philip said.”

“Six years later, Gladstone’s mining boom is over, the work’s dried up, the property market is oversaturated with brand new homes, and rental prices have plummeted. Philip and Aleisha’s home is worth less than $450,000. ‘We were expecting to take a bit of a hit but we didn’t expect that,’ Philip said. ‘I guess I blame myself to an extent.’”

“The property market has also sent Philip’s mother into the red. Jenny White bought an older-style house for $310,000 in 2015 with her then-partner, but had to put it back on the market less than a year later when the marriage broke up. She was only working a casual retail job and didn’t know how to make ends meet. ‘In the end the bank said to me, you’ve got two options: you pay it or you give us the keys. And I couldn’t pay it, so I just had to give them the keys,’ Ms White said.”

“It got worse when the repossessed house only sold for $170,000, meaning that Ms White still owed the bank a big chunk of money. Last year, after staving off debtors and living on credit cards, she declared bankruptcy. ‘It still makes me emotional now to think at 53 years old and I don’t have a car and I don’t have a house. I have a lounge suite, two display cupboards, and a coffee table and that’s all I own now at 53,’ she said. ‘I’m mad with the banks that they just seem to lend to so many people, and allow so many houses to be built, and the developers were joining in with so much money in town.’”

“Melbourne-based property investor David spent $1.2 million on two Gladstone homes in 2012. His father also bought two, and so did his uncle. They were getting rents over $1,000 per house during the boom, but now they would be lucky to get a few hundred. The dud Gladstone investment has seen David sell off the rest of his property portfolio, move into a sharehouse, and his relationship has broken down under the stress.”

“‘We just got caught up in the hype of it all,’ David said. ‘I don’t expect much sympathy. I took a risk and it didn’t pay off. The reason I’m sharing my story is in the hope somebody can learn from my experience if they’re over-extending their investments,’ he said.”

From ABC News. “Investors in Perth property are faring the worst in the nation, making more losses on resale than buyers in any other capital city. A report from CoreLogic shows one-third of investors in Perth property lost money on resale in the December quarter. The figure of 33.6 per cent was equal with Darwin as the highest proportion of loss-making resales nationally. In regional WA, the situation was even worse — 47.5 per cent of resales by investors made a loss in the quarter.”

“Owner-occupiers also made greater losses in regional WA than anywhere else, with those in Perth second only to Darwin in loss-making sales. ‘Investors generally are more prepared to take on a loss on their property ownership, probably because of some of the tax implications,’ said CoreLogic head of research Tim Lawless. ‘For owner-occupiers, you generally find about 52 per cent of household wealth is held in housing. Transacting at a loss is a much harder decision [for owner-occupiers].’”

From Mirage News. “While the Sydney and Melbourne market go flat, all eyes are turned towards Perth which many are tipping as the ‘next big thing’ in the investment property market. But are all the promises of potential property profits to be believed? RiskWise Property Research CEO Doron Peleg thinks not. ‘It is the risk associated with units in Perth that is of the greatest concern as this is very high due not only to current oversupply, but also the number of units in the development pipeline. The Perth unit market is facing severe ongoing oversupply. For example, in central Perth there are 1151 new units in the pipeline representing a 13.7 per cent increase to the existing supply,’ he said.”

From Domain News. “Melbourne homeowners selling at auction need to be more realistic about their price expectations, experts say, as auction clearance rates drop below 70 per cent. Since early February this year, clearance rates for houses in Victoria had fluctuated between 59 and 67 per cent, compared with 72 and 83 per cent at the same time last year, according to Domain Group data. Among the worst performing areas were the inner south, where clearance rates dropped to 43 per cent in mid-March, down from 93 per cent in the same week last year, and the south east which dropped to 47 per cent in late-February – down from 83 per cent.”

“Crackdowns on investor lending, slow wage growth and high household debt contributed to the softening of the auction market, Bank of Melbourne senior economist Janu Chan said. ‘It’s no surprise that Melbourne’s been one of the capital cities affected because investors were quite active in the Melbourne housing market,’ Ms Chan said. ‘When the housing market was running really hot, there perhaps were some unrealistic expectations there.’”

“Real Estate Institute of Victoria president Richard Simpson said once the clearance rate dropped below 70 per cent, it was more a buyers’ market than a sellers’ market. ‘What we’ll have to see is vendors change their expectations in relation to price,’ Mr Simpson said. ‘They’re still thinking about the prices that were achieved in the past six months and they’re not going to be achieved in this current six month period.’”

From the Australian Financial Review. “Australian credit curbs and tighter controls on getting funds out of China are forcing apartment developers to work closely with their buyers to help them settle. Developer Poly Australia classes 7 per cent of the apartments sold to China-based buyers in its 501-unit Poly Horizon project in Sydney’s Epping as ‘high risk’ and has had 50 buyers resell apartments they had bought prior to settlement.”

“While it was easy to sell and settle units in a boom time, a slowdown in the market and difficulties faced by some buyers meant developers had to work with them, said Poly Australia sales director Jay Carter. Settlement in Poly Horizon is due in June and the company started contacting buyers from June last year, Mr Carter said. ”

“‘We’re shaking the tree and saying to people ‘Get ready for settlement, don’t forget you’ve got an obligation here,’ Mr Carter told The Australian Financial Review. ‘This isn’t a panic situation. All the developers are going down this path of trying to make sure their settlements are on track. Settlement risks are a concern for every developer and we all need to proactively manage it.’”

“The changed financial environment for buyers – about 20 per cent of Poly Horizon units were sold to overseas China-based purchasers – coincides with the peak of completions in Australia’s biggest-ever housing construction boom. Poly Australia was also working with substitute buyers of the 50 apartments that buyers had already onsold, he said. Of those resales, between 10 and 15 were caused by personal circumstances, while the remainder were buyers who had been caught out by either APRA-inspired restrictions on finance to overseas buyers or by Chinese changes hindering people from getting funds out of the country, Mr Carter said. ”

“Most of the original buyers who had onsold their units had not suffered losses because the apartments had gained in value, he said. ‘They’ve been able to do that without too much of an issue because there’s been a capital growth in them,’ he said. ‘It might be an issue if they’d entered into a contract at the beginning of 2017.’”