The Housing Bubble

The Age reports from Australia. “All across Melbourne, new apartments riddled with faults have been sold to investors and residents. Some of the problems are so costly to fix that it would be cheaper to build the apartments again. Often these cases play out behind closed doors or, quietly, in the courts. After all, who wants to tell the world that they’ve bought a disaster? Strata Community Australia (which represents Victoria’s body corporate managers) is aware of at least 58 apartment buildings in Melbourne with defects, valued at a total of about $49 million. ‘That’s just the tip of the iceberg,’ the group’s Victorian general manager, Rob Beck, said. ‘It is rare for buildings to be defect-free.’”

“Consider the case of Amanda Frazer, a first-home buyer who bought in Ormond off the plan in 2012. When she went to inspect her two-bedroom home, she discovered something different to what she had signed up for. The developer had squeezed another unit into the building and significantly reduced the size of her property’s balcony. She called the council. The council inspected the building and declared it illegal; because of the extra apartment jammed in, the complex no longer complied with the planning permit.”

“Ms Frazer received no compensation from the developer and there was little point pursuing him for the lost value in her home and repairs (estimated to be up to $100,000) as his businesses went into administration. This is not unusual. Ms Frazer said an inspector found further breaches in the building code: the floors weren’t level, the stairs were too steep and the ceilings too low. ‘It was a shoddy finish. You could see the lack of care,’ she said.”

From News.com.au. “It made headlines as Melbourne’s ‘tallest, skinniest skyscraper,’ but media buzz around 54 Clarke St in apartment-flooded Southbank wasn’t enough to save the developers from the rapidly turning property market. Like many others, the original private syndicate of developers behind 54 Clarke St were forced to walk away. The ‘Elysium’ site went under the hammer earlier this month. As pre-sales drop and banks tighten lending for developers, a growing number of ‘mum-and-dad’ apartment builders are being forced to abandon construction, experts have warned — sparking fears of a domino effect.”

“The trend is noteworthy because it appears to gel with a scenario floated by investment firm CLSA earlier this month of a looming apartment ‘crisis.’ The broker predicted that a wave of defaults would force smaller developers into receivership, pushing down prices and potentially causing wider contagion that could lead to a recession. Meriton founder Harry Triguboff, Australia’s richest man, has also sounded increasingly urgent warnings, telling news.com.au recently that a ‘very significant’ number of Chinese buyers were walking away from apartment purchases.”

“Last week, Mr Triguboff told The Australian he would not be able to get 50 deposits on a new project, compared with 105 in the previous month. ‘We are sinking fast,’ he said.”

“Albert Callegher from ACM Finance, a specialist ‘last-mile’ finance broker that provides top-up funding for property developers, said CLSA’s prediction was already coming true. ‘The small to medium developers doing projects between $2 million and $20 million, they’re going broke,’ he said. ‘I’ve had one client say to me he’s got one developer with over 2000 apartments that can’t settle. We’re hearing it everywhere but it’s not making the news, because you don’t want an avalanche.’”

“He warned Melbourne may be facing another 2004-style Docklands-style property bubble. ‘The developers simply sold the water view and position as the most fantastic, New York-inspired development in the universe,’ he said. ‘As a result, poor investors paid 25 per cent above market, the market corrected itself, and as a result a lot lost their homes through unscrupulous pricing structures. What’s happening now is the same as the Docklands. The last three years it’s been exuberant buying.’”

From ABC News. “Darwin locals trying to sell their properties are feeling the pinch of a depressed housing market as the volume of sales reaches an all-time low. Some have been forced to leave the market altogether. Glenn Chandler’s tropical, open-plan house in Darwin’s northern suburbs has been on the market for more than a year and has had just six enquiries. ‘When we moved in it was only a couple of years before Cyclone Carlos knocked it over entirely, so we had to build it from scratch … and that was a good four-and-a-half years ago,’ he said. ‘It’s been on the market for a good year, year-and-a-half, but not actively. I’ve been told that in a depressed market that’s what you expect.’”

“Anne Clifford has lived in Darwin for more than 40 years and has just taken her inner-city Darwin apartment, in Larrakeyah, off the market. ‘My apartment’s been on the market on and off for the last two-and-a-half years, I had it with an agent for three months and didn’t get much interest at all,’ she said. ‘Certainly didn’t get any offers that I liked so I just decided it wasn’t worth just throwing it away because the prices have dropped $50,000 to $100,000 in the last three years I think. In 2010, it was actually valued by a proper valuer for $620,000 and we had it on the market for $550,000 this time.’”

“Ms Clifford said she would wait for the market to improve. ‘I’m not going to rush into selling it because I just don’t think the market’s right, but I’ve been in Darwin 40 years and there’s a lot of ups and downs and I know Darwin will pick up and it will get better.’”