Brisbane glut sees price of flats slip by $81,000
We have been banging on about a fall in property prices for some time (see our March ’17 blog post Brisbane Apartments are Ground Zero and our November’ 16 post I am calling a short sell on Australian residential apartments).
According to the Australian this week, “Brisbane apartment prices plunged $81,000 in the September quarter as oversupply issues weighed down the local market, which is facing another flood of new units next year. A quarterly report by property consultant Urbis showed the average price recorded in the quarter was $644,667, down from $745,563 achieved in the July quarter. It was the biggest fall in average price of any major city and helped bring the national average down by almost $37,000 to $822,570. Perth was the only other city to record a drop in apartment prices, which fell $53,000 to $608,424 while Sydney, Melbourne and the Gold Coast saw prices climb as much as $82,000. Any price growth in Brisbane could be some way off, however, with another 7100 apartments expected to be completed next year – far more than this year.”
Drop a pebble in the middle of a pond and eventually the entire pond is impacted to varying degrees. And keep in mind many of the investors in Brisbane apartments live in Melbourne and Sydney.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
John
:
Hi Robert
I was wondering about your views about the Australian housing bubble. House prices seem to constantly rise in this low interest rate environment. Everyone says that interest rates will stay low because the government cannot afford the political troubles that arise from raising rates and the economic trouble that would cause.
At face value that makes sense but I read an article about the difficulty small business are having making money – they put a huge amount of money in the business, a huge amount of work and then realise they could be making more money by investing that same money in real-estate.
The penny seemed to drop for me when I heard that. An economy can’t work if people realise they can make more money investing in real-estate and either working for someone else (who is faced with the same problem) or not working at all.
Is this logic sound or has something been missed???
Roger Montgomery
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An economy cannot sustainably be supported by only asset price growth. I believe that an economy needs to be value adding to its exports in order to finance its imports. Alternatively, it needs to import less and refrain from profligacy. Failure to do this will result in the residents becoming serfs to overseas landlords.
John
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Thanks for that response Rodger
The deeper point I am trying to get at is that even if the economy was entirely closed – had no external trading partners – it cannot work if it is more profitable to speculate on property that in it is to use one’s resources to engage in production/services of some sort. The trade issues perhaps amplifies the problem but for me the more fundamental issue is that the economy cannot function if all money is focused on bidding up land prices.
The stupidity of investors, banks and government in taking out/allowing interest only loans is beyond stupidity! As an ‘investor one is signing up to pay rent for a an increasing debt obligation.
Roger Montgomery
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Thanks John.
KC
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What’s interesting is we have the lowest rates ever, interest only loans, low unemployment, no forced selling whatsoever….and still these huge falls. I have anecdotal evidence of units bought 4 years ago selling at 25pct discounts to paid price. Brisbane is awash with massive amounts of negative equity in the unit market and the banks are retaining 15 basis points for BDD charges?
Roger Montgomery
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It is curious. There is of course always some forced selling.
karl
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And with credit still so cheap this charade is going to continue far longer than it should. Approvals for unit construction have actually increased YOY despite alarm bells ringing in every newspaper across the country.
jimbo james
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Yes, it looks like the ‘new age’ developers who believe their differentiated offerings will be completely immune from any downturn are driving much of this. On the other hand you have successful, wealthy, long term property dynasties such the Schwartz family (one member on the board of the RBA) and the Lowys offloading. I know which way my money’s going.
Roger Montgomery
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Thanks Jimbo
Cameron Hawkins
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For context, Urbis said the price plunge in Brisbane “had come off the back of a strong July quarter, when sales at the luxury 443 Queen Street lifted the median apartment price” and that [in this quarter] “ we saw a higher level of one- and two-bedroom apartments transacting rather than premium product.”
Urbis also said in relation to 2018 that it “was not feasible that new projects can achieve price growth. There could potentially be a small price decline.”
Doesn’t sound like the End of Days to me just yet, but then I am trying to keep an open mind rather than excluding information which doesn’t support a dogmatic view of the future.
Roger Montgomery
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Thanks Cameron, Fascinating but not unusual for ‘explanations’ to be given for price declines, but rarely for price appreciation. So they’re forecasting a small price decline in 2018 off the back of a large one in 2017. Did they forecast the recent decline back in 2016?