There is no doubt that some segments of the Australian real estate market are in trouble, with off-the-plan apartment owners in Melbourne and Brisbane poised to be the biggest losers.
The old enemy of property developers, 'supply and demand', has developers becoming increasingly anxious to place bigger advertisements and offer bigger discounts, free furniture and a slobbering list of other marketing tricks to attract un-informed buyers. On top of this, the auction clearance rates have dropped to the lowest level in years so the writing is on the wall to go bargain hunting. But it takes an intelligent investor, not an emotional home buyer, to secure a bargain.
Date: March 27, 2016 at 11:30 AM
Published by: Mortgagee Property Limited
Video: Watch on YouTube - Watch on YouKu
Category: Australia Real Estate
and investors will pay the price for our lack of long term vision of the Cause and Effect.
The off the plan, apartment real estate sector, whilst in the short term has created much needed employment and economic stimulus to mitigate the down turn in the mining sector. The apartment boom is now our 2nd biggest national export and can only be viewed as a fake market demand (none organic) and, many believe has disfigured the health of the property market with more supply than can be absorbed locally.
Over the past 2-3 years, property developers have increased supply levels by an astonishing 200% ++ to cater to China’s insatiable appetite for Australian real estate. Between a possible devaluation of the RMB after Chinese New Year, the ongoing stock market turmoil, APRAs lending handcuffs and, falling bank LVR valuations and the mining industry turning to dust, the outlook is terrifying.
The speculation and trending media is that Australia’s appetite to sell an excessive quantity of apartments to Chinese investors has caused a property bubble that... will burst sooner than later. When Chinese real estate investors walk away from their off-the-plan purchases and leave the local market to implode.
So if it is a buyers market, what should you be looking for or avoiding ?
Supply and demand is a strong underlying factor for the property market along with sqm value. If you want to believe you are a seasoned property investor then take my advice; you have to think like a bank and assess the loan risks and the security offered. Role the dice and proceed straight to the market trends and figures. Your lender has a bigger interest and risk in your property than you do.
So, thinking like a bank, whom has little interest in inspecting the property, the size of a cupboard or color schemes, let's get down to the real investor facts:
2. Property Condition and Improvements
3. Land Value
4. Supply and Demand
5. Rate Per Sqm
Analyzing and assessing the above key factors will enable you to clearly identify risk, and of course opportunities. For example what is the rate per sqm for the property, is there an over supply of current stock and what is proposed to be built?
Off-the-Plan speculation is another misunderstood and potentially risky property segment. Whilst we assume a property will increase in value over the 12 to 36 months it takes to complete an off-the-plan apartment, the inherent risk is your 'crystal ball' valuation cannot see that far into the future. As the property market and economy moves in cycles and is influenced by global and localized economic conditions, there is one true uncertainty that no one can predict and that is the supply and demand. Many off-the-plan purchasers will complain that had they known that another 30,000 apartments were proposed they would have never have poured their money into an off-the-plan purchase. Re-sales of apartments cannot compete with new off-the-plan property sales, as who in their right mind would opt to buy old when they can buy brand new? Thus the cycle begins again.