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New Gold Coast high-rise boom fuels fears of another crash

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New Gold Coast high-rise boom fuels fears of another crash

In the lead-up to the Commonwealth Games, high-rise apartment development on the Gold Coast is ramping up again, fuelling concerns about another crash in values, as happened between 2010 and 2012.

Apartment values fell about 25 percent during the two-year period – a combination of oversupply, overpricing and a drop in tourism – with high-rise projects like Soul ending up in the hands of receivers.

This time around, The Australian Financial Review counted more than 1400 apartments across a dozen projects about to flood the glitzy strips of Surfers Paradise, Southport and Broadbeach over coming months, with a potential end value of about $1.5 billion.

Major projects include developer Citi marks $200 million Markwell Residences, a 46-storey tower with 210 units on Surfers Paradise Boulevard, the $220 million Signature Broadbeach, a 264-unit project by Little Projects, the $250 million Chevron One development on Chevron Island with 247 units and Sunland’s $200 million Hedges Avenue high-rise.

Record lows

With rental vacancy rates at record lows – just 0.9 percent, according to SQM Research – rents rising and values starting to rise as well, developers have sensed the opportunity to make money again on the Gold Coast.

Local municipalities have supported their endeavours, approving more than 11,000 new apartments in the past three years, compared with fewer than 5000 in the previous three years.

But investment adviser Terry Ryder believes history is about to repeat itself in a market notorious for its booms and busts, labelling the Gold Coast high-rise apartment market a “no-go zone” for investors in 2018.

“Once Gold Coast construction projects for the Games are completed, demand will undergo a readjustment, as construction workers leave the area,” said Mr Ryder, founder of hotspotting.com.au.

Capital restrictions

“Couple this with new restrictions on the capital flow out of China and the 3 percent stamp duty surcharge which now applies to foreign investors in Queensland, and demand is likely to fall short of developer expectations.”

Not everyone agrees with Mr Ryder’s assessment of the Gold Coast’s prospects, with property valuer and analyst Anna Porter listing the location as one of her six investment hotspots in 2018 due to the infrastructure projects underway.

SQM Research managing director Louis Christopher is also bullish on the Gold Coast market, writing in his November 2017 Boom and Bust Report that it has a more diversified economy than the Sunshine Coast and was benefiting from the lead-up to the Commonwealth Games, efforts to reduce crime and “just a tad better” road infrastructure. He expects the Gold Coast and the Sunshine Coast to outperform the Brisbane market in 2018.

Buyers have also bought into the Gold Coast rebound story, with a CoreLogic suburb report for Surfers Paradise showing that apartment sales have risen 60 percent in the past three years, averaging around 1600 a year.

Prices steady

However, the median price for a Gold Coast apartment was $422,000 in September, according to CoreLogic, almost unchanged from five-years ago when the Prodap Report put the median unit price at $419,000.

Ray White Surfers Paradise CEO Andrew Bell said he did not see any sign of the roadblocks that had derailed the Gold Coast’s property market so spectacularly in the past, with strong sales figures recorded recently.

“We’re not seeing rampantly rising interest rates, high unemployment or recession,” he said.

“None of these things is happening and all indications are that interest rates are likely to remain stable for most of 2018.

“There is tremendous confidence in the city due to its economic stability, the quantity and quality of local jobs on offer and steady population growth.”

Originally Published: www.afr.com

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Opinion

A COLOSSAL RISK: Huge danger sign for housing in Australia

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A COLOSSAL RISK Huge danger sign for housing in Australia
There could be far too many apartments for sale in coming years. Picture: Glenn Hunt/The Australian What does a million dollars buy in Aussie capital cities?

IT COULD be a bad year for housing prices if building approvals are anything to go by. With the housing market teetering on the edge of a serious downturn, apartment developers seem to be having a “last blast”.

Building approvals data released last week shows a serious uptick in the number of homes that were approved. November building approvals were up 0.9 per cent compared to October, and are 8.1 per cent higher than November 2016. The source of the lift is mainly apartments, which rose from already high levels.

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

The timing of this big push is fascinating because November is exactly when Australian capital city housing prices started falling. Corelogic shows prices fell by 0.1 per cent in that month as Sydney took a sharp downturn. The developers didn’t know in advance that was going to happen, but they might have sensed it. After all, what could drive such a big uptick in building approvals is the sense that it is now or never.

Builders who have just got their approvals will be racing to get their apartment blocks and new developments done before everyone else. Those who finish early can hope to get in before prices really slump. Any who have delays will be worried they’ll end up selling into a soggy, lifeless market.

TIMING IS EVERYTHING

Markets are supposed to co-ordinate supply and demand. But that’s a hard job when supply takes a long time to come online. If you’re halfway through building a big development when the market falls by 10 per cent, you’re in a bind. The losses involved in finishing the properties and selling them for less than they cost to build will almost certainly be smaller than the losses involved in abandoning the project, so you have to push on to get at least some money back. This is the essence of the boom and bust cycle that characterises property.

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

Some very large developers might finish properties and then sit on them, hoping the market improves over time, but that’s also a risk. Markets can take a very long time to recover.

SOUTH OF THE MURRAY

The really interesting thing about the November building approvals data is where it was focused. All the increase was focused on Victoria. The average number of building approvals in New South Wales, Queensland and South Australia was actually lower than in the previous month, by 2 to 3 per cent. But Victoria saw a whopping 27 per cent rise.

That anomaly becomes especially curious when you consider that Victoria was the market that actually went on to see price appreciation in November (0.5 per cent growth in prices, according to Corelogic). Could it be that developers, sensing Victoria is the only market with price growth left in it, are focusing their attentions there?

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

Another explanation for such a massive jump would be if a single large project came through the pipeline in the month of November. A giant apartment development somewhere in Melbourne, for example. For now, it’s not clear if that’s the case. Whether it is one project or many, the impact on housing markets of a big rush of supply is largely the same – extra supply generally makes prices lower than they would otherwise be.

QUIT WHILE YOU’RE WINNING

Some smart developers have already got out of the property development game, telling the financial press they are sitting out until the market repairs itself. The so-called “pipeline” of new building had been shrinking. The November building approval data shows a different picture. It suggests the pipeline might get fatter again for a little while and there could be one more flurry of cranes going up. The one caveat is this – builders can pay to get a building approval and then not use it. That might be the best case scenario.

The big question hanging over Australia’s high housing prices is whether a housing downturn can happen without also crashing the economy. A gentle and controlled downturn might be a positive – young people can afford to get into the market more, but people don’t feel like the sky is falling.

But a severe sharp downturn could be different. A giant backlog of supply that could be released into an already weakened market is a concern because it could accelerate a modest slide into a hard one.

Originally Published: sunshinecoastdaily.com.au

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Opinion

Noel Whittaker says don’t get beached by dream purchase

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Noel Whittaker says don't get beached by dream purchase

Before you get too carried away ask yourself the tough questions.

First, “do we keep it for our own use or rent it out?”

If you don’t rent it out, you’ll be tying up a large amount of capital that could almost certainly be used better elsewhere and, if you have children, you’ll find out that you won’t be able to go there as often as you’d planned.

Then you will have to decide between leasing it

out permanently and making it available for holiday letting.

If you go for a permanent tenant you will achieve a regular income but the trade-off is that you cannot go away and use it for the odd weekend.

If you opt for casual letting you will need to provide everything from plates to a washing machine and will have greatly increased wear and tear because of the constant turnover of tenants, few of whom will treat the property kindly.

If you borrow for it, you’ll only be able to claim a tax deduction for the rates, maintenance, interest and other expenses if the property is income- producing.

This means you will have to rent it out.

If you decide to keep

the peak periods such as school holidays for yourself, you’ll be substantially reducing the income because the highest rents are charged in the holiday season.

And if you do use the property yourself, you’ll only be able to claim a percentage of the costs.

For example, if you occupy the property for 13 weeks, leaving it available for the other 39 weeks, you could claim only 39/52 of all expenses.

Then comes the choice between a house and a unit. A house will be great if you want to take the pets away on weekends with you, and as long as you don’t mind maintaining two gardens.

Unfortunately, the cost of a well-located beach house, as well as the accompanying rates and maintenance, is way out of the reach of most of us. To make matters worse the land tax on the property will put you into a higher land tax bracket which could affect your other rental properties.

Originally Published: www.sunshinecoastdaily.com.au

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Would Australian Households Be Better Off if We Ditch Negative Gearing?

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Would Australian Households Be Better Off if We Ditch Negative Gearing

Economic modelling undertaken by University of Melbourne economists, and presented to the Reserve Bank last month, shows that three-quarters of Australian Households would be better off if negative gearing is abolished.

The study was posted on the Reserve Bank website for public release on Friday.

The paper explores the implications of negative gearing – including a 30 per cent collapse in the supply of rental properties – and found that abolishing negative gearing would lead to an overall welfare gain of 1.5 per cent of GDP.

Negative gearing is a policy that largely benefits landlords, and for the 17 per cent of the Australia population that have property investments – out of which 70 per cent are negatively geared – would be worse off.

The study estimated that thirteen per cent of the population would be directly influenced by the removal of negative gearing, and likely to quit their holdings.

“The housing prices fall because removing negative gearing takes a significant amount of housing investment out of the property market,” the report said.

“Both the proportion of landlords and the amount of resources allocated to housing investment, given by the average expenditure, have fallen significantly after the policy reform.

Importantly, removing negative gearing increases the average homeownership rate of the economy from 66.7 per cent to 72.2 per cent.

The improvement in homeownership was observed most predominantly among poor households, where the fall in house price and the rise in rent reduce the price-to-rent ratio in the economy by 4.2 per cent.

“This has direct implications on housing affordability as the fall in house price lowers both the downpayment requirement for mortgages and the size of mortgages required to purchase a house, making it easier for households to own a home.”

If negative gearing was to be scrapped, the average mortgage size held by homeowners would likely decrease 21 per cent.

“Eliminating negative gearing takes young landlords who were rich enough to meet a downpayment requirement for investment properties away from the market.

“This reconciles a recent trend in the property market that there has been a rise in investment housing debt holdings by young and rich 35 households who would have benefitted the most from negative gearing concessions.

“The aggregate welfare for the economy improves upon the repeal of negative gearing … around 80 per cent of households are better off after the policy reform.”

Australia’s negative gearing regime stands alone against comparable OECD countries. Only New Zealand and Japan allow the unrestricted use of negative gearing losses to offset income from other sources.

The report’s authors, Yunho Cho, Shuyun May Li, and Lawrence Uren said that along with their findings on negative gearing it would also be worth considering some partial restrictions, such as allowing tax deductions for mortgage interest payments only.

Originally Published: www.brisbaneinvestor.com.au

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