Units resold at a loss in Brisbane, Melbourne

The Australian 12:00am March 23, 2017

Turi Condon

Losses on the wave of new apartments are starting to mount with a hefty 60 per cent of units bought off the plan in inner Melbourne since 2011 breaking even at best or reselling at a loss, while inner Brisbane saw 40 per cent of resales tread water or lose money, according to new research from BIS Oxford Economics.

Sydney has yet to feel much impact from the unit-building boom, with only 4 per cent of resales made at the purchase price or below.

The research comes amid warnings from regulators, bankers and economists over stratospheric housing price growth in Sydney and Melbourne, amid expectations that investors will face a tougher times as lending criteria continue to tighten and investor mortgage rates rise.

In Brisbane, property veteran Kevin Seymour’s company examined pockets of the inner city ahead of undertaking its own projects, finding 90 per cent of the new units in selected larger projects in Fortitude Valley — mostly targeted at investors — resold at a loss over the past two years.

In total, Seymour Group looked at 24 projects in two inner suburbs — Fortitude Valley/Bowen Hills and Newstead — where a total of 83 units were resold.

Boutique projects at nearby Newstead with larger apartments had generally seen values rise, Seymour Group found.

Mr Seymour said the current review was undertaken to ascertain the soft spots or the pockets of strength in the inner Brisbane market.

“It’s no good building in the face of what is a disaster for resales,” Mr Seymour told The Australian.

“There is some good buying there (Fortitude Valley), but it will take a couple of years to soak up the surplus stock.”

Investors would face fiercer headwinds as banks increased investor lending rates, Mr Seymour said.

Last week National Australia Bank and Westpac increased home loan rates, with investor loans seeing the biggest hikes.

Seymour Group owns a 300-apartment site in Fortitude Valley, which the group last year decided to put on ice until the next market cycle.

Meanwhile, three of Mr Seymour’s grandchildren are planning a luxury boutique project in inner city New Farm with designs nearly finalised.

Seymour also looked at providing funding to offshore apartment buyers, but said it was fraught with problems.

“The risk is in collecting from an Asian investor if there is a default,” Mr Seymour said.

Smaller developers were finding it tough to get traditional funding, but new tiers of non-bank lending were emerging, backed by high net worth investors or second tier lenders, he said.

“There is still a lot of cash out there,” Mr Seymour said.

BIS Oxford Economics analyst Angie Zigomanis expects the Brisbane market to perform more poorly than the southern capitals given its smaller size and shallower pool of tenants. “There is a smaller working population in the city and there are other affordable housing options,” Mr Zigomanis said of Brisbane’s unit market.

New high-rise unit completions would peak in Sydney next year at 25,800 units compared with 16,210 completions last year, while Melbourne’s building cycle will peak this year at 18,350 compared with 13,453 last year and Brisbane will see 10,350 units finished this year, double 2016’s 5435 high-rise completions.

The peak of building boom and subsequent fall in construction employment would coincide with the trough in mining investment in 2018-19, he noted.

But he does not forecast a crash. “As long as people have jobs and interest rates are stable, they should be able to hang on,” Mr Zigomanis said.