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Developers offer agents higher fees to help shift units
The Australian 12:00am June 15, 2016
Samantha Hutchinson
Agents are being offered double the normal commission to help shift apartments throughout capital cities as foreign buyers and investors walk away and fears mount of a looming oversupply.
Agents in Sydney, Melbourne and Brisbane report being tapped several times a week by developers looking to broaden sales channels as deals become harder to get across the line.
One Sydney agent was approached this week by Harry Triguboff’s development group Meriton for help in selling apartments in the Luna by Meriton complex in Sydney’s Lewisham.
“They offer a 3 per cent commission, and that’s highly attractive, but the bottom line is the Asian market is tightening up and there’s thousands of apartments up for sale in the surrounding area,” the agent said.
“I told them, ‘Forget it’.”
In Melbourne and Brisbane, where fears are higher of a potential oversupply, some developers are offering commissions of up to 8 per cent — more than three times the usual commission.
The higher commissions come as the Queensland and NSW state governments decided to slug foreign buyers with new charges.
In Queensland foreign buyers will be hit with a 3 per cent stamp duty surcharge and NSW buyers will face a higher surcharge of 4 per cent as well as a 0.75 per cent annual land tax surcharge.
The analysts referred to the combination of tougher lending standards, higher outflow restrictions in China and the new rules as a “triple whammy”. “The timing is significant,” BIS Shrapnel director Kim Hawtrey said. “We’re at the peak of the property cycle, or the inflection point, and there are various factors coming together when the apartment oversupply is developing. When you combine the context and the stage of the cycle and other restrictions coming into play, you could end up triggering a correction that is surprisingly bigger than you expected.”
Executives have called the development a fixture of every property cycle that indicates prices are close to correction.
But they also note that a swag of government initiatives including Foreign Investment Review Board measures to curb foreign buying and Australian Prudential Regulation Authority moves to cool investor buying have contributed to the tougher sales conditions.
“I’m talking to developers and agents regularly, and this drop off in foreign buyers is one of the first things they talk about,” Aussie Home Loans executive chairman John Symond told The Australian.
“Without a doubt, they’re retreating and it’s very pronounced. Developers are concerned, marketers are concerned, and it’s contributing to the broader slowdown ... it’s creating a huge void of unsold apartments.”
Data reveals sales grinding to a halt. Housing turnover more than halved at the weekend compared with last year, with just over 700 houses and apartments changing hands from 1053 auctions, down from more than 2000 homes auctioned this week last year.
This week, research houses CoreLogic and Moody’s predicted that units would shoulder the bulk of a 6 per cent decline in values forecast for 2016 to 2020.
These charts show why some experts fear an apartment glut
Sydney Morning Herald June 14, 2016 - 11:25AM
Clancy Yeates
Warning signs about the large number of apartments being built in Australia's biggest cities have been piling up recently.
The Reserve Bank, Standard & Poor's, Fitch Ratings and consultants BIS Shrapnel have all publicly aired their concerns we might be building too many units in some cities. Some banks, including Macquarie Group and AMP Bank, have curbed their lending for high-rise units.
In response, developers maintain many of the fears are overblown. Harry Triguboff, the country's richest man, said this week the market was slowing but he's having no trouble selling units.
Whoever you believe, just how the apartment boom evolves is likely to be a key influence on the property market this year and probably next.
So what's all the fuss about? These charts, compiled by UBS economists led by Scott Haslem, show why many in the financial sector appear are looking more closely at the apartment boom.
The number of multi-storey apartments being built has more than doubled in the past few years, and almost tripled since 2010, as this chart shows. The number of new houses, in contrast, has stayed more or less flat.
Digging further into the detail, UBS economists say high-rise apartments – those of more than four levels – appear to be driving much of the jump. They say the proportion of building approvals that are for high-rise developments has risen to a record of about a third of all approvals in recent years.
Whether all these high-rise apartments will be snapped up by owner-occupiers or investors remains a point of contention.
2. If you thought there were a lot of cranes around, you are right.
Rather than statistics, some people prefer more anecdotal indicators, such as the number of cranes around town. A crane index from Rider Levett Bucknall, a quantity surveying firm, shows the crane count is up 165 per cent since 2014.
Cranes are a useful gauge of construction activity, but building is also a cyclical business, meaning it has big ups and downs. For this reason, some also see the crane count as a potential sign of future risks.
Indeed, the crane count is said to have been used by the former chief executive of National Australia Bank, Don Argus, on a trip to Melbourne airport back in the 1990s. It was then followed up with review of the bank's commercial property loans, and that helped it avoid some of the worst pain in a subsequent property bust.
3. Boom-time in Sydney, Melbourne, Brisbane
This chart shows just how much Sydney, Melbourne and Brisbane have been driving the surge in unit construction. As the biggest cities, you'd expect that to some extent.
But the concentrated nature of the boom also raises concerns that in some inner city areas, there are more units being built than will be in demand. S&P said in their recent report they thought the potential for over-supply was greatest in Melbourne and Brisbane.
The UBS economists who came up with these graphs reckon Brisbane has the strongest chance of over-supply, after calculating the number of residential building approvals as a share of the existing dwelling stock.
Even so, their prediction is for a "moderation" rather than a "downturn," arguing that "record low interest rates trump everything else". So far at least, the official figures on average house prices, including apartments, have been more resilient than many expected this year.