Friday, June 29, 2018
Wednesday, June 27, 2018
Brisbane apartment sold for 27.6pc loss; a sign of things to come?
Chinese mainland investors Lielin Zheng and Tang Zheng have just had a taste of Australia's bitter sweet residential property market.
The Shanghai residents bought a brand new 79 square metre residence off-the-plan in Lendlease's The Green high rise developmentin Brisbane for $535,000 in 2013.
The development was sold out. Then Lendlease Australia chief executive Mark Menhinnitt said people were "embracing the opportunity to be part of Lendlease's first inner Brisbane mixed-use development."
Dozens of cranes littered the skyline in Brisbane back then. Interest rates were coming down, money was flowing out of China and foreigners were not getting hit with big upfront taxes as they are now.
The Green was completed in 2015 to a high quality finish living up to Lendlease's reputation.
But fast forward less than three years and the two Chinese investors have just sold their apartment for a loss. A big loss. One of the biggest the market has seen.
The apartment has been purchased by a local for just $387,000. That is a 27.6 per cent loss for Lielin Zheng and Tang Zheng before stamp duty and other costs, not to mention time and effort.
And think of the economic cost - if they had bought Lendlease shares instead of an apartment that year they would have made a 136 per cent gain, so the total economic cost has been 163 per cent.
While the motive of those Chinese investors' decision to sell at such a huge loss is not known, the transaction is likely to have consequences for the market.
'Brisbane the most challenging'
It is also why Lendlease – easily one of the top three apartment developers in Brisbane – is bracing itself.
In February last year Lendlease said its buyers could be broken down into 56 per cent local, 21 per cent from China and 23 per cent from other offshore locations.
Earlier this month, Kylie Rampa, the company's Property Australia division head, said as much.
"Brisbane is the most challenging inner-city apartment market in the country," Ms Rampa said during the presentation.
"Inevitably there will be a rise in defaults in this market over the short term. We are working through our relatively small exposure at our RNA projects in Brisbane, including identifying potential alternate buyers, or holding the residual units for a period and renting them out."
It is not just Lendlease that thinks this. Place Advisory which surveys a host of industry participants has revealed that only 39 per cent of respondents thought the Brisbane property market had improved over the previous 12 months – this is down from 79 per cent in 2014, and 69 per cent in 2015 when the Chinese saw their Lendlease apartment completed.
With domestic banks tightening up on credit to foreigners and foreign purchasers stepping out of the market (the Foreign Investment Review Board indicated the Chinese have halved their purchases) there is likely to be some defaults. And where there are defaults there are discounts.
So far Corelogic which collects the data on all sales has shown that Brisbane apartments have fallen an annualised -0.3 per cent – which is about the same as Sydney apartments.
Although, the difference is that in the year to date Sydney apartments are down -1.2 per cent while in Brisbane they are treading water at 0.7 per cent.
But the risk is there and it's no surprise that the local bank - Bank of Queensland - is taking a more cautious approach in the market.
"BOQ does continue to have an appetite for apartment/unit lending in Brisbane, and continues to support funding of new purchases of apartments and units. However with the recognised potential for an oversupply in the Brisbane market and future pressure on unit prices and reduced rental yields, BOQ does have a reduced lending criteria in certain postcodes and property types," a bank spokeswoman said.
And while many might see this as an opportunity to jump into the market – there are now bus tours where you can shop for cheap apartments – remember there is always a risk you can cut yourself catching a falling knife.