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We’ve Got Massive Oversupply But No Demand

A report from the Sydney Morning Herald in Australia. “Every day there are Melbourne and Sydney property owners who put houses and units up for sale in the hope they can quickly find a buyer and the dream of the new owner offering a high price. But in a sign of the downturn in both markets, more than 8000 of those who entered the market in March of last year are still waiting.”

“Even though the number of new properties being put on the market has dropped by 18 per cent in Melbourne and by 22 per cent in Sydney, the ‘for sale’ signs on front lawns are multiplying.”

“AMP Capital chief economist Shane Oliver suggests both cities will see values fall by 12.5 per cent this year. ‘We had a price boom that fed on itself and now we’ve got a price correction that is also feeding on itself,’ he says. ‘We had the run up in housing construction that helped offset the impact of the end of the mining boom. This time it’s a lot more difficult to see what’s going to fill that hole.'”

From Business Insider Australia. “Almost half of all new units in Sydney and Melbourne that settled last month were worth less than what they were originally purchased for, according to a report from the Australian. Based on data from CoreLogic, 45% of new apartments in Sydney that settled had valuations below their off-the-plan purchase price, up from 18% one year ago. In Melbourne, the figure was even higher at 46%, ouble the level reported in February 2018.”

“A recent report from Ernst and Young Australia said that Australian property developers were facing a downturn of the scale not seen in 30 years, warning that property developers should be taking measures to protect themselves.”

“‘Shrinking profit margins may prevent developers from recycling capital and profits into future existing projects which may put those projects in jeopardy,’ the report said. ‘This could lead to an increase in ‘fire sales’ which will re-set the market and cause further concern from a finance perspective.'”

The Australian Financial Review. “Melbourne lot prices suffered their biggest monthly fall in more than three years in January as developers battled subdued sales levels and competition from the ‘Gumtree Index’ – the secondary sales market.”

“‘Land price declines from six of the seven municipalities amongst Melbourne’s growth regions resulting in one of the largest month-on-month median price declines in years,’ said Red23 head of research Andrew Perkins. ‘With Melbourne’s entire property market becoming somewhat exhausted, it was only a matter of time for this kind of price drop to take place.'”

From Daily Mail Australia. “Apartment values in Australia’s big cities are set to plunge with prices in one suburb to fall as much as 50 per cent, one industry observer predicts, as Chinese buyers abandon off-the-plan residential tower projects. ‘We’ve got massive oversupply in those areas but you’ve just got no demand,’ Digital Finance Analytics economist, Martin North told Daily Mail Australia.”

“Chinese buyers have abandoned off-the-plan apartment projects in Sydney, causing residential projects to be stopped in some cases as developers struggle for finance. Mr North said off-the-plan buyers, who had paid a 10 per cent deposit two years ago, were now either struggling to get a bank mortgage or owed more than the promised value of their new apartment.”

“‘When it comes to time to complete the transaction and get the mortgage, they discover that they can no longer get the mortgage they thought they were going to get,’ he said. ‘Some of the overseas buyers who went through this process disappear back overseas and of course the developer has no way of following up.'”

From ABC News. “Adelaide construction company Tudor Homes has gone into liquidationand JML Home Constructions, which operates the Onkaparinga GJ Gardner franchise, has closed its doors. An application to wind up Cubic Homes, based in Kilburn, will be heard later this month. It follows the recent demise of a string of local companies, including ODM Group, OAS Group and Platinum Fine Homes.”

“Roofer Justin Noble said he felt for building companies, even though the downturn had impacted subcontractors too. ‘Everyone’s going through tough times … it’s affected me from November last year,’ he said. ‘[I know] at least 50 people who are owed money. Just one company that’s going under, they owe … I’m told, close to $700,000 across all trades.'”

“Mr Noble said he was slowly reclaiming outstanding payments totalling $140,000 but was selling his house to survive.”

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This Post Has 29 Comments

  1. ‘Almost half of all new units in Sydney and Melbourne that settled last month were worth less than what they were originally purchased for’

    For over a year we’re read reports saying,”it’s bottomed, to the moon Alice!”

    You haven’t gone through the defaults stage yet. That’s like a bowling ball going down the stairs. Hear that Redfin?

    1. the key will be when the current ‘value’ is 20% less than the purchase price. Folks will start to panic then, and buyers will wait to see if it drops 30% from peak 🙂

  2. But in a sign of the downturn in both markets, more than 8000 of those who entered the market in March of last year are still waiting.”

    Meaning they’re overpriced. Get to slashin’ and sawin’ those wish prices, greedheads!

  3. “Apartment values in Australia’s big cities are set to plunge with prices in one suburb to fall as much as 50 per cent, one industry observer predicts, as Chinese buyers abandon off-the-plan residential tower projects. ‘We’ve got massive oversupply in those areas but you’ve just got no demand,’ Digital Finance Analytics economist, Martin North told Daily Mail Australia.”

    Live by the sword, die by the sword

    1. Some of those fancy detached shacks around there are off 40%. We’re talking millions of Australian pesos!

  4. ‘Shrinking profit margins may prevent developers from recycling capital and profits into future existing projects which may put those projects in jeopardy,’ the report said. ‘This could lead to an increase in ‘fire sales’ which will re-set the market and cause further concern from a finance perspective.’

    We’ve seen this movie before with the condo crash. Magnify this one by those wonderful Chinese investors who are disappearing. Remember, these crappy airboxes were built for the Chinese gamblers, who never saw them and nobody cared about livability. Yep, it’s a big ol’ clusterfark and they should have listened to the HBB.

    1. Why is it even legal for Chinese people to buy property outside if China? If you don’t have a permanent visa there’s no reason you should be allowed to buy property.

    2. Almost exactly 2 years ago I was in Melbourne visiting a friend. We drove by a bunch of new tower construction to which she derisively pointed saying, “only Chinese investors would buy one of these. They aren’t even safely constructed.”

  5. ‘This could lead to an increase in ‘fire sales’ which will re-set the market and cause further concern from a finance perspective.’”

    Oh dear. A plunging market would mean FBs walking away from their underwater shacks and defaulting on their loans. That in turn would mean a rapid deterioration of the underlying collateral, which in turn would trigger a vicious cycle of new FB walkaways, defaults, and a glut of foreclosures. The massive write-downs could soon cause cascading defaults and leave lenders facing huge losses and insolvency.

    Oh dear. No one, and I mean no one, could’ve seen this coming.

    1. “The massive write-downs could soon cause cascading defaults and leave lenders facing huge losses and insolvency.”

      Yes, lenders once again find themselves occupying the role of being the true victims in this matter and once again, in the name of children everywhere, lenders warrant and truly deserve taxpayer funded bailouts.

      Saving the lenders will save the system. Saving the system will save the children.

  7. The domino effect. Leverage works spectacularly well on the way down:

    ‘[I know] at least 50 people who are owed money. Just one company that’s going under, they owe … I’m told, close to $700,000 across all trades.’”

    “Mr Noble said he was slowly reclaiming outstanding payments totalling $140,000 but was selling his house to survive.”

  8. Inventory continues to rise in the DFW area. But prices are still too high

    Builders can only move inventory after significant price drop. I think next we will see existing homes lowering prices as they will have to compete with new homes sales.

    I’m waiting. I need a house. I just can’t get over the inflated prices, you get nothing for your money anymore. People are convinced prices will not come down in the DFW area, ever!

    1. Throw out a few low ball offers.

      1. You never know

      2. I can give many stories on them being accepted or close to accepted.

      1. Nah. Just sit tight. The real fun (and price slashing) hasn’t even started yet. Don’t be a knife catcher.

      2. I gave a lowball offer recently just to see what would happen. The house is in marginal condition and reeks of cigarettes (there were full ashtrays throughout the house and a charming sign that read “zero to naked in 2.5 bottles of wine”). It could be a nice property with work. They originally listed at $485K, shaved off a bit to $479K, and I offered $385K with the intent of landing around $400K if they were interested in negotiating. The listing agent said investors have been offering around the same and the sellers haven’t clued in to the slumping prices and poor condition of their shithole. They just dropped the price again, this time to $459K. I’ll just wait for them to keep slashing their price. If the market keeps tanking, I might just get it for less than I offered in the first place.

    2. “People are convinced prices will not come down in the DFW area, ever!”

      Send these people to me. Remind them to bring with them a list of marketable body parts.

    4. “I just can’t get over the inflated prices, you get nothing for your money anymore.”

      Movin’ Out (Anthony’s Song)
      Album: The Stranger (1977)

      Who needs a house out in Hackensack
      Is that all you get for your money

      The lyrics refer to the New York working-class immigrant masculine ethos, in which wage-earners take pride at working long hours to afford the outwards signs of having “made it” in America. The character “Anthony” questions if owning a house in Hackensack (a suburb of New York city) is worth the effort, while “Sergeant O’Leary” works two jobs in hopes of one day owning a Cadillac.

      https://www.songfacts.com/lyrics/billy-joel/movin-out-anthonys-song

      Billy Joel – Movin’ Out

      https://www.youtube.com/watch?v=cJtL8vWNZ4o

    1. My favorite line from the SCMP article: “The country’s city planners, which take orders from municipal authorities, are still drawing up plans based upon the assumption that China’s urban areas will grow indefinitely, Long said.”

      This was to be expected. Promotions in the Chinese Bureaucracy are handed out based on raw GDP numbers and little else. You can literally get a promotion by borrowing money from a state-bank, knocking down a building, then re-building it. For a long time, this sort of economic activity was considered “clever”. Only an idiot would allow a forecast to not presume perpetual 10% growth forever. You can lose your job over stuff like that.

      1. ‘You can literally get a promotion by borrowing money from a state-bank, knocking down a building, then re-building it. For a long time, this sort of economic activity was considered “clever”. ‘

        Sounds like the most berserk imaginable version of Keynesian ditch digging / broken window economics.

        1. Actually there is a worse manifestation of Broken Window economics, which is “war is good for the economy” thinking.

  12. Massive oversupply, coming to a city near you you! ttps://www.bloomberg.com/news/articles/2019-03-18/washington-dallas-metros-defy-u-s-housing-market-cooldown

    They are trying to say increased construction is a good sign, but it seems awful for NY and Chicago especially.

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