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Even If Developers Do Get Enough Buyers, There Is An Increasing Risk They Can’t Come Up With The Money

A report from ABC News on Australia. “We are witnessing more naked developers as half-finished projects dot the landscape of our major cities. As the year progresses, many more operators who’ve pushed the boundaries will join them. ‘Areas of oversupply will see a bit more chaos in the next six to twelve months,’ said Scott Gray-Spencer, local head of capital markets at CBRE.”

“Mr Gray-Spencer sees areas more than 10 kilometres from the city centres of Sydney and Melbourne, and parts of Queensland, as the most vulnerable. Even if developers do get enough buyers, there is an increasing risk that their customers can’t come up with the money. Banks were willing to lend borrowers more money two or three years ago amid the property boom, when buyers put down their deposit and signed a contract.”

“Now property valuations are lower. ‘The bank might say, ‘I’m now only going to lend you x per cent’ rather than the original amount, and the purchaser will have to come up with the extra cash from somewhere,’ property lawyer Richard Harvey warned.”

“Most analysts think there’s worse to come for developers over the next six to 12 months. ‘If you’re settling a project between now and Christmas, you’d want to be closely looking at your defaults,’ EY’s Luke Mackenzie said.”

“For the most part there is still strong demand for good development sites and projects offloaded by stressed operators. Mr Gray-Spencer represents some of those buyers. ‘There’s one of my clients who’s in the process of trying to buy distressed stock and he has had 2,000 apartments put to him in different forms.'”

The Daily Mail. “A Melbourne couple who bought a luxury apartment for $410,000 eight years ago are set to lose $100,000 because the building is covered in combustible cladding. Reg Ellery and his wife, who asked not to be named, purchased the one-bedroom apartment in the Trilogi building in Prahran, southeast of the CBD in 2011.”

“The couple initially intended the apartment to fund their retirement, but discovered the cladding problem after Mr Ellery sought a property evaluation six months ago. The couple have since listed the property for a fraction of its original asking price at $310,000 – but they said the decision was to avoid losing money as prices cool.”

“Several other apartments in the Clifton Street complex are also asking much less than their original asking price, with one dwelling being listed for $205,000 less. Other apartments in the building, which was sold off-the-plan, are being advertised for prices that will produce property losses of between $22,000 and $70,000.”

“Julie DeBondt-Barker, who is helping Mr Ellery and his wife sell their property, said owners had been dealt an unfair hand. While the news was bad for Mr Ellery and his wife, Ms DeBondt-Barker said the sale could be a great opportunity for buyers looking to enter the property market. ‘It’s a very good buy for an investor looking for high rental yield but if you understand how flammable it is, would you want to live there?’ she said.”

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This Post Has 41 Comments

  1. ‘Even if developers do get enough buyers, there is an increasing risk that their customers can’t come up with the money’

    If they don’t have money, how can they be buyers?

  2. ‘It’s a very good buy for an investor looking for high rental yield but if you understand how flammable it is, would you want to live there?’

    I bet Julie got fired after this came out.

    1. “I bet Julie got fired after this came out.”

      I would hope so! But I wouldn’t bet on it personally.

      As stated here regularly, Realtors and the like are liars.

      And a Bronx cheer for the couple who bought this apartment thinking it was going to fund their retirement.

  3. ‘We are witnessing more naked developers as half-finished projects dot the landscape of our major cities. As the year progresses, many more operators who’ve pushed the boundaries will join them’

    Hottest market on the planet 18 months ago.

    1. So was Florida swampland in the 1920s…

      The names and places change.

      The game remains the same.

  6. Bankers rule!

    “Banks were willing to lend borrowers more money two or three years ago amid the property boom, when buyers put down their deposit and signed a contract.”

    “Now property valuations are lower. ‘The bank might say, ‘I’m now only going to lend you x per cent’ rather than the original amount, and the purchaser will have to come up with the extra cash from somewhere,’ property lawyer Richard Harvey warned.”

    See? Bankers control the money valve and whomever it is that controls the money valve calls the shots. Bankers get to decide what is hot and what is not.

    1. Already gone! At least the listing is gone. I don’t know if they sold it or not.

    2. I’m holding out to replace my wife’s car because I think dealers are going to get crushed with a wave of $60k daily drivers that were on 7 year loans during the next recession.

  9. ‘It’s a very good buy for an investor looking for high rental yield but if you understand how flammable it is, would you want to live there?’ she said.”

    Not me, I’m looking for an apartment around the Houston petrochemicals storage facility that caught fire this week.

    National Guard called into Houston after chemical fire, residents told to stay inside

    March 21, 2019, 9:52 AM EDT
    By Associated Press

    The fire started Sunday, sending a huge, dark plume into the air for several days before crews extinguished the blaze on Wednesday.

    https://www.nbcnews.com/news/us-news/national-guard-called-houston-after-chemical-fire-residents-told-stay-n985776

    Hundreds of Australian homes covered in combustible cladding but few residents can afford to fix them

    By Pat McGrath, Jeremy Story Carter and Sarah Curnow, ABC Investigations
    Updated 15 Feb 2019, 9:08pm

    A letter from the State Government turns up in the mail. It says your building is covered in high-risk combustible cladding and it needs to be removed immediately.

    From thereon in, you are backed into a corner.

    On top of the shock of learning your home is a serious potential risk to your life, you also face a fine of almost $400,000 if the cladding is not removed within three months.

    https://www.abc.net.au/news/2019-02-16/combustible-cladding-risk-affects-thousands-but-few-fix-options/10804014

    1. “San Francisco even getting crushed on a year-over-year absolute basis.”

      During one seven day period last summer, a total of 16,000 official complaints about human feces were submitted to the city of San Francisco. And apparently the problem is very real because one investigation found 300 piles of human feces on the streets of downtown San Francisco.

      Michael Snyder | End Of The American Dream – MARCH 22, 2019

  11. Invest your entire life savings for that sweet equity and to fund your retirement…

    What could go wrong????

    “The couple initially intended the apartment to fund their retirement, but discovered the cladding problem after Mr Ellery sought a property evaluation six months ago. The couple have since listed the property for a fraction of its original asking price at $310,000 – but they said the decision was to avoid losing money as prices cool.”

    1. “but they said the decision was to avoid losing money as prices cool.”

      Little late to avoid that that now, why not go back to your original gamble strategy and chase the market even more!

  12. Attn: all knife catchers

    This turd is sinking fast. Get it will it’s hot. Folsom specuvestor losing his ass:

    https://www.zillow.com/homedetails/338-Canyon-Falls-Dr-Folsom-CA-95630/26020165_zpid/

    3/5/2019 Back on market $549,900
    2/22/2019 Pending sale $549,900
    1/29/2019 Price change $549,900
    1/4/2019 Price change $599,900
    12/10/2018 Price change $645,000
    11/13/2018 Listed for sale $676,000
    7/16/2018 Sold $681,300
    5/9/2002 Sold $650,000
    12/21/2000 Sold $540,000
    10/17/1997 Sold $395,000

    1. Bubbleville, I looked up that Canyon Falls property and the it’s actually bank owned. They took it back at a trustee’s sale on 7/16/2018. Not quite specuvestor territory, but still telling that it’s required that many price cuts and still hasn’t sold.

      1. That is consistent with what housing does over the long run and absent a mania: it declines in value unless upkeep and improvements are not made. Houses depreciate just like everything else.

    3. Interesting. The schools tend to not be as good over on that side of the river but that’s an encouraging sign. I wonder how much stuff is wrong with it? In the area I’m watching on the other side of town I haven’t seen anything like that yet.

      1. This is what I see too when I run around my nabe:

        “Some are virtually homeless, living hand to mouth. Others motor around the country by choice, camping in elaborately tricked-out vans. Some vehicles are marvels of Marie Kondo-ish tidiness; others are rolling junkyards.”

      2. “In December, Cheatham, her children and their father qualified for a three-bedroom, two-bathroom house in Mountain View.”

        Doh! Bought at nearly the peak of the market.

        I have a feeling at least some of that family will again be living in a vehicle in the not-too-distant future.

  15. 😁

    ‘I made $3.75 an hour’: Lyft and Uber drivers push to unionize for better pay | US news | The Guardian
    https://www.theguardian.com/us-news/2019/mar/22/uber-lyft-ipo-drivers-unionize-low-pay-expenses

    (snip)

    “An April 2017 report found only 4% of Uber drivers continue driving for the rideshare company after one year on the job.”

    Hmmmm … that’s, what?, a 97% turnover?

    So what’s up with guy? …

    “’If I didn’t owe so much on the car I bought just to do Uber I would stop driving for them,’ said Baron Migs, who has worked in San Francisco, California, as a full-time Uber driver for three years.”

    Three years.

    What’s up with guy is commonly known as DEBT SLAVE. The ignorant puke bought a car (most likely using a Dotted Line Special) so as to become a Uber driver and now is is trapped, trapped as a Uber driver. While 97% of other Uber drivers are able to move on to doing something else after a year of making peanuts as a Uber driver this ignorant puke cannot.

    He works while others reap. A real dummy.

    My suggestion is: Clone him.

    2. My dad had a similar experience as an owner/operator of a semi back in the 90s and early 2000s as they were getting crammed down…just add an extra zero to every number in the books. I guess Uber and Lyft help open that experience to everyone now.

  16. Markets
    Jumbo Mortgages Are Slowing Down, Testing Banks’ Postcrisis Playbook
    Loans too big for Fannie and Freddie dropped 12% last year by dollar volume
    By Ben Eisen and
    Laura Kusisto
    Updated March 21, 2019 4:02 p.m. ET

    High-end home buyers are turning cautious, a blow to banks that refocused their mortgage businesses around wealthy borrowers in the years after the financial crisis.

    Originations for jumbo mortgages, which are loans too big to be sold to Fannie Mae and Freddie Mac, dropped 12% last year by dollar volume, outpacing the 7% decline in mortgages that meet the standards for Fannie and Freddie’s government backing. The $281 billion in jumbo originations was off 27% from its postcrisis peak two years earlier, according to Inside…
    To Read the Full Story
    Subscribe

    1. Thanks for the link professor, I read that article too. Looks like boomer’s retirements may be in jeopardy if those self-absorbed millennials don’t buy their shacks. A quote from the article:

      “Baby boomers and retirees who want to downsize are having trouble selling their dream houses.”

      And another:

      “The slowdown could also signal that would-be younger borrowers in expensive cities like New York City and San Francisco are no longer willing to stomach continually rising home prices.”

      My total cost of ownership for my dream car (Tesla model 3) is probably going to be about $10k more than what my new Honda Civic cost when I purchased it. A bit of an excess, yes, definitely. But there is no way I am going to buy someone’s 20-30 year old shack at 2x, 3x, or 4x what they paid for it. There are bad financial decisions that nonetheless don’t imperil you you, like going to a sporting game and paying inflated prices for hot dogs and drinks. And then there are bad decisions that wreak havoc on your entire future, such as purchasing a grossly inflated house at peak pricing.

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