Is the dam about to break on Sydney housing?

ScreenHunter_19 May. 16 15.12

By Leith van Onselen

Business Spectator’s Robert Gottliebsen (“Gotti”) has had a chat with his mate, apartment developer Harry Triguboff, and apparently the dam is about to break on Sydney housing, with a flood of apartments supposedly destined to hit the market:

New ingredients are emerging that look set to generate a surplus of apartments in Sydney in two or three years – the first time that has happened for a long time.

The two new ingredients are the emergence of Chinese developers and a looming change of attitude by local councils and planning authorities.

Those buying Sydney apartments in the current strong market and those commenting on the 2014 buoyant forces need to be aware of the looming trend reversal…

I reached the Sydney conclusion after a conversation with Sydney’s largest apartment builder and owner Harry Triguboff, who explained to me that he is seeing new trends in Sydney, which, if they continue, will cause of surplus of apartments. However given strong demand he does not expect the market to collapse but the new ingredients will clearly affect price levels. And Triguboff does not expect the emerging over supply of apartments in Sydney to affect rents…

Triguboff says that while the local councils and planning people are still tough “the dam walls are cracking” as these groups and the NSW government realise the damage that has been done to dwelling affordability in Sydney.

…the Chinese buying apartments from Australian developers like Harry Triguboff’s Meriton, but Chinese developers are now entering the market. Unlike smaller Australian developers the Chinese do not need to use Australian banks and are using their own banks to fund the developments. Accordingly, funding is now plentiful and the two pillars of supply constraint are crumbling.

While Gotti deals in anecdotes, I prefer to look at the official (unbiased) dwelling approvals data published by the Australian Bureau of Statistics (ABS). And what does the ABS data tell us? Well, as shown by the next chart, Sydney approvals have thankfully picked-up following a prolonged period of weakness, whereby approvals hit their lowest level in at least 30 years. However, it’s hard to see a looming oversupply given that approvals are only running at roughly the same level as the 1990s and early-2000s peaks, and given that a prolonged period of catch-up is required following the last decade’s construction slump.

ScreenHunter_942 Jan. 21 14.04

The supply situation is perhaps more clearly shown by the next chart tracking NSW construction against population growth:

ScreenHunter_943 Jan. 21 14.22

Based on the above, it’s hard to see an oversupply developing anytime soon, not that it would be a bad things for prospective home buyers and renters alike.

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16 Responses to “ “Is the dam about to break on Sydney housing?”

  1. Labrynth says:

    Its technically an oversupply of expensive units, not physical apartments.

    The price point keeps jumping for Off the Plan apartments in Sydney, this causes development sites to increase in value and in turn higher unit prices are needed to make the development feasible.

    This is why Harry is seeing a potential oversupply because new units are always 10%-20% higher than existing stock.

    Some developers will get burnt but if prices do reverse in the OTP market it has the potential to bring the market to a stand still.Developemnt will slow until raw development sites deflate in value caused by the premium attached to OTP apartments.

  2. williros says:

    But then there is also the potential for the Chinese owners of these Chinese built apartments to leave them sitting empty for years on end.

  3. N.C. says:

    Okay let’s see if I’m reading this right:

    Chinese buyers are inflating the bubble; Chinese developers are gonna bust it.

    Just as long as we’ve got somebody to blame…

    As you were.

    • rob101 says:

      You forgot the part where the chinese developers can’t finish the projects because their shadow banking sector and therefore funding implodes.

  4. The Patrician says:

    The incompetence of the “late-Howard-early Rudd-era” “big australia” population explosion is written loud and clear in that last chart. The quadrupling of the NSW pop growth numbers from ’03 to ’07 while dwelling construction was falling like a stone to 30yr lows should be recognised as a gross failure of planning.
    We are still paying the price.

  5. Peter Fraser says:

    A genuine supply response will be welcome.

  6. Powermonger says:

    So we are now starting to see Chinese Developers building apartment buildings, who are much more likely to just market back to home country buyers exclusively, and this is expected to benefit Sydney how?

    I smell a rat. Additional supply is meaningless if it is targeted to foreign Chinese buyers and not for alleviating local buyer demand.

    How much is the increased Chinese development for Australian citizens benefit or for Chinese citizen benefit? A trojan horse in progress?

    http://www.theaustralian.com.au/business/property/chinese-builder-planning-75bn-of-developments/story-fn9656lz-1226761428383#

    • Schadenfreude says:

      The likelihood of violence is growing from those Australian citizens who are out of work and continue to see the floodgates of immigration left wide open.

      I for one don’t blame them.

      • drsmithy says:

        The likelihood of violence is growing from those Australian citizens who are out of work and continue to see the floodgates of immigration left wide open.

        10+ years of dedicated propaganda mean that the only immigration problem most people think we have are brown people arriving on boats.

    • DMc says:

      The Foreign Investment Review Board should be preventing that. Whether they actually do prevent it is another matter…

      http://www.australia-migration.com/page/foreign_investors_buying_property_as_a_foreigner_or_temporary_resident_in_australia/178

    • Pfh007 says:

      If an appropriate Land Value Tax was introduced for all new developments, with those sections permanently excluded from stamp duty, it would mot matter how many blocks of flats that Australian builders, tradies and construction workers built for super keen foreign buyers.

      Building them is a good source of economic activity and every day they sit there the government would be harvesting land value taxes.

      Say the annual land value tax for a new 2 bed unit is 2.5% and the land value is $200K – that will generate $5,000 in land tax each year.

      That means that the government will be raising a tidy $5M per annum for every 1,000 units that stay dark every night.

      Build 10,000 for Chinese investors and on top of the money made building them they will crank out $50M per year tax income paid by foreigners.

      A very nice little earner.

      And should the investors get tired of paying to keep some concrete as a bolt hole it can go on the market to be bought by some young local couple.

      • ArchCC says:

        Good stuff, just two suggested improvements:

        1. Apply a LT now, but only for foreign nationals/non-citizen property owners, it could be the thin end of the wedge for a broad-based land tax.

        2. Make it 4% not 2.5% – if a non-citizen want to protect their capital by buying into Australian property, they can pay a premium for the benefits conferred by our political and legal system, which the rest of us by-in-large fund and work to uphold.

      • Powermonger says:

        Our government should be taxing foreign investors above and beyond locals, they should be paying a premium for laundering their money through Australian real estate.

        Economic activity or not, I only see downsides in encouraging Chinese developers to develop in Australia. Greenland Holding Group is only interested in building residential developments in markets outside of China to further capture sales from middle income Chinese investors. They perceive that as the next growing market.

        In effect they are exporting the Chinese appetite and hording mentality to other countries and developing for the benefit of the Chinese citizens. This can only have detrimental effects to the countries they develop in, driving up the cost of living for locals further.

  7. lisdillon72 says:

    Harry (whilst counting his growing profits) says there’s light at the end of the tunnel on dwelling supply, so there is no need for “local councils and planning people” ie governments to respond to political pressure on this issue.

    Whatever you say Harry…