Triguboff sounds the alarm

I haven’t mentioned Harry Triguboff previously. For those who aren’t aware he is also known as “High rise Harry” and is the head of Meriton. Meriton are the largest developer of apartments in Australia with around 50,000 under their name. Harry is a huge supporter of “Big” Australia and is obviously a person who would usually “talk up” property.  This penchant for property has lead Harry to make so pretty poor calls on Australian property in the past, such as this one from late 2009 about the future of the Gold Coast.

High-rise king Harry Triguboff, confident that the Brisbane and Gold Coast apartment markets are heading for a price surge, is to step up his quest for new development sites and hasten the launch of two major projects.

The veteran developer is putting sites in the Brisbane CBD and central Gold Coast ‘under the microscope’. He says he will bring forward the launch of a 77-level Brisbane tower, Infinity, by several months to the middle of 2010.

He has a similar timeframe for the launch of the final, and premier, stage of his $1 billion Brighton on Broadwater project on the Gold Coast. The stage, Coral, will consist of a 40-storey tower with shops at its base.

Mr Triguboff, earlier this year rated Australia’s third-richest person with a $3.66 billion fortune, says his optimism over price growth is based partly on surging prices in the Sydney apartment market.

“Prices in Queensland will, I am sure, follow suit and that will happen sooner rather than later.

“They may not reach Sydney levels but the gap will close.

“That’s because apartment supply levels in Brisbane and the Gold Coast are falling and, with the credit squeeze forcing many projects to be shelved or deferred, supply will get even tighter.

“That means rents will go up, with rent pressures being further increased by strong migration to south-east Queensland.”

Harry got that one very wrong. I have previously talked about what is happening on the Gold Coast and most recently noted that the problems are getting worse. Today the Oz has even more details on the problem.

What on earth is happening in Queensland? New figures released by the Australian Bureau of Statistics show that net interstate migration to the sunshine state during the September quarter was down 40 per cent on the corresponding quarter the previous year.

And this is on top of three years of successive falls in interstate migration.

Six years ago, in the year to June 2005, Queensland added 94,000 residents, a third of whom arrived from other parts of the nation.

Last financial year, Queensland added not that much less population (89,000), but with barely 10 per cent arriving from interstate. This is an important shift: from 30,000 net interstate migrants a year to 9000 has a big impact on business and, I suspect, state coffers.

Queensland’s growth is now underpinned by overseas migration (which is in freefall following policy shifts last year) and an elevated birth rate. Babies do not directly impact on the demand for housing nor do they work or pay tax – at least not to the extent that interstate migrants do.

Interstate migrants typically buy houses; overseas migrants initially rent. If this assessment is correct, then there would be soft demand for residential property but high demand for rental accommodation.

But it is not just inter-state migration that is the problem. Meriton is a business that has a firm focus on China, you can see from their website that they have a major China based clientele.

It seems however that the China business is drying up. Today Harry, the property optimist, has warned that the Chinese have given up on Australian Real Estate.

Chinese buyers have deserted billionaire Harry Triguboff’s Meriton Apartments, with sales to Chinese owners and investors dropping from 30 a week to 10 a week over the past month. Mr Triguboff said prices in the overheated Chinese property market were starting to fall, while the Australian dollar continued its stellar run, making Australian property increasingly expensive compared with China.

“Our (real estate) market is the Chinese market, just like coal and iron ore,” Mr Triguboff said.

“We need lower interest rates so that our dollar drops and it stimulates growth.”

Mr Triguboff, whose Meriton Apartments builds more than 1000 units a year, said Chinese owners and investors had accounted for about 75 per cent of Meriton sales for the last two to three years. But in the past month, numbers had fallen steeply.

“Real estate is already dying. You can have all the planning reforms you want, but this won’t help if there are no buyers,” Mr Triguboff told The Australian.

“It means that I won’t be buying sites (to build new apartments), not that there aren’t some very good sites around. But I am waiting.”

Mr Triguboff said the new apartment market relied on Chinese buyers. “The Chinese, they are the only buyers I have. They are the only buyers anybody has,” he said.

Locals were renting, staying out of the market in a climate where interest rates were expected to rise.

“Australians will buy when rents become similar to (mortgage) repayments, but repayments are up because interest rates have risen,” he said. Mr Triguboff, the fifth-richest Australian according to Forbes magazine with a $3.4 billion fortune, said it would take another year before higher rents pushed people back into buying homes in bigger numbers.

Wow !, That is quite a few revelations from one of the biggest names in Australian real estate. The market is dying, it is only foreigners who have been holding up the market and locals will not be back until rents become similar to mortgages.  There is one big problem with that, something I have spoken about before, in a falling market rents don’t rise, which is exactly what was displayed in another article from the Oz today.

Wilson [APM’s senior economist] says national unit rentals rose 2.3 per cent in the March quarter, following a subdued performance late last year.

“Annualised rental growth comparisons indicate a growing demand for units over houses,” Wilson says. “National unit rentals grew 4.9 per cent in the year to March compared to only 1.3 per cent for houses.”

Wilson predicts rising yields will reactivate investor interest in property markets and this will increase supply in the rental pool, which in the longer term may provide some relief for tenants.

As is always the case in Australia, these generalised comments do not apply to all real estate locations.

Darwin has seen declines of 6 to 7 per cent in rents for both houses and apartments in the past 12 months, reflecting an end to that city’s long up cycle and the over-supply of apartments in the inner-city areas. However, Darwin still has the highest median rents in the nation.

Melbourne has a fairly subdued rental market, with the median house rent down in annual terms and the median unit rent up only slightly.

Melbourne, oddly, has some of the lowest rents among the capital cities, well behind Sydney, Darwin and Perth, and marginally behind Canberra and Brisbane.

Investors need to be careful when buying inner-city apartments in Melbourne.

More than 2000 units are under construction, with many more in the planning pipeline.

“Melbourne provides some hope for tenants that more properties will become available as a result of its recent boom in inner-city apartment construction, although this is not likely to have an impact on the marketplace until 2012,” Wilson says.

But, across the board, the future looks likely to provide solid increases in rents and yields.

That is what the “experts” always say. But that is not what history has taught us actually happens. Even in flood effected Brisbane good luck finding anything that even looks close to a “solid increase” in rent. You can check out the data yourself at the Queensland RTA website, the average weekly rent for a 4 bedroom house in Brisbane city has gone up just $15 dollars over the 12 months to March 2011 despite the scare mongering by vested interests.

So if foreigners are out and rents are stable at best, is there anyone left in the Ozzie RE market ?

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  1. Small Australia

    Wants 100 million people – wants 20 million in Sydney. Where is the water for that Harry? So he believes in foreignor speculation at the expense of Australians.

  2. I think Harry should migrate to China. No shortage of sites there. In fact, he can build entire ghost cities and sell them to Chinese investors.
    On a serious note, I have a more benign view of foreigners buying Harry’s new off-the-plan apartments. If Japanese investments in Gold Coast in the 1980s is any guide, they are almost certain to suffer huge losses on their investments – better them than us!
    But I am worried as to how many of the 50,000 apartments have been kept vacant by Chinese investors to maintain their brand-newness. Is this Harry’s version of Aussie ghost cities? When these investors start selling, we may find that we have an oversupply :b

  3. National disgrace that shelter is a commodity effectively off-limits to local buyers.
    Only cashed up foreigner need apply.
    Recipe for social discontent being followed and govt is complicit at every turn.
    The next generation is going to look back in disbelief as they pick up the pieces.

  4. I was about to say not so nice things about Harry, deleted them, thought of the old saying, if you haven’t anything nice to say, don’t say it.

    The banks have made this man look like a genius over the last 40yrs.

    • If your referring to my comment ( that has been moderated), it was merely an unemotional statement of fact, based on several experiences/observations, and, in my opinion, very much on topic.

  5. I’ve read a lot of Mr Truguboff’s thoughts and the consistent thing is the way in which he seems to genuinely believes that the entire Australian economy and society revolves around him and in pushing up real estate prices. I suppose that it what happens when you become the third richest person in the country by riding the wave of monetary inflation.

    The fact that he cannot see the damage this is doing to the country and society makes me lose a lot of respect for someone who really should, by virtue of their background and work ethic, be respected as a shining inspiration in what is becoming more and more a lazy and complacent society.

  6. doing some numbers on Harry T.

    builds 1000 units a year (say $300,000 site and build costs) = $300,000,000.
    has 5000 units on books (5 years of sales ?) = 5000 x 300,000 = $1,500,000,000
    therefore his “net worth means he doesn’t borrow from banks to do developments

    but the ROE requires 30 sales per month not 10 per month … 10 x 12 = 120 … but building 1000 pa .. = 880 left over

    what can he rent these for ? certainly less on a pa basis then a developers margin.

    Harry good luck… I think a few of your smaller compeditor developer friends are going to be doing it tougher then you, so you can use your equity to buy up cheap sites and do cheaper developments going forward.

  7. “he seems to genuinely believes that the entire Australian economy and society revolves around him and in pushing up real estate prices”

    Until the rise of China and our resources, he was right…

  8. I didn’t think my comment (now edited) was that bad. Every time Harry’s in the media talking about a Big Australia or lowering interest rates etc. its pure spruiking for the interest of Meritons bottom line with no regard for social or environmental impacts for this country.

  9. Mr Triguboff said prices in the overheated Chinese property market were starting to fall, while the Australian dollar continued its stellar run, making Australian property increasingly expensive compared with China.

    In USD and RMB terms Australian property prices are up 25% since mid-2010. As far as overseas buyers are concerned, our bubble hasn’t been gently deflating the past 12 months, its been accelerating! Our prices must look completely absurd to Americans and Chinese with the AUD at $1.08.

  10. “We need lower interest rates so that our dollar drops and it stimulates growth.”

    Great, so now this Triguboff ponzi merchant needs a weak dollar too? We’ll probably get it, no thanks to

  11. JMD,

    Thanks for the endorsement of our growing influence.

    However, I think it’s pretty clear that there’s no rate cut coming just yet.

    The RBA will be getting more nervous, not less, on recent data about labour and producer prices. Unless employment suddenly weakens there’s no cut in the pipeline.

    That said, the Truguboff story is important in that it’s another sign that the existing equilibrium in the economy is being trashed daily by the dollar.

    The new equilibrium may loosen labour markets…through accelerated losses in tradable goods, import competing and realty sectors…

    • the question I have is when will the rba step in to currency trade. They have in the past, and often have made good money for Aust, but this time ??

      interest rates look like they are going up very soon, with the info on cpi showing consumer based goods rising rapidly last month (2.3% in a month from memory)

      Good on macrobusiness for becoming the premier site of rational economics in Aust.

    • What equilibrium H&H?

      I find it outrageous that you (as in your website, not necessarily you personally) can rail against the unbalanced economy that is our mortgage market & its offshoots, yet on the other hand advocate a weak dollar policy, the same policy that Harry ‘Ponzi Scheme’ Triguboff says is good for (his) business.

      • MB has some great analysis and commentary but it’s becoming increasingly obvious that MB is not politically agnostic (as I once presumed it was). It’s a terrible shame. MB has lost much of my respect recently.

    • Ok, If foreign investors aren’t allowed to buy new off-the-plan property in Australia, how many of you local guys and gals are willing to put down a deposit for one of Harry’s off-the-plan apartment?
      None? I thought so. So Harry is doing us all a favor by building infrastructure here with Chinese money.
      I do think Harry’s business model is flawed and unsustainable. He can boost demand temporarily by importing it from overseas, but his end-products can only be enjoyed by local people. It is not like these Chinese investors can cart off and ship their apartments back to China. They will have to eventually sell it or rent it to a local, hopefully at a wildly discounted price and eat their losses.
      Only problem, as others have pointed out, is that in order to keep his flawed business model afloat, Harry now wants the world to revolve round him.
      He shares this trait with his fellow billionaires like Gerry Harvey. So it may be a contagious disease among Aussie billionaires.

      • So long as we don’t find Aussie banks have been doing silly things in Chinaland, – I agree with your analysis.

  12. That screen shot well and truly puts to the sword Harry’s claim, that the Warriewood Valley over-devolopment is all about providing affordable housing for young people that have been priced out of the Northern Beaches market.

  13. I dont think Interest Rates are going up if anything they will bring them back down. The problem is Australia and China’s economy is now overheating. Especially China. 1.08 AUD is killing a ton of industries in Australia. I still cant believe Australians are bragging about this. No all of course but a lot. I just shake my head when they do and think do they really have a clue what this is doing to Austrlaia.

    • LBS – I’m just a hack in this unfamiliar world of macroeconomics but I see the rising $AUD is shielding this country from higher inflationary costs. Cutting the interest rate may induce a sell on the $AUD initially by speculators. I understand our currency is a nice little carry trade.
      With a lower dollar, cost of imports, oil, food, money would all rise substantially, more than today’s high cost. I can’t remember when Australians could buy gold and oil cheaper than the US. Example: Gold in AUD $1,410 and US$1,515.

      I agree however and unfortunately the manufacturing sector is opposite to this position and is feeling the pain. Is this the new balance?

      • “the manufacturing sector is opposite to this position and is feeling the pain”

        Are they really or just complaining as their input costs stay relatively stable while that of their overseas competitors rises?

        If they are losing market share because their product is more expensive due to the ‘high’ AUD, then they need to look at the quality of their product or whether people really need their product at all, for example, more of Harry ‘Ponzi Scheme’ Triguboff’s apartments.

        If you’ve got yourself up to the eyeball’s in debt to produce something no-one really wants or needs – tough titties.

      • I’d hardly call it ‘balance’.

        We are only shielded while China wants our resources to build (empty) apartment buildings. The strong currency is not something we earned or deserved, its entirely dependent on the Chinese building boom.

        In the meantime we’re sacrificing our non-resources tradeables sector for no good reason. At $1.08 manufacturers are simply shutting up shop and walking away. There will be nothing but scorched earth left when the Chinese property bubble bursts, and we desperately need a source of export income to fill the void left by mining.

        I am in no doubt we will look back on this period in the same way the Irish look back on their housing bubble today. How could we have been so stupid to put all our eggs in one basket?

        • I’m not convinced the commodity boom is bubble. Granted real estate is currently in a bubble in both Australia and China.
          But, there has been real non-ponzi growth around the world in developing countries, industrialisation of a scale not seen since the 19th century and this is the main reason behind the commodity boom. Popping of the bubble is not going to undo all these years of industrialisation, it will impact prices of course but they will recover.
          It will probably follow a similar path to what has happened to the oil price during the GFC and in the recovery.
          Mining industry is here to stay as a larger part of our economy.

      • JMD, this sounds a lot like comparative advantage theory, the reasoning being if you can’t compete on the world stage, then you should just get out – labelled fairly, IMO, to the domestic car industry for example.

        however, we are far from talking about “fair” competition or stable input costs (check this chart out for a decade of “stable” price inputs: h/t Chris Joye

        The AUD is artificially high because of the dual roles of speculation and artificially low RMB and USD and EUD.

        The manufacturing sector, due to poor taxation incentives (that are tilted towards construction of property, not high quality goods), the extremely high cost of capital (can’t negative gear a factory) our grossly expensive labor market and over-regulated bureaucratic impediments has been destroyed – and apart from some heavily subsidised areas (cars e.g), not for want of incompetence.

        Personally, I like having a strong dollar in terms of purchasing power – not in nominal terms against other currencies. Our dollar – like many other currencies, has devalued steadily over time, as inflation, even “modest” at 3% undermines its value and encourages speculation – including in currencies, which is what we are witnessing now.

    • I don’t think it’s ignorance. People are quite aware of what it’s doing to manufacturing. And people don’t care, most people are consumers who heavily buy imported products, and it’s helping them.

  14. JMD,

    1. Can I suggest outrage is best spared for the issue of world hunger
    2. There is no MB position on anything. We are 12 bloggers that enjoy a mutual hatred but share a domicile
    3. Personally, I do advocate for both a weaker dollar and lower real etate price, yes. There is absolutely no contradiction in this. If it were up to me we would have an RRT and SWF tomorrow as well as the end of negative gearing + capital gains breaks for property. Plus a whole range of new incentives for R&D.

    How do like them apples?

  15. October last year there was an article published in the Weekend Australian Magazine called the big squeeze. Average Sydney house prices and annual salary’s from 1980 to 2010. Measured in Gold USD as a guide, we can see where prices and wages are heading in real terms.
    Year 1980 – USD GLD $800oz – Average Salary in Sydney $13,780pa = 17oz – Average House Price in Sydney $64,800 = 81oz – Affordability = 4.7 times average annual wage in Gold.

    Year 2010 – USD GLD $1400oz -Average Salary in Sydney $65,565 = 46oz -Average House Price in Sydney $663,000 = 473oz – Affordability = 10.2 times average annual wage in Gold.

    House prices and wages are going to fall in real terms (GLD) by 75% or more. What nominal number that is in AUD depends on how much inflation is created by the RBA.

  16. To be fair, Harry isn’t the only developer who is going after overseas customers. Have a look at this article published last year:
    Developers court overseas buyers amid fears of greater urban sprawl
    “Simonds international sales manager Jonathan Wang said a new house purchase counted for 28 of the 150 points needed by applicants for permanent residency to qualify.”
    I don’t see any such thing on the immigration website. But REAs get away with a lot of deceptive advertising.
    “Cranbourne local George Zhang, originally from China’s Guangdong province, purchased three new houses, a pizza shop and a convenience store in Melbourne in his quest for permanent residency.”
    Really? Do we have a shortage in skills required to run a pizza shop?? like they had with hairdressers and cooks?
    Full Disclosure: I am a recent “skilled” immigrant myself. No, not a hairdresser or a cook 🙂

    • It’s funny you bring up that article Mav – I’m a migration agent and I have no idea where the 28/150 points he’s talking about is from.

      There is a visa category called ‘established business in Australia’ which the guy may be alluding to, but on the points totals and how the visa actually works he is just flat out wrong.

      It’s an offence in Australia to give migration advice without being licensed (with a small number of exemptions). At the time I considered emailing that article to the agent’s regulatory authority to bring it to their attention. But then I got busy at work and forgot.

    • Good on you, Nick. I dont think Real estate agents and developers should be handing out migration advice, in addition to the free financial advice they usually give out.
      All the more reason for these people to be regulated.

  17. I simply find it baffling that anyone, Chinese or otherwise, would want to buy a Meriton apartments. They’re like an oversized hotel room.

  18. 3% inflation my balls…food and petrol have gone up by 3% over last 10 years???
    If the AUD tanks i dont want to imagine what the new prices will be. Better off moving to asia and renting and food will be cheaper than only food here, WTF.

  19. Ponzimania you are correct.

    I tremble at the thought of what will happen to prices if the RBA cuts rates.

    Fortunately the RBA is there to protect banks and cutting rates would surely mean capital flight and bank collapse despite all those guarantees the government slapped on them.

    And I am certain that any foreign bank investing in our banks, read, buying mortgages, would know the government is essentially broke and there is absolutely no way they could pay out any guarantees.

    And suddenly we discover the need for a carbon tax and a surplus. it all comes back to that private credit mountain that eventually needs to be repaid. As soon as the government guarantees started flying around they became liable for private debt.