Off-the-plan buyers set to bail on Sydney property

By Leith van Onselen

The AFR has delivered yet another warning on how off-the-plan apartment buyers will look to bail-out of settling on their Sydney property investments in the new year, which could result in heavy losses for property developers:

“In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins,” said [Sydney estate agent Douglas Driscoll] who heads real estate network Starr Partners.

“As market levels fall away slightly, some developers might struggle to cover costs.

“Towards the end of 2016 we might start to see some investors potentially walk away from their deposits because they perceive that they paid too much for it in 2015 and see that it’s no longer worth the risk,” he said…

“Going into 2016, mortgage lenders will start freezing out investors, as lenders actually don’t have an obligation to provide the finance. They will simply say that they can’t provide the finance on the original terms (say, a five per cent deposit) and that now much more is needed”…

The ‘funding time bomb’ facing some off-the-plan buyers was explained beautifully by Ross Elliott back in July:

Think of the investor who’s been sold the story of a generational shift to inner city apartment living. They see demand rising for this type of product and lifestyle and figure that this is a good market to buy into. They purchase a $500,000 unit ‘off the plan’ with a $50,000 deposit, when the banks are happy to lend 90% of the value…

Fast forward three years to settlement time. The banks are no longer prepared to lend 90% but our investor’s bank will still lend to 80% of the valuation. That valuation has come in a few months before settlement and the bank now has a piece of paper that says the home unit is worth $450,000. Values have fallen because there is a very large volume of similar stock on the market at the same time, in roughly the same location, and there are more sellers than buyers.

So as far as our investor’s bank is concerned, they will now lend 80% of $450,000, which is $360,000. The investor now needs to fund the remaining balance of the contract price of $450,000 ($500,000 less his deposit). So our investor needs to find another $90,000 to make the settlement. They could walk away and lose their deposit, or they could try argue their way out of the contract, but both aren’t exactly appealing options.

They could sell the apartment but that would mean taking a loss in that market. They could rent it as planned but vacancies are high (there’s a lot of similar product out there) and rents have fallen (supply over demand). So their return on renting is nothing like they imagined it could have been. Plus, by now, interest rates have risen so the gap between the rental income and the repayments is much wider than they banked on. It’s called ‘negative’ gearing for a reason but there’s a limit to how much most people can lose.

If our investor decides to sell and realises $450,000, they still have their transaction costs to take into account so their net realisation may be closer to $400,000 on the ins and outs of the deal. They can pay out their $360,000 loan and have $40,000 left. This looks pretty ordinary if they had to sink $140,000 of their own savings into the deal. That $140,000 is now worth $40,000 – not including any losses on the cash flow if they’ve been renting it (or trying to) for a time.

Investors in Sydney should be getting very nervous given the unprecedented volume of apartments recently built, currently under construction, and planned:

ScreenHunter_10828 Dec. 08 15.22

As I have argued previously, anyone that is willing to pay $700,000-plus for a cookie-cutter two bedroom apartment in Sydney deserves to lose money.

Most of these properties have few redeeming qualities. They are generally small, bland, and subject to expensive body corporate fees. They are also unsuitable for families, which limits the buyer pool to foreigners, young couples, empty-nesters and students.

Another problem with purchasing off-the-plan apartments is that once they have been lived in, and become “used”, they no longer qualify for first home buyer subsidies nor sale to foreign buyers, since they are generally restricted to newly constructed dwellings only. This effectively reduces their resale value.

In short, steer well clear of these money black holes.

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Unconventional Economist
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Comments

  1. In NZ you can’t ‘walk away’ from a property sale. Thta 10% deposit is merelky a Holding Cahrage that might entitle you to ownership. If you default, the property goes to market and you are up for the difference between sale and contract price, if it’s lower. The deposit is taken as the first slice, and you are up for the rest in however means you can pay it.
    I’d suggest something similar applies in Australia……

    • That is a pretty one-sided contract. What happens if the developer defaults? How is the contract enforced then?

      BTW, great commentary.. music to my ears. 🙂

      • If the Developer defaults, you stand in line as a Creditor – the same as any other contract.
        It’s not possible to simply ‘walk away’ from your contractual obligations. That’s how it should be. Many New Zealanders think’ Oh. My risk is the deposit amount – and that’s it” It isn’t. You have to settle the contract in full, one way or another.
        (Story! 2008; after the RBNZ had hiked the OCR to 8.25% and mortgage rates were ~11% , a family friend got caught with 13 suburban development blocks that he’d bought of the local tribe, Ngai Tahu, and he thought “he could do his 10%.” He did, and a heap more when they came after him, and won, for the balance of between what they had ‘bought’ the blocks back at ( the only bidders at auction!) and his outstanding amount)

    • Yeah, there have been stories of developers suing people who have paid deposits to conete the contract… But that can only work if the schmo has money. If the 10% is all he has and the bank won’t give him the remaining 90% – winning in court won’t do you a fat lot of good….

    • Ronin8317MEMBER

      Depends on the contract. In Australia, most off the plan contract do not have the ‘subjected to finance’ clause, so it’s a bottomless hole if you can’t get finance. Worse, most ‘investors’ believe they are covered with bank pre approval..

      • I ran this scenario by an agent recently, they said the developer could and would sue the investor under these conditions as the contracts are heavily skewed in the developer’s favour. Then again, taking the legal advice of an agent isn’t necessarily a good idea.

      • The ‘investor’ has played the ultimate speculative game by buying an option to buy an asset increasing in value that does not even exist yet !
        Let e’m burn.

      • Although chasing an investor through the courts will cost time and/or money which could cause the developer serious headaches with cash flow. Best solution would be to attempt to do a deal with both parties (except both are likely to be pigheaded and so lets just forget about that).

      • The developer may be content with just the deposit. but if the developer goes into administration, the administrator will go after every cent., The investor may be hounded through the courts by the very same bank that withdraw the original offer of loan approval.

      • @tonydd
        The whole idea of an option is you don’t have to exercise the option if it’s not in your interest. Of you don’t have that right, it’s no longer an option.

    • kiwikarynMEMBER

      But since most of them are foreign buyers, good luck trying to track them down in China to get your money.
      Otherwise sensible subject to finance and valuation clauses should get you out of trouble.

  2. But Mr Driscoll says not to worry – it’s actually a good thing in the “long-term”.

    “Mr Driscoll said he did not expect price falls in 2016 but envisioned a continued decline in investors coinciding with an increase in owner occupiers.

    “This is a very good long-term thing as it helps the market have a healthier balance,” he said.”

  3. Looking forward to the current affairs stories, where the son borrows off the family to do a development, promising a 10%pa return,…then loses 100%.

  4. The issue with this model is that any change by the lvr requirement or valuation on the downside and people need to find more cash. Issue is no one can save money anymore, no one, hence the game is likely up.

    • Exactly. People kid themselves that paying their mortgage is saving. Not when property’s not going up, it’s not. And it never was. A childish mentality. I have to be forced to “save”.

  5. With vacancy rates still low in Sydney (sub 2%) it is important not to discourage construction. If we end up with a vacancy rate starting with a 4 or a 5 that will be an excellent outcome.

    The risk at the moment is that RBA and APRA will shut down construction with MP to protect their precious asset price bubble.

    Build baby build or if you dont like building – lock the gate!

    • “If just those residential properties consuming 0LpD were placed onto the market for rent, this would increase Melbourne’s actual vacancy rate to 8.3%. Moreover, if 82,724 properties using under 50LpD were advertised for rent, the vacancy rate could rise to an alarming 18.9%.”

      If only similar data was available for Sydney. Alas the census can’t come quick enough 🙂

    • vacancy rates in Sydney (and everywhere else in Australia) are low because they are fake rates. The way SQM calculates vacancy rates is wrong and not worth much. Just as an example look at vacancy rates in some of Sydney’s high-rise suburbs like Zetland (http://www.sqmresearch.com.au/graph_vacancy.php?postcode=2017&t=1) it’s only 0.8% (50 units) despite the fact there are 15 brand new buildings (with around 500 units) offered for lease. Reason for this distorted data is the way SQM uses online advertisements to calculate vacancy. real estate agents advertise only one unit of each type (e.g. 1 bdr, 2 bdr+p, 3 bdr) despite having dozens of each kind available for lease. and than SQM uses 4 vacant units instead of 40 or 70 to calculate vacancy rate
      http://www.domain.com.au/19-6-wolseley-grove-zetland-nsw-2017-10227412?sp=0
      http://www.domain.com.au/24-6-wolseley-grove-zetland-nsw-2017-10227290?sp=7
      http://www.domain.com.au/3-naulty-place-zetland-nsw-2017-9078964?sp=2
      http://www.domain.com.au/3-naulty-place-zetland-nsw-2017-9481610?sp=7
      http://www.domain.com.au/3-naulty-place-zetland-nsw-2017-9431523?sp=0

      • That theory might hold some water in a couple of post codes but it does not explain the tight vacancy rates right across the Sydney basin and that rents have been holding the line.

        With Sydney attracting a large chunk of our high migration program they need to be building hand over fist – even if a lot of students are getting packed into apartments.

        The reports coming out of Perth as vacancy rates rise above 3 and 4 demonstrate:

        1. The published stats are a reasonable indicator of actual vacancy rates (or at least the trend)

        2. When the rates get a 3 or 4 in front of them rents start to soften quickly.

        If we dont lock the gate we gotta build baby build.

        In rich country in a world of people seeking shelter ANY excess supply of housing is never going to be anything more than a temporary state of affairs. Whatever population goals we have we should aim to have a vacancy rate of at least 3-4% at all times to ensure there is plenty of downward pressure on rents.

      • For many suburbs data cannot be used even as trend (Zetland vacancy rate fell from 4 to 0.8% within a year while 10 new empty high-rises went “for lease”). This data is not good even for trend tracking because most of new supply is in a form of new large unit buildings (30k pa) so not taking into account thousands of vacant units that didn’t exist in past makes vacancy rate rubbish.

      • A friend of mine owns a studio in one of those Zetland buildings. His one is tenanted, but all other apartments in the building are empty.

      • Totally agree DoctorX. All around me in sydneys inner west i see vancant property sitting idle for weeks on end. So if there was such high rental demand and shortages then any property regadless of location and price would get snapped up. Only things that move lately are dirt cheap rentals usually shitholes. These figures are all lies.

      • I once got SQM to admit their methodology is somewhat flawed. In particular, many properties are simply not listed on the sites they check in some areas (Rural areas) and in some other areas they multiple listing of the same property.

      • Don’t make the mistake of assuming that the owner wants to rent out his/her apartment. For many Chinese owners that’s not the point. It’s a an offshore store of wealth, and an option.

      • @8mil. Someone paid over 1 mil for that 2 bedroom ‘luxury apartment’, so they want $950 a week.

        7 minutes to the CBD? Maybe via a helicopter? While the distance is not great, the traffic is a total nightmare.

      • McPaddy,

        Yes – agree with that. I have seen a lot of large buildings completed where the units were most definitely sold but they are not available for lease because the owners are not interested in leasing them out.

        In the absence of policies designed to put more pressure on owners to sell out or lease it doesn’t matter how many units are built if they are being kept empty.

        Forcing people to rent or sell a property is easier said than done. We hear a lot of talk about ‘special’ vacant property rates or land value tax being used to encourage people to use land productively but they haven’t happened so far. Arguing against further construction because at some point property not on the market might come onto the market doesn’t help those people currently looking for housing.

        Whatever the short comings of the ‘vacancy rate’ measures – and I am sure there are plenty – it is clear that they are detecting vacancies in Perth and Darwin without too much difficulty – even if you want to argue that the actual vacancy rates in those locations are higher still.

        The simple fact is that the property market in Sydney remains incredibly tight even with cranes in abundance. The why is pretty straightforward – Sydney is a magnet for a large chunk of the tens of thousands new migrants.

        I have no time for the population ponzi school of economics but until that debate is won I think we need to make sure there is plenty of housing being built to ensure that housing is as low cost as possible. And that means allowing for the fact that at the present time a lot of the new and existing stock is being bought and kept off the market.

      • doctorX,

        I note that the first 2 links you provide are advertising a $0.00 bond (in conjunction with the astronomical rents). Do you think this is an agency oversight or a genuine attempt at inducement?

    • Exactly, and thank you for pointing that out.

      Let’s not get excited about anything that discourages supply.

      Think about the motives here. Why are lenders being unusually prudent in this case. Do you think they show the same concern when they write perpetually refinancing interest only loans?

      Of course not.

      The intent here is to constrain supply and mantain the bubble.

      Plain and simple

      • “The intent here is to constrain supply and mantain the bubble.”

        How does providing finance to build the apartments but then not to settle constrain supply and maintain the bubble? The apartments the article talks about either have or are being built.


      • Why are lenders being unusually prudent in this case

        Um, because valuations are coming in lower than expected at time of completion, and it’s making them nervous about default risk. Seriously, why would they need any other motive?

        When asset valuations are rising, their risk of a haircut is almost non-existent. Asset valuations show any sign of falling (or even rising so sluggishly that falling in the future seems plausible), and it’s going to be Danger! Will Robinson! time.

      • “Why are lenders being unusually prudent in this case..”

        I don’t think it is the banks being prudent. They were quite keen to keep pumping out mortgages until the music stops. Under our systems of Big 4 banks they will fight for market share and that means writing loans until they are stopped.

        The RBA and APRA are the ones who are turning off the taps and shutting down development projects. My concern is that if they ram the taps shut even while vacancy rates remain extremely tight.

        Those expecting a big fall in Sydney prices should be watching the vacancy rates. Until they start growing and reach 3-4% don’t expect too much movement on prices. If you are lucky there may be some retracement back to 18 months ago .

        That is hardly going to be cause for a party.

    • The obstacle seems to be a lack of family suitable apartments coupled with family infrastructure such as schools in areas with many apartments. Given the under supply of family apartments there are probably still profits to be had in that segment.

      • Families want at least three if not four bed apartments with a good big living area and some storage space. In Australia those are almost non existent.

      • “Families want at least three if not four bed apartments with a good big living area and some storage space.”

        As BB says above, that’s not necessarily the norm in many other countries. I personally know five families with four or five members who live in two bedroom apartments. (In London, Stockholm and Hong Kong) It’s not what I’d enjoy but they seem to live comfortably.

      • Families are much different these days. While on average families have 1.85 children, among new families with children under 5 that trend is likely to be reduced because of many parents plan not more than one child.
        In addition, people living in these inner city ares don’t value space as much, they work most of the day, spend great deal of free time outdoor, don’t have hoarding issues. For many parents with a child even 2 bdr is more than enough.

      • I gotta docx there is no sign that any of the things you say are true in the inner city area I live in amongst the other parents at crèche and primary school.

      • so they have 3 or more kids, live in 4 bdr units, don’t work much, like spending time inside and have hoarding issues?
        what inner city is that?

        for data check census

      • 4 bdr units? Good luck – no more than 1% of what’s built.

        But really the massively overwhelming majority have 2 kids – as you might expect in a country where TFR is 1.9

        Of course they all work, mostly both parents – couldn’t afford a house otherwise.

        Kids mean stuff, even if you’re maniacal about throwing stuff out as soon as your kid’s outgrown it. You either have storage or have piles of stuff in every room.

        It’s not just the storage it’s things like access. Visited my sisters apt at the weekend – you can’t get a pusher up the stairs (4 storeys).

      • TFR is 1.9 but that is an average that is not very uniform. It is also on downward trend after temporary uptick driven by free money from Rudd government. It is also expected to do go down to 1.7 within few years and even lower in few decades.
        It is much higher in some suburban ethnic and rural areas so you would expect to be much lower among inner city women to get the average at 1.9.

      • TFR is 1.9 but that is an average… expected to do go down to 1.7

        Yeah, but given we’re talking specifically about families with children, you have to remove all childless women, which straightaway puts the average above 2.0, in which case there has to be a family with three kids for every single kid family (unless there are a whole heap of 4 plus kid families out there, and I don’t believe there are) – it’s not a number that’s possible without the overwhelming majority of families with children having two or more kids. Could be a different story if TFR goes below about 1.6. but really don’t see that happen any time very soon.

      • Mate, 40% of families with 1 child is 60% with 2 or more children. That’s a lot more families with 2 or more than with one. I’d even call it an ‘overwhelming majority of families with children having two or more kids’.

        And there’s also this:

        “It needs to be kept in mind that some of the families described in this facts sheet would have also had at least one older child who had reached adulthood and may have left home. This is particularly likely where there were only one or two children in the family and these children were approaching 18 years old. In addition, some of the families would have been “incomplete” – with new children born between Census years (or after the 2011 Census).”

        I guess the last point would especially apply to the under 3s – about 1 sixth of the total. Something like half of those families could reasonably be expected to have not finished breeding yet, knocking about 3 percentage points off the one child family proportion.

        Not seeing why the proportion of 1 child families should be very much higher in 2015 compared to 2011- current TFR may be lower than 2011 (very slightly) but it’s still higher than the late nineties through mid aughts, when most of the children in your 2011 data were born, so it may well have gone the other way.

      • DocX,

        The table headed ‘NUMBER OF CHILDREN EVER BORN TO WOMEN AGED 40-44 YEARS’ does a much better job of explaining what I’m talking about.

        http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/4102.0Chapter3202008

        Looking at 2006, and adjusting for the approximately 15% of women remaining childless, the proportion of women who have exactly one child out of the total number with children is about 17%, a fraction of what is found on the corresponding families institute graph which includes families which are not yet completed, and doesn’t count offspring who are 18 or over regardless of whether they live at home.

        And for estimating trends, consider that regardless of recent falls, TFR has been higher than 2006 every year since.

      • so are we talking about people who have children at uni (40-44 year olds) or new families in need of a home to start family?

        more importantly your data is all based on state or country averages. Distribution of these “atypical” one child families is not uniform, not even close to uniform. Unfortunately there is no data but let’s look at some data and make some assumptions:
        There are over 1 million families with children in NSW, according to your data there are 180k families that will have only one child (this is likely to be much larger number but let’s take your assumption that only 18% of them will have one child only), only 3% of all families (including single parent families) live in Sydney inner city (30k); we can disagree but disproportionally large number of these atypical one child families live in inner city – it’s not hard to imagine that only 10% of all single child families living in inner city – even this small percentage would make 50% of all families with children in inner city having one child.

      • so are we talking about people who have children at uni (40-44 year olds)

        ?

        For most of the women with children aged 40-44 years I know, said children are barely into their teens.

        Even the handful in that age bracket with a grown child, usually have at least one still teen or “tween”.

      • Hey, it’s not my number – it’s from the census, So it’s also not an assumption – it’s a statement of what it was at the time.

        The point is that it is representative of the number of children women have during their lifetime – about 80% of those who have children at all have two or more. Maybe they can live in a unit for a couple of years before the family gets too big, but I’d have thought if you were planning a second child and lived somewhere that was too small for a second child you’d be thinking strongly about moving (actually, having done it, I know you do for sure).

        You lost me at the assumption that 10% of single child famiies in NSW live in inner city Sydney, 3 time the proportion of NSW families living in inner city Sydney. If you’ve got no numbers on at least a locality within the area you’re just making stuff up.

        In the meantime I have found the following surveys produced by the City of Sydney:

        http://www.cityofsydney.nsw.gov.au/__data/assets/pdf_file/0020/204482/CP10-Macleay-Street-and-Woolloomooloo-Community-Profile-2011.pdf

        There’s a series and I’ve only opened a couple but both had strikingly fewer (especially school age) children relative to population than Sydney as a whole, which makes me think that whatever else is happening, these areas are not preferred by families at all. If this what you mean by inner Sydney,families with children are mostly trying to be elsewhere, including many who start off there with a preschooler but leave by the time the eldest gets to school.

    • Is it possible there is a difference between necessity and choice?

      Are they moving here to continue to enjoy apartment living? Or are they coming here for a chance at the American/Australian dream? If so, apartments won’t cut it.

      • large family living in a large suburban house dream is long dead. Even in large suburban bible belt American cities trend is changing: e.g. ordinary 2 bdr unit in Houston’s “walkable” inner areas costs more than a new large 4 bdr house on half an acre block in nice suburb.
        http://www.trulia.com/property/3218885222-4950-Woodway-Dr-706-Houston-TX-77056#photo-6
        http://www.trulia.com/property/3219296517-2702-Camden-Hill-Ln-Houston-TX-77089#photo-2

        The dream doesn’t even exists in movies anymore, most of movies with such lifestyle choice themes are either parodies or tragedies these days.

      • Speaking for myself and many other expats I know, very few or none want to live in apartments. One of the main reasons for coming to Aus is to have space and enjoy outdoor living especially if you have kids. Talk to 20-something immigrants might be a different story, but probably many of those would also change preference as they grow older. And for people who have lived here their whole life, I think many would view apartments as a forced compromise rather than a positive choice.

        Face it, Aus is not going to become a nation of apartment-dwellers. With all that space, why would it?

      • doctorX – the vast majority of Americans dont live in cities. They live on 1-2 acre blocks in the suburbs (known as “the country” in other countries)

      • large family living in a large suburban house dream is long dead. Even in large suburban bible belt American cities trend is changing: e.g. ordinary 2 bdr unit in Houston’s “walkable” inner areas costs more than a new large 4 bdr house on half an acre block in nice suburb.

        I am a little unclear on how the second part of this sentence supports the first.

        I’d be willing to bet a large amount of money in a second there are a lot more people living in apartments, who want to live in houses, than vice versa.

      • the vast majority of Americans dont live in cities. They live on 1-2 acre blocks in the suburbs (known as “the country” in other countries)

        Have you lived there? I have, for a decade, and that was not my experience in California or Nevada.

      • @Dr

        there are no homeowners in Houston (and other large southern cities) who live in units and want to live in houses for simple reason that houses are much much cheaper. The very fact that units are now much more expensive for what they offer (per sqm) signals that there is a large number of people willing to pay more because they want to live in “walkable” inner city areas even at expense of living in a unit and having less space. Prices of units went so much up despite huge number of them built in last few years – demand has to be high and it clearly marks change in lifestyle trends.

        Lifestyle choice we are talking about here is not a house vs. unit, real choice is living in a walkable inner city areas full of amenities vs. living in car dependent suburbs, and more and more people are willing to scarify unneeded space for convenience.

        People who live in houses don’t use backyards and empty rooms much so there is actually very little to lose in this trade off. A study done in USA found that children averaged fewer than 40 minutes per week in their yards while adults spent less than 15 minutes of time per week in their yards. (These families had sunny Southern California weather. They had nice porch furniture, trampolines, even pools. They just didn’t use them. Many families told researchers that they used their backyards all the time, but then were rarely observed out there in this multiyear study.)

      • “Face it, Aus is not going to become a nation of apartment-dwellers.”

        I agree, to clarify my comment above, by normalised I just mean not unusual for families to occupy apartments. I disagree with Leith’s comment that apartments are “unsuitable” for families.

        Perhaps my situation is not the norm, but I’ve done the whole 1/4 acre block thing and it was a nightmare looking after the garden/lawn that goes with it. I’d take a (well positioned, near beach/parks) apartment over going back to a house on a large block of land, even with kids.

      • Personally, I live in a duplex with a 60 sqm backyard, and I think it’s a great lifestyle. There are several parks in the area and I don’t feel my kids are missing anything in not having the kind of quarter acre block I grew up on.
        Just curious – what do you guys think of the claim that driverless cars will make it attractive for people to live on larger blocks in pleasant neighborhoods at the edge of cities with serviceable roads but no public transport?

      • I think selfdriving cars have potential to change trend again but in my opinion that combined with changes in job relations (more individual consultants and freelancers), communication technology and issues related to terrorism trend will go much further back into living in the country on small farms not suburbs.

      • I live in an apartment out of choice. Having lived in houses in the past I can honestly say I dislike them and would never consider one.

        I like the fact that there’s no maintenance required in an apartment because strata handles it all, I like the security, I like the facilities (pool, gym, tennis courts etc), I like the 100/40mbps NBN, I like the convenience of being close to parks, cafes, shops etc.

        I don’t think I’d ever go back to living in a house again unless I had the money to live in some Point Piper mansion where I could have all of the above lifestyle benefits but I would then miss out on the communal feel where everyone knows everyone from chatting in the lift. Houses don’t interest me in the slightest.

      • The Simpsons (and Family Guy) is becoming laughably anachronistic. Supporting three kids on a manufacturing wage living in a four bedroom house … Yeah right.

      • @R2M – “Have you lived there”. Yes, lived in CT not far from NYC for 7 years. Have also travelled a fair bit of the US.

        I will grant you, its different wherever you go. Remember much of Southern CA and NV is desert so less incentive to own a few acres of dust 🙂 But the US is generally one of the least urban places I personally have seen. Cetrainly less urban than any W European country, Aus, SE Asia etc.

        As one example, the population of Boston is <1Mil.Greater Boston is 4Mil, but that is pretty dispersed. I think the land area is double that of greater Melbourrne.

      • @Dave – was going to mention Boston. Has a mix of urban condo’s (Burlington, Cambridge and Back Bay come to mind) and suburban (Lexington, Winchester and Framingham come to mind). Majority is not condo living for families outside low income areas near Logan. Condo’s were a lifestyle choice, especially some of the newer developments. I lived in a 5 bed house in Winchester and can say I hated it. Have a house here and a penthouse in Kirribilli, spend most of my time in penthouse cause of convenience.

      • what do you guys think of the claim that driverless cars will make it attractive for people to live on larger blocks in pleasant neighborhoods at the edge of cities with serviceable roads but no public transport?
        Can you tell me: what is the difference between a driverless car and public transport?

      • The fairly obvious difference is you as an individual need to own, maintain and provide fuel for the driverless car – I’d have expected that a significant subset of PT users were currently unable to do that.

      • there are no homeowners in Houston (and other large southern cities) who live in units and want to live in houses for simple reason that houses are much much cheaper.

        This seems a questionable conclusion.

        Hugh, Phil, and some other posters would attribute a different reason to Houston’s cheap suburban housing.

        I am sceptical of the “lifestyle trends” claim because amongst the people I know in a roughly similar demographic to myself (30-50yr old professionals, have/expecting/planning kids) the *only* ones I can think of who live “in the city” and do not want to move into a real house are the multi-millionaires with large (well, enormous by most people’s standards) 3+ bedroom apartments or townhouses in nice locations, who typically also have one or more holiday houses out of the city and can afford to either not work for months of the year or can “work from home”, where “home” is aforementioned holiday house.

        Many in this demographic tolerate small living spaces, noisy neighbours, etc, because they can only find work in the city and can’t afford to buy a house. But they most certainly “dream” of a standalone house and aren’t there for the “walkability”.

        The list of people I know over thirty who *want* to live in some sort of attached inner-city dwelling is vanishingly small.

        There is precious little inner city “amenity” that cannot be reached with a 10-30 minute drive from a suburban (or exurban) house.

      • Can you tell me: what is the difference between a driverless car and public transport?

        Driverless cars travel on demand.

      • What about a driverless car that comes when you need it, and is owned by the government?
        Is that public transport = pure good, or is it a car = pure evil?

    • Do people really migrate to Australia to live like they did in the Country they left? That is complete nonsense. Families would only pick an apartment because of lack of affordable houses where they need to live for work.

      Apartments are for Students, Council Housing, smack heads and New Yorkers.

      • Do people really migrate to Australia to live like they did in the Country they left?
        maybe yous should visit one of many ethnic suburbs around. If able, immigrants tend to replicate lifestyle to the very details.

      • “Families would only pick an apartment because of lack of affordable houses where they need to live for work.”

        Disagree. Some families value extra time spent with kids over time spent maintaining a house and garden, prefer the amenities that come with apartment living such as in-house gym or pool, better location and security… I am not saying this is what most families in Australia would think, but they are out there.

      • I basically agree with BB that apartment living with a family would be quite desirable. I really really hate gardening, and would love to lose the stupid patch of grass that needs mowing.

        But I’ve looked, and I just can’t find an apartment that’s near a school and childcare and would plausibly fit two adults and two kids (Melbourne not Sydney but don’t think it’s all that different).

      • I migrated to get away from the crowds and high density. The space and location of our (rented) home is fantastic. There are people who simply like the city lifestyle though. Many urban professionals like apartments but are generally looking for a bit more upper market I think.

        The small crap that is being build are mostly just financial products disguised as concrete. Too small for long term owner occupiers.

      • Families would only pick an apartment because of lack of affordable houses where they need to live for work.

        Interesting concept.

        So a shortage of decent dwellings a decent commute from decent jobs causes people to live in dwellings that are inferior by some measure.
        I’d agree with that.

  6. I walk from North melbourne to south melbourne everyday and everyday I’m astonished at the number of apartment high rises being built also the number that are being built by chinese firms.

    There would have to be +20, with one taking up the whole city block and another four being built next to it. They are everywhere, it’s full on.

    And it’s going to end i tears.

    • Remember to pack your marshmallows in your bag everyday. Never let a towering inferno go to waste during construction.

  7. Using 12% of population for every 10 years between 0 and 80 as a quick rule, these days peolpe aren’t having kids till almost 30 and they’re gone by just over 50 and those between 20 and 30 are living away from home in units. So 4 of the 8 decades or almost 50% of the population are potential unit dwellers and probably 25% are quite likely unit dwellers (singles, childless couples, couples with 2 or even 3 quite young children and most people over 70). Now look at the demogaphics and the aging of the population and you will see that most aging predictions show most demographic growth in the over 60’s where unit ownerhip/living becomes increasingly attractive for many then most. Sure there will be periods of slight oversupply but the demographics will eat it up more quickly than you expect. If immigration falls then it’s the demand for houses rather than units that might fall as it is the middle years with kids that demand houses and that’s the demographic that immigration brings (or they turn into it within about 10 years). The growth in the older aged populations is already baked in the cake of the existing population.

    • There is very little sign that empty nesters are moving into apartments. Virtually all baby boomers are now at that age, and just haven’t done it.

      Older boomers are seventy next year – within a couple of years, if they haven’t done it yet, it ain’t happening.

      Given the massive population bulge now at exactly the right age to downsize, we should be seeing it en masse if it was going to take off, but we just aren’t.

      • Your statement is not in accordance with my knowledge of what my friends are doing. Most over 60 are having the conversation about downsizing and about 20% have already made the move to an apartment or duplex with virtually no yard. With my friends over 70 about 50% now live in units or similar. One or two who went to more extreme locations eg Pyrmont, have moved back to a house.
        Do you have some stats to share as I note we have had this difference of views before. Is it explained by different ages or locations or is it supported by data?

      • As a single data point, I’m a very late Boomer or early Gen X-er. Two of my three kids are independent and working. I’ll be retiring in 6-7 years if everything doesn’t blow up in my face, and I’ve already sold the giant house and moved into a townhouse. It’s bloody great. Bugger the cost and effort of maintaining a giant garden and pointlessly large house. No more lawn mowing for me! 🙂

        On the other hand, I read MB and generally understand how things actually are, so I’m probably not representative.

      • Here’s one survey by the City of Melbourne:

        https://www.melbourne.vic.gov.au/AboutMelbourne/Statistics/Documents/Small_area_profile_Docklands_2013.pdf

        Page 8 has the age distribution for Docklands which is centred on pre children adults, and some adults with pre-school children (very few children under 5, presumably due to school access). People with kids move away

        Note also that the median age for the area in the report is 31 compared to 37 (despite dearth of kids!) for Victoria so not attracting the older set.

        Compare also 9% over 60 in Docklands, 10% in whole of City of Melbourne to almost 20% for Victoria
        and about 15% for Greater Melbourne.

        http://www.abs.gov.au/ausstats/[email protected]/Products/3235.0~2011~Main+Features~Victoria?OpenDocument

        Unfortunately this other one from the ABS is a bit old, but one thing that is interesting is that the median age in apartments in the period 1981 to 2001 went down even while the median age in Australia went up. It would be interesting to see an updated version.

        http://www.abs.gov.au/ausstats/[email protected]/0/939BFF64E38E18DDCA256E9E002912F0?opendocument

  8. The developers will likely have sold to individuals who then have a personal liability to complete and can be chased to be made bankrupt if they don’t complete. If the developer has sold to a company they probably have personal guarantees. If they have sold to a super fund they fund may have other assets that can be pursued or the developer may have personal guarantees. The days of paying a 5% deposit and being able to walk away are long gone. These days its more 10% deposit and total personal liability.
    Any solicitors or conveyancers out there who can confirm?

    • Still it won’t be cheaper nor easy for the developer to chase some “investors”; particularly the oversea investors.

    • One of the BIG benefits of a S/Fund is that it cannot be sued. It is totally immune to creditors.(Except Tax Office)

  9. “…Most of these properties have few redeeming qualities. They are generally small, bland, and subject to expensive body corporate fees …”

    What you really meant to say was:

    “…None of these properties have any redeeming qualities. They are universally small, bland, and subject to expensive body corporate fees …”

    That said, trying to convince colleagues NOT to invest in this rubbish is a thankless task.

    • That’s because so far most of them have made good money and you have been wrong. You might be proven right for those who bought in the last 12 months but in 3 years time you might be wrong again even in respect to them. Who knows the future, but so far, for anybody who bought 12 months ago, they were right and you were wrong. For those who bought 3 years ago you will probably never be right, given the price rises since then.

      • +100 – There is no sign that the RBA and APRA (or anyone else in policy) are losing their determination to keep the current housing debt driven economic model alive for as long as possible.

        Everything I am hearing about apartments I heard back in the late 1990s.

        As you say there is a very good reason why people are still buying them. They have made money.

        With all arms of public policy especially the private bank power to create money – directed to that objective it is a brave person to bet against it (sure it may end – but when? – it has been going for 10 years longer than I thought it could)

      • So because people have made money, people will continue to buy them. Using that line of logic, the world will never have bubbles of any kind bursting.

  10. A few months ago, we have seen a lot of developers default their contracts with customers due to house price increases, now it goes to the other way…
    all these off plan , presale figure of 10% is a joke…normally you will pay extra 10-20% to the developer to ‘secure’ the right to buy the future property. Once it is completed , you pay the rest. The point here is bank would not value the property as the same price you pay….you might end up with ‘negative net asset’ of your purchase

  11. @Kevin, about 90% of the time property has been a rewarding investment. Ocassionally it isn’t. At times when it hasn’t been in the past it has generally recovered reasonably quickly for most purchasers. Sure some lose, can’t stay in the game, panic and cystalise a loss. Sure bubbles burst. But 90% of the time the doomsayers have been wrong within 2 years. some people have been sysing “Don’t buy now” on this blog for about 4 years, maybe more. What bad advice that has proven to be!
    Maybe you’ll be right, anything is possible, but while the past is not a perfect guide to the future, the odds of long term experience are against those who don’t buy. I would agree that after a bloody good run in prices the chances of being safe in not buying for a year or two are pretty good, but it is also important to realise that the whole system is devoted to gradually rising asset values and won’t easily be brought undone, not only because of vested intersts but also because of the self interest of 12 million Australian home owners.

    • That’s the same excuse used for 100% of bubbles. And 100% of bubbles pop eventually. If the price is significantly higher than the income it generates, it will revert to mean without fail. It’s doesn’t matter if pricing has been rising over the past year or the past decade, the only question is if it is sustainable. If the answer is no, then no amount of past performance will prop up the price. The only question is when.

      • Sure if their is a big bubble and a crash then prices will revert back to what they were x number of years ago, but nominal growth in wages and population growth means that x may only be 1 or 2 (or more of course). So far prices are back to what they were 6 months ago. Let’s see what happens. Many who have read my comments over the past 3 months would know that I am concerned that we may have significant unemployment unless government takes advantage of the resource construction and automotive manufacture cliffs to build infrastructure that is sorely needed. It’s all up to Malcolm and his closest mates. Build Baby Build! Dont waste the 2016-17 crisis! If they let unemployment spike, it could be bad.

  12. Terror Australis

    Residents of BrisVegas might be familiar with the Cathedral Place Apartment complex just off the north end of the Storey Bridge. It was built on a big block of land held by the Catholic Church for decades with the intention of building a large cathedral that never eventuated. Apparently they DID get around to constructing an underground crypt where services were occasionally held. Sadly, that little bit of history was destroyed by apartment developers in the late 90’s.

    I recall visiting a friend of a friend there shortly after it was completed and noticed many BMW’s and Mercs.

    There actually WAS a pretty big fire at the complex a few years ago.

    According to a recent conversation, the occupants of the place these days are driving ratty looking Commodores and Falcons.
    Lots of druggies and part time hookers apparently.

    Lots of these hastily build apartments don’t age well.