There’s more evidence today that we are in the final stages of the apartment bubble, with 60% of developers surveyed by the Urban Development Institute of Australia (UDIA) revealing that they are struggling to obtain funding to complete planned projects. From The AFR:
The results indicated a high degree of anxiety – 60 per cent of the respondents said capital was increasingly unavailable through traditional lending sources, and 78 per cent expected at least one of their projects to be delayed because of the lending environment.
Almost half of those surveyed said the project delays could exceed six months…
Developer and BRW Rich Lister Tim Gurner told the Australian Financial Review the results of the survey were not surprising.
“The fundamentals of the market are really, really strong, but the banks are becoming increasingly nervous. If you are not a developer with a proven track record, you won’t get any funding,” Mr Gurner said…
Not surprisingly, the survey results highlighted a high degree of pessimism among developers.
Seriously, who could blame the banks for holding back funding?
Last month, Charter Keck Cramer’s director of researchers, Robert Papaleo, claimed that nearly half of Melbourne’s off-the-plan apartments have been purchased by foreign investors, leaving the industry dealing with an “unprecedented level of supply”.
Moreover, Four Corner’s recent Home Truth’s special report showed how a large proportion of apartments are being kept largely empty by their absent investor owners (watch the video here).
This has created a dangerous environment for the housing market, banks and broader economy, as explained last month by Jason Murphy at the New Daily:
Go into the city at night and turn your eyes upward. The dark eyes of city apartment towers stare back.
Night after night, it’s the same – some windows never brighten.
Nobody is there to flick the light switch because the apartments are empty…
Vacant apartments are a danger to us all. They are like little pockets of combustible material that could turn a bit of smouldering at the edges of the apartment market into a consuming fire that damages the whole housing market and the whole economy.
…if apartment prices fall, people who invested in vacant apartments will have reason to second-guess. Why, they may ask, am I keeping my money in a losing bet?
Vacant apartments are easy to put on the market – you don’t need to move, or even evict tenants. You just call your real estate agent. If the apartment market were ever to fall, vacant apartments could accelerate that movement.
Don’t think house owners can just watch apartment prices fall and not get singed. The two markets are linked and an apartment glut can lead to a house price fall.
The rational thing for the banks to do is dial-back their exposure to apartment developers, rather than adding to the glut. To do otherwise would be to kick-the-can down the road and sow the seeds of a bigger bust in the future.
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