Developers smother lipstick on Aussie property pig

Several Aussie property developers have joined forces to sooth fears that Australia’s property market is facing a deep correction:

Colliers Brisbane director Andrew Scriven: “I like to remind everyone that it is a health crisis that is turning into an economic crisis, but aside from that the fundamentals of property are still solid”…

“The GFC was perhaps the most significant crisis of recent times and it related to liquidity, something that is highly relevant for both developers and buyers so there were limited opportunities,” he said…

“However, COVID19 is really a health crisis. There is still liquidity and we are confident that this will improve further as all industries go back to work and the economy recovers”…

CBRE managing director, residential projects Australia David Milton: “I think what we’re going to see is probably flatter growth, but good property will sell because there’ll be good demand”…

“One thing that will come out of this is there will be a lot more people out of China and Hong Kong wanting to spend their money in what they deem a safe country and with our dollar being so low,” he said…

“Unlike a recession where you don’t know when it will end, this has been a government-forced shutdown to deal with the effects of the pandemic and while the effects will be significant, the economy will crank up very quickly,” he said…

Three Sixty Property Group founder John Meagher: “I think the next six months is certainly going to be tough, but the market will start to recover next year.

“I think if you’re buying real estate when no one else is buying, there are generally some good buying opportunities.”

Here are my counterpoints to this Panglossian view:

  1. Unemployment will remain at high levels for an extended period and household incomes remain stunted. Indeed, the RBA forecasts that Australia’s official unemployment rate will remain well above 7% by the end of 2021.
  2. Lenders will likely reduce the availability of credit owing to concerns over households’ ability to repay.
  3. Mortgage rates are at their all-time low and unable to fall much (if any) lower. This is a sharp contrast to previous recoveries, which experienced stiff tailwinds from falling mortgage rates.
  4. Immigration will collapse and will likely remain at lower levels for longer, thus removing a significant chunk of housing demand.
  5. Dwelling supply will rise sharply as the large pipeline of apartments is completed and short-term rentals like AirBnb are returned to the long-term market.
  6. Rents are likely to fall heavily on the back of rising supply and increased unemployment.

These are not conditions conductive to a quick housing market rebound. Indeed, it is the biggest economic shock since the Great Depression.

Leith van Onselen
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Comments

  1. Arthur Schopenhauer

    7. Everything will be done to sustain the unsustainable, no matter destructive it is to the long term interests of Australians.

      • Ian ArunMEMBER

        waiting with pop corn for revaluations on commercial properties. couple of years ago i wanted to started a small business and property owners who have loans wont reduce rent even thought similar properties are going for lower rent. they were afraid of margin calls. now hopefully after these revaluations it would be risk worth taking to start small business in Australia

        • DominicMEMBER

          Commercial property valuations are one of the main factors why so many businesses fail — and it’s why there is so much pressure on businesses to buy in foreign help and exploit the b*stards.

    • truthisfashionable

      Geez I hope that the landyluddites don’t take it out on the small businesses who don’t have Solly’s ability to negotiate this hard.

  2. The fact that they are out trying to say everything is ok and making everyone think they are Warren Buffets by saying get in when everyone else is selling, says that they are truly worried…..reassuring the masses of how strong the property mkt is….

    • Goldstandard1MEMBER

      Ironically, Warren Buffet said at his annual catch up last week that this was the most uncertain set of events he’s ever seen and is not ready to invest anything anywhere in the short term. That should concern most people. He cannot even see scenarios that look like good buying opportunities from here.
      Therefore, although he stands by that he is greedy when everyone is fearful, he is saying that presently, he is fearful at a time when others are being greedy (***RED ALERT STATUS 10***)

      • DominicMEMBER

        It’s not the ‘buying opportunity’ of old, that’s for sure. Poor guy, sitting on $120bn+ in cash and not confident enough to spend any of it. A study reckons fully 42% of the newly minted unemployed in the US will never work again. Yikes.

      • I’m with Warren. Fcuk FOMO. Cash is great, booming stock markets are full of dreams that may well turn into nightmares without warning.

      • Jumping jack flash

        People have been greedy for the past 20 years, aided and abetted by economy-crushing piles of debt that have not been able to grow fast enough to sustain themselves.

        so I call bullsh1t on that.

    • DominicMEMBER

      It’s all true — even Xi is quietly perusing a few pads in Point Piper.

      ‘Sources’ say he’s ‘sick’ of the shytehole country he currently runs and is keen to upgrade. 😉

  3. 9. Contempt – The contempt with which the property mob is held in by a % of the population. Lots of people genuinely loathe what has become of Australia because of the property mob and their bankster enablers.

    Maybe this is jealousy, maybe its a sober understanding that the country is buggered good and proper. The fact that a significant % of folk despise the property credo is what will sink this, because it will be impossible to generate consensus on policy direction.

    No one says this openly, but it will be the reasoning behind many decisions, fake smiles and soothing platitudes notwithstanding.

    Think about a cricket match. Australia vs Bangladesh. Everyone knows Australia will win. But in the middle of the match Oz makes a few mistakes. Catches dropped, wickets cheaply lost. There is that moment, where the crowd starts to no longer believe. It gets quiet, the stadium gets hot. The BD team can feel the change in the air, something unexpected may happen.

    This is where it gets good. No one wants to be blamed for loosing. Oz starts taking stupid risks. The run chase is not going the way it should. Individual players start to defect, take risks which cannot possibly work, “I did my best no one else backed me!”. After all, being blamed is no fun.

    The term is sell out (i think from american football). Not the usual meaning, but to sell out is to commit completely to the plan, as following the plan is the only thing which has a hope of working. In a lousy situation, to ‘sell out’ is a complement, its the guy who takes the hit, being ok to get blamed even in the face of the narrative changing – by sticking to the plan. Will the elites stick to the plan?

    Developers, bankers, laywers, politicans will start to make ever more outlandish statements, all while quietly defecting. The point is not be be blamed. The jig is up, the fat lady has sung, the punch is gross.

    I can’t wait for Australia’s elites to start defecting. To making weasel statements so they don’t get blamed. Elite consensus fractures, and it all goes pear shaped very very quickly.

    An American (KK) is showing the way. Fitting I suppose 🙂 🙂

  4. I think it is always best to take a real estate agent’s advice.

    Everyone knows that.

    • One agent lied to me about the value of my property so that he could get the gig then hard-pressured me to sell for less. Cnut. He turned out to be the bro of the next door neighbour in my new house so I keep seeing him for years thereafter. Christ he was a slimy piece of sh1t with no ethics who needed beating with a bullwhip real estate agent.

      • You can only hope that many of these ar$eholes loose their jobs or RE businesses in the coming dip/crash.

      • DominicMEMBER

        The oldest trick in the RE agent manual: “Market conditions have changed since I valued it.”

        But that was only 2 f#cking weeks ago!!

    • adelaide_economistMEMBER

      Wonderful! She’s now reduced to making entire seminars about getting fresh migrants who can barely speak English to leverage up into property. Looks like Gary, Mario and Shazza from the western suburbs have started to wake up to her technique after all these years.

  5. They will continue to be upbeat, because there is no repercussion on getting it wrong. Remove any variable in your assumptions, and you get to any result you are after.

    …There is a current glut of oil because of overproduction and low demand, but apart from that the fundamental of oil is still solid.

  6. Rorke's DriftMEMBER

    Given the recession is due to shutdown of hospitality, casual and service workers, tourism mostly and less so professionals in big companies, what if the fall in prices is for lower end property generally and oversupplied units. With interest rates staying low, what drops the prices for free standing houses in Sydney eastern suburbs or mosman? Do we end up with a two tier market. Maybe Epping and chatswood go if China withdraws, but the professional classes are still in jobs and enjoying WFH so much that a better home would suit, the drug money is still in Aus, the moneylaundry laws still loose. I cant quite yet see the mechanisms that top end price collapses.

    • I think you’ll find plenty of houses unlisted but for sale in the banker enclave of Mosman.

    • Your list of dwellers from those elitist suburbs are reliant on a underclass of workers paid minimum wage or less to fund their restaurants and retail business empire.

    • DominicMEMBER

      I know a number of very senior professionals who have taken ‘temporary’ 20% pay cuts i.e. 6 months at least.

      The slow-down in the circulation of cash (and the volumes) affects almost everybody eventually.

      • Rorke's DriftMEMBER

        Dominic I think in big picture terms you’ve touched on the key point I’m reflecting on, that money is created by bank lending and contracts when credit slows, recession occurs. The housing market should crash, just its hard then to see the mechanisms in play on the ground.

        Had a contractor who works for me say he’s looking for extra hours and weekend work because he’s saving hard to set up his 20yold daughter in “Sydney property” I.e. the golden ticket to endless riches. He will retire to his country roots once he’s achieved that goal. Bugger me, this property psychology is hard to kill.

        • DominicMEMBER

          Yes, it’s funny, you kind of assume that everybody’s broadly on the Bear Boat, but they’re not. Every dip in prices is an ‘opportunity’. The property beast is a hardly bugger as you say – but die it will. If this Covid-induced episode doesn’t do it I’ll throw the towel in.

  7. Jumping jack flash

    “Lenders will likely reduce the availability of credit owing to concerns over households’ ability to repay.”

    The single most important point.

    Can’t pay the price if the bank doesn’t give you the money.
    Saving up the asking price is impossible and only the most frugal or fortunate could ever hope to without using debt.

  8. Let me tell you a story about two young people (23 and 24) that I met the other day
    The girl went to University of Western Sydney and studied Sports Management (and was at best a B grade student)
    The guy went to UNSW and studied Robotics and Control Systems (not a perfect GPA but damn close)
    Guess which one had no trouble getting a job?
    Guess which one has the better career growth prospects?
    Guess which one earns the most? (it’s not even close)
    The important thing to remember is that this is the social foundation on which the Aussie Economic recovery must be built. Any Economic rebuild plan that fails to create growth where strong foundations exist is guaranteed to collapse, interestingly that’s all anyone really needs to know to fully understand our recovery choices

    • Jumping jack flash

      Let me guess, sports management turned out to be the winner?

      Mechatronics/control systems engineer reporting in… 2nd class honours.

        • Jumping jack flash

          Nah.
          Never really got into optic flow.

          Mainly work in R&D for meat processing.
          This China meat ban thingy has me slightly concerned.

          Hopefully start PhD in a couple of years. I have some good ideas for research in my field.

  9. billygoatMEMBER

    ‘health crisis that is turning into an economic crisis‘
    As planned. Are these jokers fooling anyone. COVID CROWS feasting on the economic carcass. 100% engineered /planned black swan event to usher in property re-set, economic reform & austerity /authority. Praise be to dog for the front line workers: doctors, nurses, police & supermarket folk protecting the community from dis ease. Insert vomit emoji:)