MELBOURNE MARKET – A HOT PERFORMER?

All you ever seem to read is just how “HOT n STEAMY” the Sydney and Melbourne markets are and how, if you “invest”, you’ll make an absolute killing in just a few short years.

Isn’t it funny then, that a major Melbourne Newspaper would publish a dire warning about a particularly large part of the residential housing market, namely Apartments.

Greg Brown, in The Australian on 16 October 2013 wrote, and I quote, ”

THE apartment construction boom in Melbourne is set for a dramatic correction over the next few years, with the value of some apartments in the central business district, Docklands and Southbank areas expected to decline more than 10 per cent by 2017.

BIS Shrapnel managing director Robert Mellor said the correction would mirror the crunch suffered by the Gold Coast since 2008, when the over-building of high-end apartments led to a market collapse.

In that collapse, residential developments The Soul Tower and Oracle were placed in receivership and the Jim Raptis-built Hilton had 101 buyers who failed to settle. Apartment prices fell by up to 40 per cent. In one case, a Taiwanese businessmen, James Tai, bought a Hilton apartment for $1.395 million in 2008 and the value dropped to $830,000 by mid-2012.

Since 2010, Melbourne has had more than 20,000 building commencements a year when the city generates underlying demand for only about 12,000, BIS Shrapnel says.

Apartment developments in the three inner-city zones it warned about contributed about 500 of these commencements each year.

On BIS Shrapnel’s reckoning, Melbourne as a whole is headed for a surplus of about 28,000 dwellings by 2016, with 10,000 too many apartments.

Mr Raptis, the Gold Coast developer who was slugged by the collapse, told The Australian that the market went under because there was an oversupply of high-end stock, and because the banks stopped lending.

“It’s about supply and demand and if that equilibrium is broken in any market, then people face the consequences,” Mr Raptis said, when asked if Melbourne were facing a similar problem.

Oh dear, who DO you believe?

The residential real estate correction we have to have have looks like it will be further delayed as the Reserve Bank appears set to reduce rates AGAIN to try and halt a soaring Aussie dollar. Its coming together for a perfect storm as soon as interest rates turn and start climbing there will be an unholy rush for the exits.  Don’t be caught in that mess…

 

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