Risky Postcodes Warning on High Rise Apartments

Macquarie Bank has released a list of “ risky postcodes ” where they believe a looming oversupply of units (mostly due to high rise developments) poses too great a risk to their lending books.  As a result, the bank will limit their exposure by requiring 20-30% deposits in those areas, which include inner city and CBD fringes in Melbourne, Brisbane and Sydney as well as high volume corridors in Sydney and beachfront areas in Cairns and the Gold Coast. (see article here)

I agree with most of the areas blacklisted by Macquarie, with the exception of the Gold Coast. However, I do believe there will be an oversupply of high rise along the beach. This is the typical boom and bust Surfers Paradise story, I've discussed this potential problem with the Gold Coast City Mayor, Tom Tate.  He disagrees and believes that his efforts to bring more commerce to the Gold Coast will see these high rise buildings filled with businesses and tourists.  He sees our market of liveable properties a short distance away from the beach  as is peak investments and benefiting from the coast's booming population.

This is why I think the blanket approach to these postcodes needs fine tuning.  Yes, they are right about the beach front high rise.  No, they are wrong on low rise units, townhouses and houses that may also belong to these postcodes.  The reason they are wrong is that the Gold Coast is enjoying Australia’s biggest population surge at 3.5% versus the national average that is half of this.  So, we have a big demand for bananas.  Let’s look at the supply.  Here we see that for the last four years the amount of new dwellings going into the market is a third of the historical supply - Just 5,000 dwellings versus traditionally 15,000 dwellings.

The news video refers to falling rents in the suburbs as people move to fill the high rise in the city.  Recently, I spoke to a very senior manager of one of our major banks, who was totally unconcerned and pointed to the high number of Chinese buyers as the reason. He explained that most of these buyers were buying simply to put cash outside of China, and most would not even rent them. He did point to several examples. Indeed in my street there are three houses which haven't been lived in during the 12 years that we've lived in this area. Buyers from Hong Kong are just happy to have their wealth parked within a safe country. So therefore, we won't have the downward trend on rents in the city perhaps as I was fearing!!

So in summary, we generally support the broadcasting of these postcodes by Macquarie.  They have supported our stand over many, many years. However, some of these postcodes need fine tuning as I mentioned above. It shows that it is not just location, location, location. It is also education, education, education! Education makes people feel safe, and secure with accumulation.

APRA Squeeze Update

New home sales fell 4.7 per cent in April while detached house sales slipped 3 per cent. Multi-unit sales plunged a whopping 10.8 per cent. We predicted the APRA squeeze to restrict the amount of bananas coming into the store, and now it is happening. With this plunge, we'll see rising property prices, rising unemployment and voters and politicians wishing that APRA would get a dose of common sense and stop interfering with the market that it knows nothing about. We were right again!

Kevin Young Property Club Founder