Director of Place Projects Lachlan Walker and Director of Resolution Research Diana Howes have released a report rejecting claims that thousands of Brisbane apartments are at risk of not settling over the next 24 months due to tighter lending conditions, despite Australia's leading provider of property research and analytics firm Corelogic acknowledging the "big disconnect" between the average number of units sold each year and the number due to settle.
Corelogic has said the number of new apartments set to settle over the next two years has hit record highs in Australian capitals coinciding with banks tightening credits thereby significantly ramping up risks for purchasers.
Ms Howes said she did not anticipate settlement valuations falling short of the contract prices for off-the-plan units.
“We reject the notion that the market is currently on the cusp of a major valuation risk phase – with developers still reporting valuations at, or close to contract values,” she said. “Furthermore, claims that banks are no longer lending to overseas buyers as a blanket statement are also generalised claims, with banks willing to lend, however at a higher 60 per cent LVR,” she said.
“With negligible price growth across the off-the-plan market over recent years, apartments currently under-construction should, in theory, be valued in line with their recently completed counterparts.
“Although we have seen an estimated 15 per cent rise in construction costs over the past three months, which has translated into lifts in off-the-plan values, many of these apartments are yet to even start construction and given the pull back in development finance, a large proportion are unlikely to.
“This further strengthens our argument that thousands of apartments within inner Brisbane are not at valuation risk,” she said.
According to Corelogic figures, Brisbane averaged just under 15,000 unit sales each year compared to 44,500 new units expected to settle in the next two years.
Graph: Corelogic[/caption]Corelogic analyst Cameron Kusher told News.com.au that Corelogic figures showed there was a large disconnect between the average number of units which sold every year and what was due to settle.
In Corelogic's Settlement Risk Report, the report states the large volume of new unit settlements over the next two years does raise some potential concerns, particularly that in many regions capital growth for units has been substantially lower than that for houses. Namely that many off-the-plan unit buyers would have expected a level of capital growth between contract and settlement.
Corelogic acknowledged that since mortgage lenders have recently tightened their lending criteria, subsequently some people who have committed to purchasing off-the-plan units may not be able to borrow as much as they could at the time of signing the contract.
But Ms Howes said investor sentiment in the Brisbane market remained solid.
“We are not witnessing any evidence of a trend towards speculative investment; in fact quite the contrary,” she said.
The report said Resolution Research has undertaken 'extensive qualitative research investigations examining the mind and mood of the investor market' to reveal the following key opinions and attitudes prevailed:
Buyers have an average hold strategy of 5 years
Buyers are risk averse and shop the market to ensure they are securing a solid value proposition
Speculative (short-term) investments are felt to be more likely to have upside in the share market as opposed to the property market
Lachlan Walker - Place[/caption]“This is a healthy rate of appreciation and clearly highlights a long-term hold strategy for inner Brisbane apartment developments yields high returns,” said Lachlan Walker, director of Brisbane's Place Projects.
“Importantly, although resales do fluctuate over both the medium (five-year) and long terms, average annual median price growth has been recorded.
“It is equally important to note that across these timeframes owners of these apartments have been through the GFC and two periods of speculation of market oversupply (in 2003 and again in 2007).
“In essence, a conservative approach to purchasing in inner Brisbane, on average, results in an appreciation in values.
“This study shows that ownership spanning across the GFC and speculative times of oversupply in 2003 and again in 2007 have failed to have a negative impact on market values over a longer term hold period.”
Mr Walker said the claim by RP Data Core Logic that 81,696 apartments would be delivered into Brisbane’s market over the next two years was unfounded.
“This figure assumes that 100 per cent of all stock will be funded which is unequivocally not the case in an environment where we have seen three of the big four banks state that they are no longer funding apartment developments within inner Brisbane,” he said.
“Brisbane’s apartment market is heavily influenced by lending conditions and we expect to see the future supply environment contract considerably.”
Mr Walker said inner Brisbane’s current pipeline of new apartments was 20,456 including those yet to be approved.
“If we use inner Brisbane as the benchmark, which is where the overwhelming majority of stock is to be developed, we currently have 3886 apartments which are now deferred,” he said.
