The Sydney Morning Herald's article on how the floods and debt levels are impacting the banks had this to say:
The warning by Standard & Poor's on Friday that it could downgrade the credit ratings of banks with exposure to the Queensland floods shows that the floods will continue to wreak havoc on business for a long time yet.The problem with this article is that it is putting to much weight on the impact of the floods, but the really issue is the debt levels. - the floods are only highlighting how hard small business has been and how the community is burred under a flood of debt.
This statement shows some of the real concern:
Even before the floods there were concerns that the values of at least 30 per cent of Gold Coast properties were lower than that of their mortgages. House prices are flat, and the property group Mirvac announced last Wednesday that it had made a $215 million provision on zero-margin projects and unsold stock in poorly performing regional markets. Put all that together and you have to wonder whether banks are providing full disclosure of "Gold Coast to Noosa" properties, especially holiday homes.And with some people saying that there are 2 years of unsold property on the Gold and Sunshine Coasts the problem of being under water has nothing to do with the floods. 30% of properties being under water on the Gold Coast are USA kind of numbers. The kind of numbers which causing a 'pop' to any housing bubbles which might exist.
The author, Adele Ferguson, is right - you do need to wonder whether banks are providing the full picture on the SE Queensland property market.
Comming back to the main topic, Commercial Property, Adele had this to say:
The downgrade came after a three-week review of the bank's top 250 property exposures confirmed the sector was performing much worse than expected. Queensland's commercial real estate market was singled out as the main offender, with an acknowledgment that it had suffered impairments to the value of two of its retail shopping centre exposures in the state. It declined to name which ones. It denied that exposure to the struggling high-rise residential property market on the Gold Coast had a role in the downgrade.We will begin to hear this line more and more over the next 12 months - "the sector was performing much worse than expected". I don't know if its really worse then expected or just worse then disclosed.
Like I said in my previous post, vacant shop fronts are the start of the down turn (or at least the visible downturn). As small business owners stop being able to pay their massive rents and loans then they close the doors. Employees are put off, and mortgage repayment begin to fall behind. Less borrowing is taken on as consumer sentiment falls. This de-leveraging of debt compounds the downward trend (see Steve Keens work).
The floods in Queensland, NSW and Victoria only help bring the problems into the light faster then they normally would. However don't be fooled into thinking that the floods are the cause. The years of excessive debt, restrictive land use policies and ongoing miss management and 'stimulation' by our State and Federal Governments have made the problems of over valued real estate and massive personal debts and the floods are just the spot light which show the problems for what they are. Don't be fooled and get ready for the economic fall out.