Spruikers change tune

The tide is starting to turn on property spruikers in Brisvegas. The spruikers are always the last to one to admit that a negative return could be at all possible - and it's always when it's to late. Today we see in the brisbanetimes that:

Brisbane property analysts have said prices are expected to fall a further 10 per cent in the next 12 months, in the wake of the flood, before a resurgence in the first quarter of 2012.

What is interesting is that they first try and lay the blame on the floods and then just two paragraphs later we get this:

However RP Data research analyst Tim Lawless said interest rates would be the primary determining factor of Brisbane's housing market in the year ahead.

So in other word - the flood only helped bring the price falls on, but the real cause for the fall is interest rates. Funny how there is no mention of overvalued property or excessive debt being the cause.

The problem with all spruikers is that they always exaggerate the facts to best suit them. For example Riskmark said:

national dwelling price-to-income ratio has already fallen from 4.7 to 4.4 times

However the independent study conducted by Demographia (7th Annual International Report) shows that our national price-to-income ratio is actually 7.1 times. (Brisbane is 6.6 times) So Riskmark is spruiking to the tune of -38%.

If we carry this spruiking ratio of being under the real figure then we get a closer look at what the real fall in house prices could be -16%. Not at all technical I know, but the purpose is to show that Property Spruikers,... well they spruik! The 10% fall that they are admitting to is more then likely going to much larger then what they are willing to let on. 10% is the extremely optimistic view.

Time's up for Brisbane Property. No one will want to buy now if they know that their property is going to be worth 10% less next year, and what bank will give a loan with a 95% Loan-to-Value Ratio (LVR) when it will be 105% LVR next year? And when a bank reduces it's LVR from even 95% down to 90% it halves the available money to purchase a property with the same deposit.

I'll do another post on how this works over the next few days. All in all it's very bad news for Brisbane property.

Commercial Property struggling all over SE QLD

This morning I got a comment on my last post about increasing vacant commercial real estate in Buderim on the Sunshine Coast. It seems that the increasing trend of vacant commercial property is happening all over South East Queensland and it's beginning to hit the banks and wider economy.

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.

Commerical Real Estate in Buderim

Following on from my commercial real estate post on Maroochydore I took a ride in Buderim and snapped some pictures of vacant shops. Buderim is a great little town however over the last 6 months we have been witnessing more and more vacant shops come up for lease.

 Beautiful and prime offices vacant for many weeks.

It was a sad loss of the pizza shop upstairs.

All the pictures above are from the main street within about an area of 400m.

The growing vacancy rates in Buderim and around the sunshine coast is the fore shadow of what is coming. Shop are first to go, along with their jobs. Mortgage stress which is here already escalates. I have spoken with a few small business owner across the state over the last few days, from Toowoomba, Emerald and here in the Sunshine Coast and the story is all the same. Business is very very hard. Very little has happened since before Christmas and the feeling is that they're expecting it to be like this for the next few months.

I hope they can hold out, I hope they can survive - but it's on it's last leg for many.

I'll get to Mooloolaba over the next week or so and show you the vacant shops down there - I think they have the most - but we'll see.

Australia Day

Today is a special day for me. The day we remember nothing else but this Great Country Australia, who we are and how lucky we are to live here. Today we remember that we really are different, no not our economy, not our housing, not our resources - Us. You and Me. We are Australian. We are red dust plains and summer rains. We're true blue and fair dinkum.

We are different from anyone else in the world. As I sit here listening to John Williamson's "And the Band Playing Waltzing Matilda" I feel a little dose of Green and Gold Malaria coming on. You see the Australian people have a spirit that can't be found anywhere else in the world.

So today, forget about our economy, our over priced houses, our vacant shop fronts and remember Australian. You and me. It's not the land but the people. Get outside and cook a barbie, knock down a tilly, dance with a shelia, waltz a matilda. Love, laugh and hava go ya mug.

Flood Victims – Strategic default?

I spend all day Saturday and all day yesterday in the suburbs of Brisbane cleaning up the mess of what is shaping up to be one of Australia's most financially costly natural disasters.

Residents homes and financial situations are completely devastated. Here are a few pictures i took from the one spot - all i did is turn around at a T intersection.

The piles of rubbish are often 6 - 8 feet high of furnisher, white goods, walls, carpets, insulation. The houses are stripped bare from the floor to the ceiling. All the power points are filled with mud and need to be repaired by an electrician. The there is no gyprock on the walls and carpenters needs to do extensive repairs. The kitchens and bathrooms are bare and need to be replaced.

It is easy to expect that each house will require $50,000+ to repair it back to it's original condition and another $30,000 - $50,000 to replace the furnisher, white goods, clothes etc. And where will the insurance companies be in all this.... well if you're not covered with Suncorp and GIO, then they'll be high and dry and won't pay out a cent.

One questions which comes to mind is: 'Will Suncorp and GIO offer insurance for these homes at policy renewal? and if so will the premium increase by 100%, 200% or more' I might discuss this in another post in the future.

On top of the close to $100,000 that each resident will be out of pocket to get themselves back to where they were, the mortgage will still need to be paid on a house which may now be worth less then the debt your paying off - and you can't live there because there is no power, has no kitchen or bathroom and stinks with 10cm of slimy mud.

So the situation for many might look like this:

1. You need $100,000 to repair and furnish your house, and cloth your family.
2. Your house is now worth less then your mortgage.
3. The bank still wants mortgage payments.
4. Your house is unsellable.
5. Your house could flood again this year... or next, or the year after that.
6. You're renting another house to live in while you figure out what to do. (still paying the mortgage)
7. Because of the above you can't afford to cloth you kids, feed your family or go on a holiday ever again.
8. Maybe you have even lost your job as the small company you work for is broke because all their stock was also wiped out in the flood.

So what do you do if you are in this situation??? Many may choose to strategically default and declare bankrupt. This would not be an easy decision but may be the best decision to put your finances back into a position to move forward. Here why.

1. The banks will go after you for everything you have... lets see what that is:

• Your House.... That's ok because it's worth less then your debt, and it needs at least $50,000 work to make it livable again.
• Your personal possessions... well you don't have any because the flood wiped them out and the insurance company is not going to pay out.

2. You won't be able to get a loan for 7 years - but that shouldn't be an issue because it will take that long to build up your personal assets again and save a deposit.

3. You won't be able to be a company director again - not everyone wants to be one anyway.

4. You can start again from scratch - this sounds bad but it actually might be a lot better (by hundreds of thousands of dollars) then your financial position at the moment.

5. You can rent a nice place to live (maybe on a hill) and you can feed, cloth and education your family and maybe even take them on a holiday every now and than.

Because insurance wont pay out for many people they might not ever be able to repair their homes to a livable condition (the banks wont give them the money). The best option for many may be the strategic default.

One thing is for sure, property prices will not be as high again in the affected suburbs for years and maybe decades to come. A flood of defaults maybe just around the corner.

Floods Tipped to Hit Economy Hard

An article by Peter Martin on smh.com.au highlights what I wrote about 2 days ago. That the Queensland economy, with 75% of the state declared a disaster zone, has ground to a stop. With the overall cost to the economy now tipped to hit 13 billion dollars or 1% of GDP this could be the major trigger for the housing market collapse which many have been predicting.

 ''Look at the size of the Queensland economy relative to Australia. At the moment a fair chunk of it has just stopped,'' Professor McKibbin said.

Despite this devastation Prime Minister Gillard is unwilling to alter budget spending:

As estimates of the financial damage wrought by the Queensland floods climb, the Prime Minister has ruled out loosening the budget purse strings to cope with economic shock.

''We will bring the budget to surplus in 2012-13, and yes that will entail some tough choices,'' Julia Gillard said.

Coal export are also being hit very hard with up to 75% of Queensland's coal production stopped -

''Our initial estimate is the floods could drive a 25 per cent fall in coking coal export volumes and around a 9 per cent fall in thermal coal export volumes in January,'' she said. ''This could see exports alone strip 0.5 percentage points from [gross domestic product] in the quarter.''

 The article gives the damage so far as:

Coal exports down 5 per cent.
Falls of up to 25 per cent predicted.
Projected cotton exports down 8 per cent.
Cotton, coal and ethanol prices rising.
Rebuilding to cost billions.
Uncapped disaster relief payments.
Total bill of up to $13 billion.

 In the very near future we could be adding to this list:

• Qld unemployment hits 10%
• House prices drop 25%
• Qld floods force Federal Government to drop NBN

I hope not, but our economy has been on a knives edge for 12 months now and without some serious stimulus (which Gillard is saying is not going to happen) to help kick the debt can down the road this could be the trigger which brings the housing ponzi con down.

2 yrs Oversupply on the Sunshine Coast

On the Sunshine Coast we get a regular delivery of a Real Estate magazine called the My Property Preview. Over the last 6 months I look out for it for a few different reasons. Firstly it has an auction section which lists the last weeks auctions and their results. It has been interesting to see this section move further and further back in the magazine as auction clearance rates continue to plummet. The first thing I do when I get the magazine is turn to the auction section and circle the 'successful' auctions. The percentage over the last 6 months has been around 15 -25%. (if that)

I also always find it interesting to read some of the sprukers articles. The one which caught my eye last week was called "Getting Serious" by the auctioneer Jason Andrew. These statement was there:

After and optimistic start during the first two months of the year, auction clearance rates started sliding after February's peak of 39 per cent.

39% was the years peak after an 'optimistic start'. The optimism doesn't exist for 2011. 

Throughout the year, an accumulation of unsold properties had continued to clog up the supply side even further. Some experts are now saying there's around two years' worth of stock sitting on the Gold and Sunshine coasts and the 'bubble' theory is getting bandied about again.

Two years of stock sitting on the Gold and Sunshine Coast. This figure will only grow over the next 12 months. With retail down, small business' struggling to survive, and it now becoming very evident that property prices will fall in value over the next 12 months (and therefore there is no reason you would become a speculative buyer) stock will sore in 2011.

The article goes on to say that vendors are going to become more realistic, this is spruker talk for, vendors will drop their asking price and reserve levels to offload their sinking properties.

He also try's to push his own burrow down the road by but suggesting that if you are going to sell in 2011 then the best way is by:

If your serious about selling, the key will be to differentiate your property from the glut of properties already there. The best way to do that is via a carefully co-ordinated auction campaign - its a clear statement to the market that your committed to selling and you're investing in a result.

If you need some reasons not to sell your property by auction go here. The fact that you only have about a 15% chance of selling by auction on the Sunshine Coast should give you little motivation to pay for a auction campaign.

2011 will be a year when peoples properties go 'under water', both figuratively in terms of their values becoming less then their mortgage (watch out first home buyers) and for many literally.

Commerical Real Estate in Maroochydore

One of the posts I have been wanting to make for a long time is this one. And now that I finally have a Blogspot I can.


Commercial Real Estate in Maroochydore has been looking more and more vacant over the last 12 months. Today I took a drive down the main street in Maroochydore, Aerodrome Rd and took a few pictures of vacant commercial property.

 As you can see, we are in the middle of the Queensland flood disaster, so the pictures were taken from the window of my car.

 3 out of 6 vacant.

 This one building has 3 vacant offices.

This building, The Sebel has got about 7 vacant shops many of which have been vacant since the building was constructed over 2 years ago.

All up I counted 31 vacant shops and offices on Aerodrome Rd. In the coming weeks I will also look at Alex Heads/Mooloolaba and also Buderim, both of which have growing vacant shops in the main streets.

Uncharted Waters

I am stuck at home... but thankful I still have a home. The unbelievable pictures coming across the television of the flash flooding in Toowoomba hold us all in suspense. It has just been said that the major areas of Caboolture and Strathpine are now also to be evacuated. It might just come to the point where we need to accept refugees (from Brisbane and the surrounding areas) - something I'd be happy to do for as long a necessary. All I can say is Hold Fast - help is on the way. Our thoughts and prayers are with you all.

All the devastation leaves me wondering though, what effect will this have on the Queensland, and for that matter, the Australia's economy.

Points to Consider:

1. An economy the size of New Zealand has now ground to a holt. Drowning under the non stop rain.
2. Thousands of houses across QLD and NSW have been substantially damaged or destroyed. Many without adequate insurance and with such high debt levels and the strain on the back pocket i wonder about the households ability to repair their property, pay the mortgage and feed the family.
3. Add to this the hundreds of people out of work as business' lose weeks of cash-flow. I was speaking with one lady who's husband works in a mine (employed by a contractor) in Blackwater (central Queensland just out side of Emerald) and who can't get to work. His employer has told him he has to accept leave without pay or be 'put off' as the company can not afford to pay their staff while there is no production. 8 Staff have already gone. I am sure this is not an isolated case.
4. Weeks of lost cash-flow is after a very slow Christmas for retail.
5. Queensland Property prices are already on a downward spiral with listing substantially up, the damage to property, loss of wages and production will only escalate any ability for house prices to once again rise.
6. Defaults are likely to rise due to the points above.
7. Billions of State and Federal money will be used in the clean up and reconstruction.
8. Can the Federal Government really afford a NBN when what we need now is roads, bridges, and welfare? 

These are uncharted waters for the people of Queensland indeed for the country. Its a shame our State Government didn't build more dams to catch some of it.