Hello all,
Yesterday I had a very interesting discussion with a member of the Public Company that is the major developer at Homebush Bay in Sydney.This is a development that I personally love, next to the Olympic village, golf range, +++ and located on the water front with water access to the CBD in 10 minutes …
The company has decided to sell off its last 300 properties at an average discount of $100,000 thats a 30 million dollar write off and in my mind is a message for things to come.
Three years ago a personal friend on mine bought a beautiful 2 bedder in this development through a well known accountant spoken about on this site and will be not named by me. The deal was then the unit had a value of $650,000 and the accountant got them a $120,000.00 discount which meant they bought it for $530k
Now lets assume that the current owner fire sales 2 bedders down to $450k or below that means that over the last 3 years 30% has been written off this investment, and the current owners will be effected with a drop in the value and this could take years to recoup for their SUPER FUND savings (shame on you accountant – bad advice ??)
Is this a warning now for worse to come ?? is this the tip of the ice berg such as the early nineties ?? how old were you in the early nineties when the s..t hit the fan. Are you concerned about your future ??
I believe that there is going to be some blood on the streets and BANKS and Finance companies will be instructed to get what ever they can to cover their losses … if you have cash now is the time … we just put a cash offer for a one bedroom waterfront (valuation $450k) rent 420 p/wk in at $280,000 settle in 14 days and I think they might take it …
Oh to be able to predict the future … i for one would not being any new properties for sales companies at the moment
that don't come with a 7% rental guarantee at least … IMHO … what u think??
D
No harm in asking for a 40% discount – but realistically who would pay $450k for a one bedder on a decontaminated tip near a medium security housing estate and with poor transport links? (ferry is on the other side of the bay isn't it and it takes 30-50 minutes to circular quay, maybe 20 by car on a really good day outside of peak hours).
A drop in the sales price wouldn't translate into a $30m write off unless they were to make a $30M loss (on development cost), it would just decrease the profitability of the project (which has had a 10+ year life already). The losers would be the investors who have purchased at $400k+ when the remain units are being sold at $350k – they will find it difficult to dispose of when they are asking $50k+ above the price of a new unit.
The questions to be asked are: what is the real value of the units? how much fat is there in the deal? How can they get stuck with 300 units? Is there pressure from the financiers to liquidate? Can you get full benefit of the depreciation schedule based on the QS depreciation schedule provided (especially if it shows the land value to be minimal)? What is your long-term investment strategy & exit strategy considering that the price of these units will not increase for several years due to the depressed nature of this localised market?
Hi Scott
Some reasonable questions here however the point was clear … is this a sign of the times?, focusing in on the development itself is only based on yr personal opinions of that development and I was trying to get a different message to the audience.
So lets not focus on the good or bad of this development and ask your self are other developers in this position and what effect if any do you think will be created over the coming year ??
D
Wealth4life,
I think that I answered some of your questions here – https://www.propertyinvesting.com/forums/property-investing/help-needed/4322828?page=5 I believe that while it is important to consider these issues we must also be carefull that we don't create undue fear and in so doing help creat a self fulfilling prophecy. I was around during the recession that we had to have and from my observation, and to put ir in rather crass terms – the rich got richer and the poor learnt to survive, but life went on. Now, I don't wish bankruptcy on anyone however no one has forced them to over extend themselves.
As to Developers doing it tough. All I can add is not in Brisbane. We have a problem with virtually no small rise development at all and most of the bigger complexes seem to be doing ok.
Good luck on the offer of the one bedroom at $280K. I calculate that depending on your taxable income the short fall should be around $80 a week. From my observation, that's got to be a good deal. I also believe you are right about the area, provided that there is demand for rentals then it seems ok. On the other hand you should bare in mind that if the Developer drops the sale price, and 300 properties hit the market at the same time it may have a downward effect on rentals as well.
Jon
I have heard of many instances where the developer has discounted the last x number of stock. one case involved the developer discounting an avergage of $200K per unit for the last 40 units.
Well the guys that do the research for ANZ (admittedly a Vested Interest in talking the market up) dont see to many strom clouds on the horizon for property investors in fact quite the opposite storm clouds for renters in the next few years as they aint building enough new houses
Did you end up getting the 1 bedder unit at Homebush Bay?
I'm also looking at investing in this area.
Can you or anyone else give me more information about the size, and price of the unit etc? And what you think the area is like?
The bubble was inflated so much that now we have to suffer through a depression, The question is how bad of a Depression ? Unfortunately it will Probably be worse then the great depression. There is 0% chance we will knock this one over the head with just a simple recession like we had in the 90's
The bad thing is there won't be any such thing as a dole when there is 30%+ unemployment
The good part is that we might go through a revolution and throw all the Criminal Banksters, Politicians and CEO's in jail
wealth4life,
This being an investment forum most are assuming that properties are being bought for investing when in reality most are for ppor.
Although the developer may have done a fire sale and some lucky people picked up good bargains that doesn't mean the value of the others needs to affected. How often do we read here that someone bought a property for 20-30% under market value. What happens if those who bought the properties decide to sell and put the price at the full market price others have paid? Just because someone picks up a bargain it doesn't mean they will in turn sell it for a bargain price. I know I wouldn't.
The only real way the current owners would be affected is if they either tried to sell for less than they paid or if trying to get an equity loan the valuer lowers the price.
Depending on how many properties were in the project the developer may have already made his desired profit and now wants to move on to the next project. It would be wrong to assume that a fire sale is a sign of trouble.
Just did a search on Homebush Bay-one bedroom waterfront units. Came up with this
Says currently rented for $650/week asking $399k.
$650/week is very high rent for a one bedder-what gives?
Properties like that always have a catch, I don't know if that has a body corporate so that could be a possibility, Also rates in that area could be a million dollars a year.
You start doing your research and find out the bits and pieces and it always seems that its not so golden as it first seemed.
Also its possible that the $650 is a typo…
ring the real estate up and ask them all the questions if you want to know
Assumption is the mother of all mistakes and to assume anything about the project and the reasons behind the sales etc is probably not a good way forwards, especially if you're going to formulate plans based on that assumption. Unless you know something absolutely, from seeing it or hearing it first hand, or you can verify it legitimately, I'd be hesitant to assume the $30Mill write-off is in fact an accurate figure, or indeed a 'write-off'. They may have made a loss on inititial projections sure, (I don't know the area or project so I'm guessing outright) but it also may be a case of take a hill instead of a mountain of money, keep our creditors at bay and live to fight again another day.
Problem with NSW/VIC/TAS etc is the outflux of people to WA and QLD. 'Our' developers in Qld ( as John mentioned above) are starting to find two things: one is demand is still there up here for product and two, sadly they cant' find finance on-shore to finish their projects, which is where someone like me can potentially do something
Interesting viewpoint though wealthforlife, I don't think its a valid macro (national) viewpoint though, perhaps micro for NSW.. just my opinion of course.I don't know if assumption is the mother of all mistakes but do agree assumptions should be made very carefully.
$650/week does seem to be high for the sale price on offer 399K. Is this a guaranteed rental for a few years?
C2,
thanks for that suggestion. This is probably what is happening-rental guarantee in place from the builder/developer to the person who initially bought the unit and is now selling the unit.
$650/week for a one bedder…would have to be a great unit (someone would pay that for point blank ocean views at Tamarama or Bondi…not for water views of Fleuve Parramatta).
Location … Furnished … short stay … motel leaese back … there is lots of reasons why this is so positive but most of all >>> location, location, location. IMHO
D
wealth4life,
just wondering if you got the deal with your offer? I think we're all very curious to find out.
Thanks in advance
AlbertHello no I didn't get the deal however several other deals in small commercial came along showing better returns,
Isn't it funny looking back on predictions and so far this year I am on the money except for the petrol and interest rates … what a back flip.
I am a specialist researcher as some of you know … I believe that there is worse to come for reasons other than what the gurus here are saying.
China in recession will not be a good thing for Australia especially in the mining industry …
Banks are giving away credit cards again … Australias CREDIT debt will double to over 100 BILLION dollars faster than it got to 20 Billion dollars and this is dangerous … wait and see.
The future challenge in 09 10 11 will be job losses and getting money from the bank.
D
I agree with you, once the new year rolls in, a lot of companies are looking at "right-sizing". Property prices can weather swings in interest rates/oil prices/etc but unemployment will be the killer I think. Most families with mortgages will not survive more than two months unempoyed. If we start getting a lot of distressed properties on the market that's when shit will really hit the fence likely.
I don't think we can rely on immigration numbers either. When there is a lot of news on job losses, the migration flow in will slow down significantly. What's more, new immmigrants ar probably not the most loyal. Lets face it: most people are in Australia because A)jobs are plentiful B)pay is higher than most
When you take the punch bowl away, I won't be surprised to see a reverse migration taking place. Witness Vancouver/Canada post-1997 as an example.
If, as some say, people start selling their houses because of no work then does this necessarily mean prices will drop considerably?
(1) There are investors waiting in the wings for bargains to come up and it is quite possible that these investors will bid against each other to secure these bargains and keep the prices from dropping too far.
(2) This coupled with low interest rates will also entice new investors with secure jobs to try and grab either these bargains or their first IP thus keeping the prices from dropping too far.
(3) The drop in OZ dollar has created a very strong interest from foreign investors looking to get in to the OZ property market.C2 wrote:If, as some say, people start selling their houses because of no work then does this necessarily mean prices will drop considerably?(1) There are investors waiting in the wings for bargains to come up and it is quite possible that these investors will bid against each other to secure these bargains and keep the prices from dropping too far.
(2) This coupled with low interest rates will also entice new investors with secure jobs to try and grab either these bargains or their first IP thus keeping the prices from dropping too far.
(3) The drop in OZ dollar has created a very strong interest from foreign investors looking to get in to the OZ property market.Sorry mate, I'll have to disagree. In a falling market, especially one with expectations of further price drops, investors are precisely the class that will step away from the market. There's a saying that one should never attempt to catch a falling knife. Chances are, only the ones who are really desparate to buy, will buy. Most will try to rent to mitigate the risks.
Low interest rates is only one piece of the puzzle. You need to consider why there is falling interest rates. The global growth engine is stalling. Demand from US is faltering which is slowing down growth all through the supply chain. Australia's actually worse off as we're literally at the bottom of the chain. That's why it hasn't hit us yet this year, but next year will be the kicker.
"(3) The drop in OZ dollar has created a very strong interest from foreign investors looking to get in to the OZ property market" <- Can you substantiate this statement, because I have not seen any reports tha points to this?
You must be logged in to reply to this topic. If you don't have an account, you can register here.
