BUYER BEWARE – The Market CRUNCH is ON
WORDS: Steve Hunt PHOTOGRAPHY Brian Usher - www.usherusher.com plus Yichen Wang @unsplash.com
Here’s something you’ll never hear publicly from the real estate industry – the market crunch we’ve all been dreading is underway.
It’s feeling eerily like 2008 when the global financial crisis put a stop to the last boom and many development companies went to the wall.
For the last three months you could have heard a pin drop from some developers who had high hopes of bringing projects to market only to shelve them because they are no longer viable.
In 2021 and 2022, riding the coat-tails of the post-Covid property boom on the Gold Coast was never easier. Buy a site, sell off the plan in a matter of weeks to lockdown-weary southerners, and Bob’s your uncle, you’ve made a fortune.
Every afternoon the restaurants at Broadbeach were full of cashed-up real estate agents, developers and consultants enjoying the fruits of one of the most extraordinary booms we have ever seen in this city.
Until now, that is.
No one could have foreshadowed the soaring cost of construction materials, inflationary pressures and a shortage of labour that have combined to create the crunch being experienced right now.
Developers who had launched projects to the market are now selling their sites and handing back contracts to disappointed buyers who hoped to take advantage of the incredible migration to the city during and after the pandemic.
The bad news for the industry is that the party is over.
The sight of cranes lining the Gold Coast skyline is usually a sign of a strong economy, but behind the shadows lurk some major challenges such as how many buyers will be able to complete their transactions and settle their apartments when the projects are finished.
Will the higher interest rate environment put pressure on the ability of the buyers to complete the transactions? Then – with prices dropping – will banks put the brakes on lending?
Then there’s the developers who no longer have builders, which are in short supply because they are pre-occupied by existing work and labour shortages. Some of them couldn’t build even if they wanted to.
Ok, so that’s the bad news. You want the good news? This crunch is going to be very short-lived.
Underpinning the strength of the Gold Coast property market are the forces of supply and demand.
Migration is around 15,000 a year but with fewer projects going to market, this is deepening an already acute supply problem.
How do we accommodate these newcomers if we can’t build new apartments and townhouses?
Just look at rental vacancy rates which are around 0.5 per cent.
It is such a crisis that people are coming up with all sorts of hair-brained ideas on how to fix it.
One of the most ridiculous I’ve heard is that people who own vacant properties should be forced to add their properties to the rental pool.
People are paying rent six or 12 months in advance just to secure a property.
Others are offering to pay more than is being asked.
So, there’s the silver lining.
Many of my clients have just paused taking their projects to the market because of construction cost restraints.
But they are just biding their time with the full knowledge that the insatiable appetite for property on the Gold Coast will continue.
Colliers Gold Coast’s latest market overview should give us a great sense of optimism for the market moving forward.
The latest Colliers Market Overview report reveals Gold Coast’s median house price slipped by $15,000, or just 1.5 per cent, to $925,000 at the end of 2022 – down from the $940,000 reported by Colliers previously at the peak of the market in June last year.
The modest price pullback for the Gold Coast compares with a record fall of 8.4 per cent in CoreLogic’s national Daily Home Value Index from the peak of the market in May last year until January 7 this year.
Colliers’ Gold Coast director-in-charge Steven King says the latest data, supported by continued growth in the city’s commercial property sector, demonstrates that Gold Coast property prices are holding firm amid volatile conditions nationally.
“The latest population forecasts, the strength of the Gold Coast’s employment market and the massive investment in infrastructure across the city is providing the local property market with remarkable resilience,” said Mr King.
“Certainly, we’re seeing challenges across the board, driven by higher construction costs and labour constraints causing ongoing housing supply issues, but the Gold Coast is still firing on all cylinders from an economic perspective. This will continue to support the residential and commercial sectors in the near term.”
The Gold Coast’s unemployment rate is also lower than the national average at 2.9 per cent, against the national average of 3.7 per cent.
So there you have it. We are in a crunch, but it’s not necessarily a bad thing.
The fundamentals are very positive and if I were an investor I’d be very bullish about the long-term prospects of investing in blue-chip properties on the Gold Coast.
If you are buying off the plan, make sure you know the developer’s background and experience in delivering and make sure they have a builder locked in.
Other than that, the laws of supply and demand will dictate a very solid investment outcome in the long term.