Problems with high-rise apartments, especially the high-profile cases in the Sydney suburbs of Mascot and Homebush, have scared away both buyers and lenders according to new data from RiskWise Property Research.
RiskWise CEO Doron Peleg said the cracks in both Sydney towers, which saw residents evacuated and rehoused awaiting repairs, combined with fears it could surface in others, and combustible cladding that needs to be replaced on thousands of buildings has resulted in a dramatic drop in demand for units.
“Lenders are proceeding much more cautiously too, and this includes non-bank lenders whose business model is to provide alternative solutions from the ADIs, and generally have a less conservative assessment of risk,” Peleg said.
“Add to that the issue of oversupply in many Danger Zone areas and there is very real risk for developers. We have a situation now where lenders aren’t eager to lend and buyers don’t want to buy, but we still have developers who are considering developing high rise.”
Units in the pipeline for the next 24 months Australia-wide equate to 7.6% of current stock – nearly 120,000 units in Sydney and Melbourne combined.
But in the last three months to June 2019, only 8% of stock sold in Sydney and in Melbourne, 12%.
Peleg said the “reputational damage” across the entire building industry meant investors had turned to “safer” house-and-land packages instead.
Knight Frank’s Australian Residential Development Review found that in Greater Sydney the value of sales of development sites suitable for high-density projects halved in the 2019 financial year, while average site values in both Sydney and Melbourne fell dramatically.
“If you combine the recent quality issues with financial losses from investment in high-rise units, this could amount to a permanent structural change in demand,” Peleg said.
With real estate investment suddenly shifting from a sure-fire winner to a more uncertain future, it’s never been more important that investors monitor their investments carefully and closely.
An app for that
Brisbane-based Brodie Haupt, an Oxford Fintech Programme graduate, who also attended Harvard Business School, has combined his extensive experience in statistical data analysis and real estate development to build a new proptech platform for property owners to keep track of the value of their investments.
Properlytics is designed so investors can manage and track the performance of their real estate portfolio and keep all the information at their fingertips. It saves hours in record-keeping and helps investors stay in control of cash flow and tax issues, making more than 100,000 calculations based on hundreds of variables to accurately predict the value of your portfolio, as well as calculating your tax savings and liabilities.
It can also project financial returns over several years, generates financial reports and calculates ROI based on acquisition costs, capital gains, rental income and management costs.
Haupt believes the app is also a game-changer for real estate agents and property advisers.
“It takes away the emotion in the investment decisions that sometimes get in the way when purchasing property and the accurate and up-to-the- minute analytics highlight what’s important to help buyers and investors make informed decisions,” he said.
The subscription model charges $14.99 month/$149.99 annually for up to 10 properties or unlimited properties and clients for $39.99 month/$390.90 annually. The app is available online at properlytics.com.au or on the App Store and Google Playstore.
Generational change looms
At the launch of the Properlytics app in Sydney recently, David Koch spoke to Realestate.com.au chief economist Nerida Conisbee about the forces at play in the market at the moment.
Conisbee, believes that one of the key problems with people investing in properties is “that it’s such an emotional decision, and it’s hard for people to look at the financial aspect differently from what they feel is the best property”.
Compared to something like shares, Conisbee says it’s been harder to make money because the technology and reporting was lacking in the sector.
“In the past, you could buy an apartment in Sydney and hold it, get a tenant, and you’d probably get some pretty decent capital growth over the long term” she said.
“But the way the market is now I think people are a little bit more curious. There’s a lot more information out there. People can see markets grow and contract and so you’re moving quickly into a market you can probably do quite well. ”
Mining towns are a key example, Conisbee said.
“If you bought in a low price point and got out at the top, you would have done extremely well, but the problem is people didn’t really fully understand the projects that were driving that price growth were at some stage going to bomb – and they really bombed. It’s been five years and they haven’t come back,” she said.
Nerida Conisbee predicts a generational change is coming that will see young people get more involved in property with a much higher level of analytics.
One thing that’s flowed from a generation raised on smartphones and the share economy is they’re more data-driven and less emotionally attached and being able to use the Properlytics app on a phone will add to its appeal.
“People are wanting a bit more predictive analytics into something like ‘Well, I know Manly went up in value by that rate, but it’s probably not going to go up by that same rate, so is Manly my best investment? Or should I be investing in St Peters, which I don’t know much about, but on paper it looks good’,” she said.
When it comes to housing affordability, Conisbee believes you’re looking in the wrong town if it’s the NSW capital.
“I don’t think Sydney will ever be affordable. It never builds enough housing to make it affordable,” she said.
That’s not good news for first-tie buyers seeking to crack the market, but the issues for property investors are different. Affordability boils down to ROI. Whether it’s good value for investors seeking a return is one of the details Properlytics can tell you.
2020 looks up
And while the national housing market 2019 looks set to finish 2019 down 7%, CoreLogic-Moody’s Analytics Australia Home Value Index Forecast for 2020 is positive with a 5.4% increase ahead.
Conditions improved in the September quarter, aided by the RBA’s rate cuts and an easing in credit compliance, with another interest rate cut on the cards in 2020.
The forecast predicts a 7.7% jump in Sydney house prices, suprisingly, outstripping by an increase in unit of 7.9%. Melbourne is predicted to follow close behind at a 7% increase for houses and 4.8% for units.
If the RBA does cut again, Moody’s Analytics predicts it could trigger even stronger rises than forecast.