It has been an interesting time these last 12 months for those of us associated with new unit developments and the management rights created in them.

There has been an awful lot of discussion in the markets both in Brisbane and Melbourne regarding the impact of government changes to lending in Australia and China.

Already we have seen an instance of 60 new apartments sold to Chinese investors, in one development not settle due to the inability of them being able to get their finance together.

One property commentator in Melbourne was telling all who would listen that this spelled the end of Australia’s property markets as no one will now be able to sell out a new development because we have depended so heavily on the Chinese investors to make the projects viable and now this avenue of sales was closed. Hmmmmmmm

On top of that drama, a number of banks in Australia have indicated a reluctance to now fund new apartment sales to overseas investors because of the difficulty of getting sufficient security from the buyers, in light of a couple of dodgy unit marketers bad practices.

On top of that we here terms bandied around the market such as over supply, market collapse, downturn, rental market collapse, massive incentives, and on and on it goes.

So what is the current state of the market?

Will the current projects complete or will they collapse?

It is fair to say that many developers in the current market have depended quite heavily on sales to Chinese investors to make the projects viable and get them started and coming out of the ground more quickly.

Developers and their banks though aren’t stupid and aside from an isolated case or two, the majority of developers with Chinese investment sales have adequate security for their banks to complete their projects and settle them. Yes, some unit sales will fall over and need to be resold due to the investors now not being able to raise finance, but it is extremely unlikely to be the majority or even a large number of sales.

What about over supply of units and rents?

If you are 20 years old and new to property investment then you can be forgiven for thinking the current market spells doom for property investors and developers.

For those of us that have lived a little longer and been through a couple of boom and busts over the years, well, this is a market correction that will sort itself out with a bit of patience and time. Yes this has happened before and yes this will happen again in the future.

In recent months a significant number of new apartment projects have settled and the consequence of this is a large number of new investment apartments in the market for rent.

How will they find tenants for these, well funny thing is that people like to move around and they particularly like to move into a brand new apartment.

Managers and letting agents will offer some incentives to attract these tenants and entice them into the new units and the older unit managers will discount rents slightly to make their units more appealing.

The population is growing and the cycle continues.

Are off the plan management rights unfundable?

Several banks have decided they no longer wish to fund off the plan management rights sales. It seems the Gallery Vie case(if you don’t know what this is then Google Gallery Vie) last year was used by the banks as an excuse to reassess whether or not they wanted to trade in the off the plan sphere and many decided no it wasn’t for them any longer.

Why? Who knows why?

Banks are their own masters and they make decisions that suit them and their investors and only them and their investors.

Whether or not they perceived additional risk in the off the plan lending area is entirely known only to them. They are not telling us.

The wash up is that just a couple of banks now will happily look at and fund management rights sales off the plan.

So are management rights off the plan fundable, yes they are, if you know who to approach for finance. Talk to the experts, the finance brokers who know where to go.

So is this the end of the property world as we know it and should we all panic?

Not just yet. Developers are still building new apartment projects and unit marketers are still selling units. They will have to look at other markets to sell some product and maybe not as many new units will end up owned by Chinese investors, but it is unlikely to spell the end.

No denying that rents have come down in the last 12 months, which can be blamed on many things. Yes there are a lot of new units in the market to rent but what about the wash up of the NRAS scheme which was implemented by government to slow the property market and make rents more affordable. Certainly this has had a significant impact on rent levels in major cities.

On top of that the mining boom end and a change of governments in Queensland and Victoria also added to the issue.

Panic, NO?

The market will take up the current unit stock of rentals in time as it has before..

Some of the developments being spruiked at present may never get a start and the sites will be sold off, lessening the supply train in the foreseeable future.

This happens every time there is a correction in our industry.

Management rights will go on and on, because people want good cash flow businesses with secure agreements and legislation, making them as always very desirable.

So don’t panic just yet.

If you do feel that it’s all too much and you want to now sell your management rights, then please call us and we will be happy to assist.

Have a great month. It’ll be Christmas before you know it.

Regards

The team at RCA Business Brokers