Melbourne housing lot prices will “quickly” tumble up to 10 per cent as Uber-driving speculators and foreign investors default on thousands of sales contracts, Financial Review Rich Lister Nigel Satterley has warned.
Quoting research undertaken by his Satterley Property Group, Mr Satterley said the “top of the cycle correction” was inevitable after prices surged 50 per cent in two years.
“We believe that over the next 30 months 5000 growth-area lots (about 165 lots a month) will return to the market, either by defaults or speculators having to resell their blocks immediately,” Mr Satterley told The Australian Financial Review.
“This will be caused through a number of foreign house and land package sales where the purchasers were unable to obtain Australian bank finance or speculators’ inability to settle.
“It appears that only a few of the established property investment agents are able to obtain bank finance for their purchasers,” he said.
He said Satterley Property Group, which has captured about 10 per cent of the Melbourne land market, had deliberately steered clear of selling lots to speculators and foreign investors and has capped its defaults to less than 3 per cent, a figure it expected would rise to about 5 per cent.
“We previously allocated a small portion of the built-form lots (townhouses) to overseas buyers in one of our medium-density developments and experienced a fallover rate of 30 per cent,” Mr Satterley said.
Major real estate groups selling Australian residential property to offshore buyers include Ausin Group, (whose former Chinese business partner recently collapsed), Ironfish and Jalin Realty.
Spokespeople for the Commonwealth Bank, Westpac, ANZ and NAB confirmed they did not provide mortgage finance for foreign buyers of house-and-land packages.
As median lot prices have surged to $350,000, Mr Satterley has grown increasingly concerned about the emergence of a secondary sales market in Melbourne fuelled by speculators hailing predominantly from the Middle East, Sri Lanka, south-east Asia and China (according to Satterley) who have in some cases pooled credit cards to buy housing lot contracts and then sought to sell them for profit on classifieds website Gumtree.
Speculators in trouble
In July Mr Satterley told the Financial Review how on a visit to Melbourne this year his Uber driver had told him how he and his friends were borrowing as much money as they could to put down deposits on housing lots.
“I’ve told the banks, Melbourne is a market to watch because there’s a secondary land market with lots being secured on low deposits,” he said at the time.
For many speculators, the surge in pricing has been followed by a slump in lot sales – from a peak of 22,000 annual sales to just 14,000. Having not been able to on-sell their contracts, they are now scrambling to obtain finance.
For those speculators who could settle, Mr Satterley said many would have to resell quickly because they could not afford to fund the repayments and this, combined with the fallover in overseas sales, would contribute to price falls of as much as 10 per cent – but not a crash.
“We predict land in these localities correctly priced at today’s value will adjust quickly by 7.5 per cent to 10 per cent. A 400-square-metre lot correctly priced at $320,000 is likely to become $288,000 and a 350 sq m lot priced at $295,000 will come back to $265,000,” he said.
The Perth-based veteran developer’s Satterley Property Group is among a group of developers including Central Equity, Frasers, Dahua and Country Garden understood to be invited to tender to buy The Grove Estate in Melbourne’s west being offered by Stockland, which was hit by a 2019-20 earnings downgrade from both UBS and Morgan Stanley due to declining lot sales.
Mr Satterley said the major banks and analysts were looking closely at the land banks of the major listed developers and asking them about the quality of their land banks.
But he said there would be no bust in the Sydney or Melbourne land markets because demand for new housing would be underpinned by strong population growth, strong immigration, strong employment, relative affordability and low interest rates.
“Melbourne buyers can get a liveable house and land package for around $475,000, which is well below the median Melbourne house price of $834,000 and unit price of $640,000,” Mr Satterley said, quoting Real Estate Institute of Victoria figures.