Buyers back in shacks as flats fail to sell

[Propertunity]

http://www.news.com.au/business/money/story/0,28323,25252270-5013951,00.html

HUNDREDS of apartments in pricey east coast beachside developments have failed to sell, as nostalgic buyers seeking holiday homes instead look for fibro shacks for half the cost.

In Queensland, just 199 new apartments sold in the February quarter compared with 1060 for the previous corresponding period, according to the Midwood Report's February 2009 report.

Many of the unsold units are at beachside holiday destinations and have fallen into the hands of the banks, The Australian reports.

Experts say developers over-capitalised, putting up dwellings that were more elaborate and larger than people wanted.

"They are too big," says Dean Dransfield, director of Dransfield Hotels and Resorts, a company offering financial advice to developers of beachside holiday homes and resorts that are in trouble.

"The living areas are too large, there is too much marble, too many air-conditioners and too many bathrooms."

Mr Dransfield said many schemes now struggling to sell were conceived three to four years ago when the price paid for land was excessive.

He said the more successful developers were designing smaller holiday dwellings because that was what people wanted.

"It is easy to buy a weekender with a low capital sum and if they don't use it, so what?" he said. "As properties get more expensive, there is more pressure to use them. This thing that was meant to be fun owns you."

Meanwhile, many buyers looking for a holiday home are turning back to old-fashioned fibro shacks that recall simpler days in the sun.

Father of two from Sydney's upper North Shore Mike Rudman has just purchased a two-bedroom, cladded fibro cottage for $550,000 in the small community of Patonga, an hour north of Sydney. It has a huge garage for his boat and the potential to add another bedroom.

Pearl Beach and Palm Beach, where holiday homes struggle to sell for $10 million, are nearby and Patonga is one of the last places near a big city where fibro shacks dominate. Former Australian cricket captain Steve Waugh has a holiday home there.

"I don't want another big property that is going to take a lot of maintenance to keep up," Mr Rudman said. "I was looking for something simpler, with an open fire and where I could sit on the porch and have a beer and a relaxing time.

"I don't want a unit in a block of 100 with fantastic swimming pools ... because I wouldn't feel I was getting away."

 

[auror]

Lol you're quick propertunity. I had just read that on news.com.au , logged on and saw it on SS too

 

[Propertunity]

Lol you're quick propertunity. I had just read that on news.com.au , logged on and saw it on SS too

Sometimes we are ahead of the news too

We write stuff here that the mainstream news picks up 2 weeks after the event

 

[chilliaa]

But this makes perfect sense to me.
In times of economic hardship/worry of course regional beachside properties are the first to drop as people concentrate on the essentials. High rise apartments should fall even more because they have a low land component in an area with low intrinsic land value, a double whammy.

Nothing to be concerned about unless you have concentrated your property portfolio in these areas.

 

[BayView]

It's not hard to work out why.

I live in a seaside/holiday destination so I get to watch up close what happens.

Most people want a holiday house near the water, and away from the rat race.

For most of the planet, a second home is out of the question, and for those who can afford one, they want to spend not much on a home they use now and then.

So, they want a cheap, clean, neat no frills beach shack. Down my way, the elcheapos sell in 5 mins and the top end ones have slowed right down. They still sell, but they have to be very good.

The % of the population who can afford the McMansion style holiday home is small, and the % of those who even want one that grandios is even smaller.

So, if developers continue to build only top-end townhouse type, and Mcmansion type beach houses, pretty soon they are going to run out of customers.

 

[Propertunity]

So, they want a cheap, clean, neat no frills beach shack. Down my way, the elcheapos sell in 5 mins and the top end ones have slowed right down. They still sell, but they have to be very good.

Yeah, that has been our experience too. The beachside shacks we've been buying are $500K and under (clsoe to land value) while the $750K & $850K places are not moving unless the vendor gets desperate and drops a lot.

 

[Peter Parker]

I live in a seaside/holiday destination so I get to watch up close what happens.

Most people want a holiday house near the water, and away from the rat race.

For most of the planet, a second home is out of the question, and for those who can afford one, they want to spend not much on a home they use now and then.

This is one thing I can't understand about the Europeans.

Many (especially the wealthier continental countries, eg Germany) prefer to rent rather than own their own home that they might live in for 330+ days per year.

Yet they may own their own holiday home at which they might stay for a few weeks only.

To me this is topsy turvy and also at odds with the quote above - if you were only going to own one home then you'd think a PPOR would be the first choice.

At least with your own PPOR you're enjoying it for most of the year, you are freed from paying rent and return on capital is superior to a mostly vacant and untenanted holiday home.

 

[eastside]

If you remember that Europe is very different from us, you may come some way to understanding why this is so. In the Netherlands people cannot be evicted from their homes, and leases can be life long. You can do repairs and renovations to your rental home as well, without a problem. It doens't really matter whether you own or rent, whereas over in Australia life for a renter can be shear hell, only 12 month leases at the most, massive bonds, moving every 12 months, rents not government controlled meaning you exist at the mercy of the law of supply and demand and can't plan your living costs more then 12 months in advance, a cobweb in the corner of the lounge and your bond is claimed...I have done both and believe me it is a different world over there. Over here the rental scenario forces people to take out huge loans to get out of the rental market. Would you do that if it made no difference to the way you lived, your cost of living, or what you had (financially) at retirement time? Probably not. I rest my case. You only have to attend one rental open house in Sydney to run to the bank and apply for a home loan. That's the difference.

 

[Peter Parker]

If you remember that Europe is very different from us, you may come some way to understanding why this is so. In the Netherlands people cannot be evicted from their homes, and leases can be life long. You can do repairs and renovations to your rental home as well, without a problem. It doens't really matter whether you own or rent, whereas over in Australia life for a renter can be shear hell, only 12 month leases at the most, massive bonds, moving every 12 months, rents not government controlled meaning you exist at the mercy of the law of supply and demand and can't plan your living costs more then 12 months in advance, a cobweb in the corner of the lounge and your bond is claimed...I have done both and believe me it is a different world over there. Over here the rental scenario forces people to take out huge loans to get out of the rental market. Would you do that if it made no difference to the way you lived, your cost of living, or what you had (financially) at retirement time? Probably not. I rest my case. You only have to attend one rental open house in Sydney to run to the bank and apply for a home loan. That's the difference.

All valid points, though some surveys still claim most Germans prefer to own http://www.dw-world.de/dw/article/0,2144,2155971,00.html

I'd also add that settler societies (eg USA and us) have a squatter or prospector mindset all about staking claim on a patch of land, and preferably owning it freehold. Modern day first homebuyers are repeating this process of colonising, but on ex-farmland city fringe estates.

But it doesn't explain why the European urge to buy a holiday place. Are short term rentals less available? Or do they have a habit of going to the same place each year (much more than we do) and don't want to miss out on accommodation?

With long-term tenure, yields would have to be high if property is regarded more as an income asset (rather than a growth asset). And they do appear to be a bit higher than here http://www.nuwireinvestor.com/articles/investing-in-german-real-estate-51541.aspx http://www.klima.cz/Germany.htm .

With various restrictions on rent and tenant tenure one would then ask who wants to be a landlord in Europe. It appears that institutional investors do, and much more than here.

But this leads us to why institutional investors hardly invest in Australian rental homes, despite more favourable tenancy legislation. The view sometimes expressed is that most rental homes are not 'investment grade' and the yields after costs are poorer than other investments. Hence mug mums and dads buy IPs while the big fund managers etc prefer to lose dough in a more sophisticated way, though shares and bad mortgages etc.

This raises more questions than answers!

 

[chilliaa]

Actually they did have a retail investors fund that invested solely in australian residential property. It was created after the last housing boom in 1989. The logic being that investors could participate in the 'boom in housing prices' through being invested in the fund together with rising rents into the future.

The fund was wound up about 5 years later because it was not commercially viable, after management expenses and maintenance expenses (imagine the whining a tenant can ifo the property owner is a major commercial entity with deep pockets), the yld was pathetic and australian residential property prices entered a long term slump so investors couldnt see any capital growth.

Now the cycle has turned full circle and we are currently seeing the government try to initiate private-government partnerships to invest in social housing.

 

[Peter Parker]

Actually they did have a retail investors fund that invested solely in australian residential property. It was created after the last housing boom in 1989. The logic being that investors could participate in the 'boom in housing prices' through being invested in the fund together with rising rents into the future.

The fund was wound up about 5 years later because it was not commercially viable, after management expenses and maintenance expenses (imagine the whining a tenant can ifo the property owner is a major commercial entity with deep pockets), the yld was pathetic and australian residential property prices entered a long term slump so investors couldnt see any capital growth.

I think you've hit on the main reason why investing in newly launched managed funds covering a particular asset class is inherently risky and will likely produce below average results, even though there's nothing wrong with the underlying asset.

Supposing that an asset class needs to outperform spectacularly for 2 years before the fund manager considers it might be worth a managed fund of its own. And supposing it takes another year for the public (ie customer base) to wake up. Plus the time required for the fund manager to get the staff, write the prospectus etc.

For a fund manager an asset class that has done extremely well is no use unless there is a customer base willing to buy units in that asset class. So the public need to be aware that big bucks can be made in whatever's hot (tech stock, Asian shares, property) before they'll buy units in a managed fund. The less sexy asset classes might be better investments, but it's no use starting a managed fund in them as few will subscribe and management expenses will be spread across a small asset and customer base.

There might be a lag of 2-3 years, and while the fund might be popular (based on the asset's past performance) when it is launched, it will have missed the asset classes best years for a while and its performance in the next few years will be substandard. So the investment flops and the short-term fund manager might close the fund as it has proved disappointing.

The above is just a fancy way of saying that because they are launched after booms, not before them and so force investors to 'buy high', newly launched managed funds in hot asset classes are inherently bad investments.

However the above applies to managed funds and the need to win customers. If the capital is already there (say a superannuation fund you manage), it might be possible to invest wisely without worrying about marketing or winning retail clients infatuated by what's hot.
[/QUOTE]

 

[eastside]

Dear Spiderman,
To try and answer some of your questions, the holiday home is both a traditional thing (the family has always gone there, so a family history thing) and a status symbol. Funny hey! When owning your own home kind of isn't. It doesn't make sense viewed by an Australian. Consider that when you live in your own home versus renting your own home - the law and taxation system are actually set up in such a way that financially you end up the same, well then actually OWNING your own holiday home does become a status symbol. Owning the holiday home is not financially regulated or subsidised or evened out, so actually costs you money, so it is a symbol of wealth. Does that make sense? It is something you would aspire to, while owning own home is neither here nor there. The tenancy laws are so different to here you would not believe it. I can't even remember ever getting a rental inspection, or a rent raise. They lead a charmed life, never worry about interest rates or cutting back the budget. It certainly leads to a lot more peace then the system over here.
And there are hardly any private investors, it is unheard of. But the housing supply is (again) controlled by the government for the people, and as such it is very well regulated. Populations are well planned. Also each council area has houses allocated for professions, so there is never any issue about finding a home when you start a new job. I guess it is quite socialist really, while in Australia it is capitalist.

 

[jaycee]

Eastside, Can I ask where that was ?

 

[eastside]

That was in the Netherlands (Holland). But it is so different from here, it is like another world.

 

[Peter Parker]

Dear Spiderman,
To try and answer some of your questions, the holiday home is both a traditional thing (the family has always gone there, so a family history thing) and a status symbol. Funny hey!

Thanks for the insight eastside.

I suppose in societies where (i) home ownership is less there than here, (ii) private schooling isn't that big, and (iii) private health insurance is less prominent, they 'need' something else to differentiate the well off from the plebs.

And it sounds like holiday homes harmlessly, but expensively, fulfil that role. It's a demonstration that even in 'social-market' societies the rich (or at least big spenders) want to differentiate themselves from the lower classes through the possessions they own, even if they're not used most of the time. And even if it's inherited, retaining ownership of it represents an opportunity cost that, unless the family has fallen on hard times, people seem willing to pay.

 

[eastside]

You hit the nail on the head. As far as I know there is no private health insurance, no private schooling, it is all state run (and run very well, I think their education system is in the top few of the world at the moment) so people are 'all the same' and what you make of your life depends on you, not so much on luck, or when you entered the markets, or what property or stock you bought, or whether your parents helped you. I think the term for that might be social mobility? High social mobility, ie born from poor parents but easily able to do well for yourself anyway. So a holiday home is nice little line dropper! I do remember seeing a website in english once that listed all the property markets worldwide together with the government programs and tax programs and it gave a really good insight into how countries worked thier housing. I will see if I can find it back. I remember it had for the Netherlands recommendation 'not encouraged for private investors' as they had the most pro-tenant laws in the world, and it had taken someone 15 years to evict someone.

 

[chilliaa]

You raise some really interesting points eastside, thanks for your posts.

 

[Peter Parker]

You hit the nail on the head. As far as I know there is no private health insurance, no private schooling, it is all state run (and run very well, I think their education system is in the top few of the world at the moment) so people are 'all the same' and what you make of your life depends on you, not so much on luck, or when you entered the markets, or what property or stock you bought, or whether your parents helped you.

That sounds a lot like a genuine meritocracy - something the USA aspires to be but isn't.

The American ideal of meritocracy is low taxes, few business regulations and few social services, so that individuals 'have room to succeed'.

The European ideal requires state schooling and universal health to cover off the basics and ensure the poor are given a 'leg up'. With the basics secure they can then succeed (and even take more risks, such as quitting a job but still retain healthcare).

However the Europeans seem to have a narrower range of 'respectable' activities that merit social mobility than the English speaking countries.

For instance if you borrow a whole heap of money and buy houses with it then that is respectable for us, Americans and the post-Thatcherite British. We take the risk - we keep the wealth (if it works out). And we're accountable for the losses. Except of course if you get really rich in which case you pay accountants and lawyers to weedle oneself out of any responsibility.

I was at a backpackers place when interstate to buy my first IP. A German room-mate over to work in the mines asked what I was doing here. He thought it was weird that a ordinary person not many years older would be buying properties to let. The concept of ordinary people getting involved in this sort of stuff was completely foreign to him.

Also the Europeans appear to have a more restrictive view to borrowing money than us, and the concept of borrowing money to make it (especially if just trading assets) has a whiff of unrespectability about it compared to other activities, such as building 'productive' businesses, 'making things' or even being a teacher*. If the Jews weren't in Europe, it would probably have been necessary to invent them.

So status in Europe seems more linked to formal education/qualification/career than here or in the USA, where you can start you own business or buy IPs and do well and people will admire you rather than think you're odd.

I think the term for that might be social mobility? High social mobility, ie born from poor parents but easily able to do well for yourself anyway. So a holiday home is nice little line dropper!

Maybe prestige or social standing rather than actual wealth. The Americans might brag about how much money they have or earn, but elsewhere this is considered crass or gauche.

To say you own a holiday house may be a socially-acceptable and non-threatening form of bragging - much like saying you've got the latest iphoneblueray thingy. It might mean you have more money than what to spend wisely or you chose the right parents. But, unlike a stash of cash in the USA doodads won't guarantee the best education or healthcare so are pretty egalitarian and not having them won't threaten life chances.

But it does reveal a need for differentiation or one-upmanship deep in human nature. If it can't be on big things (like American-style capitalism) it can be on little things (like European social democracy). But it can't be wiped out. Communists never understood this human yearning and that's why they failed.


(*) Although there has always been some trading, especially during the colonial period, and to the trading classes, curious scientists and educated nobles, globalisation has existed for centuries.

 

[eastside]

''So status in Europe seems more linked to formal education/qualification/career than here or in the USA, where you can start you own business or buy IPs and do well and people will admire you rather than think you're odd. ''

Spot on! I think the Dutch Royal Family kids still ride pushbikes to school, and the prime minister goes camping in his campervan and stays in ordinary parks with the rest of the people. It is considered extremly unseemly to not be like everyone else, and the Dutch think we lead a life of high stress, worrying over house prices and interest rates and working such long hours. Their favourite saying is 'be normal, you are unusual enough already without being normal'.

 

[Peter Parker]

Dutch think we lead a life of high stress, worrying over house prices and interest rates and working such long hours. Their favourite saying is 'be normal, you are unusual enough already without being normal'.

Do Dutch achievers interpret this as pressure to be 'normal' and thus stifling?

And is this egalitarianism much different to aspects of the old Anglo-Australian working class culture?

This includes things like (i) the 'tall poppy syndrome', (ii) an 'I don't wanna know' suspicion of learning and education, (iii) conformism, including worship of sport and disdain for those in 'gay' artistic, creative or intellectual pursuits, (iv) not wanting to be 'too smart' at work, in case you're seen to be too close to the boss, and (v) a she'll be right attitude and mediocrity in anywhere but sport

It is probably true that the above has declined in Australia since the 1970s. This drop might be because of (i) the decline of blue collar work and its trade unionist mores, (ii) more people with degrees, (iii) immigration, (iv) free trade and international competitiveness and (iv) affluence and the decline of community.

Europe, while it has free trade within it, remains protectionist without. Demographically its population is static or declining. It's taking in migrants who might not care for egalitarianism or high taxes, which might also put pressure to shift elsewhere, especially if there are other countries with educated but cheaper workforces. Countries with social welfare need strong border protection given the numbers of poorer people outside wanting to get in.

Hence I wonder how sustainable the European brand of 'affluent egalitarianism' is, and whether globalisation (real globalisation, not just pan-Europeanisation) will force changes that make life less comfortable in the future.