Speculative Vacancies Twist the Supply and Demand Pretzel
There are many heavily geared investors in residential real estate cozying up alongside the majority of ordinary citizens who just need somewhere to live. Both groups are desperate for fresh insights.
And here it is:
Earthsharing’s Speculative Vacancies in Melbourne 2010 Report demonstrates that nearly five percent of all houses in Melbourne are simply empty and unused.
The report identifies and measures the scale and extent of speculative vacancies – properties held out of use in the pursuit of capital gains – using water meter data collated by the various utilities.
Docklands (23.3 per cent vacant) is particularly interesting. Builders there have been obliged for some years by financiers to offset risk by pre-selling a very substantial proportion of apartments before commencing construction. Vacancies are largely owned by individuals, many of whom paid a very small deposit and signed a water-tight contract swearing to pay the remainder on completion.
Once upon a time in a land far far away, investors could make money flipping these contracts prior to settlement. The media brimmed with apocryphal anecdotes about large gains made by astute investors. The punters leapt into this riskless, leveraged opportunity.
These contracts are coming due just as the price trend turns down decisively. Developers will enforce payment, confronting deposit-only buyers with immediate and savage capital losses. Watch this space!
The other hotspots are newly-built outer suburbs like Truganina (15.8 per cent vacant) and Williams Landing (18.78 per cent vacant), where single family dwelling construction has clearly outpaced demand. The latest housing finance figures from the ABS show first home buyer financing collapsing to its lowest levels ever, confirming the report’s findings.
I forecast very heavy price discounting in all these suburbs. Supply and demand are significantly mismatched and should be monitored carefully for distress. Let’s see whether buyers can be enticed to commit just as The Great Australian Land Bubble deflates.
All the economic pain ahead, all the wealth destruction, all the about-to-be shattered dreams could have been avoided if we had chosen to reform our tax system. Again, paradise is denied.