Jun 21, 2016
Michael Matusik

Well, it is most certainly a dog’s breakfast, in more ways than one.

A “dog’s breakfast” has been British slang for “a complete mess” since the 1930s.

While no one took the time to write down the exact origin of the phrase, the allusion involved seems to be to a failed culinary effort, perhaps a botched omelette, fit only for consumption by the mouth of last resort, Fido.

And we are, of course, referring to the new apartment market.

Every day of late, we keep reading about how it is all going to hell.  The market has tanked and there is plenty of blame to go around.  FIRB; APRA; oversupply; foreign buyer stamps and taxes; council charges; negative press; negative gearing; the federal election; Brexit; the US election – the list goes on and on.

Of course, things change and not every apartment project is tarred with this brush.  There are quite a few great new projects which are suffering as a result.  Collateral damage, they say.  Pity.

But in the developments where things have really ‘tanked’, I will bet my bottom dollar that they have a piss-poor local market match.  The real blame lies with the recipe and its execution, nowhere else.

Overseas buying

Now, let me get this off my chest.  We should not be building new homes to flog offshore.  Nor should we be building homes for the primary purpose of generating employment.  Many an economist will tell you that the Australian economy is transitioning well away from mining construction to home building.  Yet, half of the new “homes” being built are high-rise boxes and up to half of those are being sold offshore.  The local (real) demand for this product – we estimate – is around 10%.

We should be building new homes because they are needed; really needed.  Flogging a new build to a speculator isn’t need; it’s greed.  Aussie homes should be built to house people, not capital flight.

Up to 30% of new dwellings across Australia have been sold offshore in recent years, higher still in several of our capitals.  And as mentioned above, our work suggests the offshore interest in new apartments is much higher.  This is unsustainable.  No – it is plain wrong!

Yet the development industry’s catch cry is: “The economy will crash unless you allow the Chinese to buy”.  Speaks volumes, really.  Is our economy truly that brittle?  Or is it the development lobby groups just mouthing off and currying favour?  I reserve my judgement.  But a thought bubble of a toothless tiger does spring to mind.  I wonder why.

Worse still is that one in ten of our established homes has been sold offshore over the last three years.  This was illegal.  But the recently announced student-guardian visas – to start in July – have opened the door to international primary school students and their guardians to access Australian schools and purchase Australian property (including an established home) ahead of achieving permanent residency.

Just like adding petrol to fire.  Unbelievable!  House prices will artificially inflate further, especially in Sydney and Melbourne.

“No passport – No Buy” – that would be my election slogan.

Back to the topic

Also, very few of the locals want to live in a small, dark and very expensive dog box in the sky.

So a few things slip and the demand for those tiny things in big boxes downtown plummets.  There is nothing wrong with downtown – far from it.  The problem lies with what is being built.  Nevertheless, the current wisdom is to throw more good money after bad.  Sell them at a higher commission rate!  To whom, one wonders.  Even capital flight isn’t that foolish.

A better approach might be to get a better local market match.  For some, this might mean going back to the drawing board.  For others, some outside thought is all that might be needed.

What’s happening now isn’t new.  It may not have happened for a while and many associated with the current gloom may have not experienced it before.  But in many cases, the problems can be fixed.  The recipe might need revisiting, rewritten even a different approach taken.

Nah…forget that!  Let’s up the comms to 8%, even more, and flog them off real quick.

And when that doesn’t work, well, at least we will know who to blame.

All aboard, next stop is receivership.  I hope there is a comfort stop or two along the way; maybe a café?  I could do with some breakfast.


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