Delusional Economics-Regional Qld

8/8/2019 Delusional Economics-Regional Qld

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20/12/10 12:42 PMDelusional Economics

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An Economic Realist Practitioners Blog with an Australian Slant.

Delusional Economics

SUNDAY, DECEMBER 19, 2010

Regional Queensland choking on years of oversupply

It seems the news about the collapse of the Queensland property market is coming in

thick and fast. On Thursday we had the news from the Gold Coast that a $850 million

dollar complex had fallen into receivership due to trouble with settlement of over 80%

of the units.

Today we note another startling piece of evidence that Queensland's real estate market

is in huge trouble. The latest PRD Nationwide property report on units in Townsville is

out, and although the real estate agents are putting on a brave face, it has "blood bath"

written all over it.

Sales slumped in the Townsville new unit market during the September-10quarter. 19 unconditional sales have been reported for the third quarter of

2010, down 40 per cent from 32 sales recorded during the June-10 quarter.

Buyers have remained cautious and are comparing all product available in

the market. A lack of affordable entry level units is constraining the

volume of new unit sales and provides an opportunity for developers to

plan for the supply of basic walk up suburban units and compact 1 and 2

bedroom CBD units in order to meet the needs of the market.

It is widely believed that values are at the bottom of the cycle and thatany further price movement will be in a positive direction.

That last statement seems at odds with the rest of the document.

The level of demand in the September-10 quarter suggests 54.8 months

supply of new unit stock across the Townsville market at current levels of

demand, up from 31.7 months recorded in the June-10 quarter.

Townsville City had 74.0 months of stock, up from the June-10 quarter

level of 33.9 months, while Townsville Outer had just 16.5 months supply,down further from 25.5 months supply in the June-10 quarter. Magnetic

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2/12



Posted by Economic Delusion at 12:32 PM 7 comments

Island increased to 114 months of supply based on the weaker sales result

this quarter.

Overall, the total supply of units has increased from 338 in the June-10

quarter, to 347 in the September-10 quarter. The weighted average sale

price reduced from $559,375 in the June-10 quarter to $444,737 in the

September-10 quarter, reflecting a higher proportion of affordable unit

sales during the quarter.

Most sales occurred in the $300,000 to $399,999 price bracket, accounting

for 42 per cent of all sales for the quarter. Reflecting a shift in market

composition, product intended for permanent accommodation accounted

for 90 per cent of sales, versus 10 per cent for short term accommodation

or mixed use.

74 months supply !!. That is 6 years !!, on Magnetic Island it is 11 years; and it is

supposedly the bottom of the cycle. We doubt it.

Remembering that the September Quarter was before the latest interest rate rises. Just

look at the graph.

Maybe we don't have the "local knowledge", but to us this looks like a financial disaster

waiting to happen, yet they are still building even more units. It doesn't look like the

Gold Coast will be the only place with apartment complexes going into receivership.

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claims to have a qualification before making any investment decisions.

Anecdotes of debt issuance contagion in retail.

As we have been talking about lately, as the level of debt issuance falls in a debt

December (31)

Regional Queenslaof oversupply...

Anecdotes of debtin retail.

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The circus so far.

Is Victoria going f

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Looking for a cleamortgage issua

Now it's the banks

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3/12



driven economy then slowly but surely the effects flow from the market driven by that

debt to the wider economy. As we noted this week, the Gold Coast is the frontier of

this contagion, but it is also starting to show up in other places.

Although this is only anecdotal at this stage, and should not be trusted as evidence

until we see some real statistics, it seems that this contagion is moving into retail. We

have received quite a few e-mails in recent days all saying the same thing. Here is an

example from Sydney from Anne.

.. I live in outer western Sydney and we don't buy the "green shoots of

recovery" theory. We don't buy the "Australia missed the GFC" either; we

think that it just hasn't happened here yet. In our part of western Sydney,

houses are still overpriced by a long way, the last lot of interest rate hikes

have hit hard and there is a lot of dependence on credit.

My reason for writing is that we went Christmas shopping today at a large

Westfield complex near us. Usually, this close to Christmas, by 10.30am the

car park would either be closed completely or you would have to spend

ages in fruitless driving around and around looking for a car space. We

drove into the car park today about 11am, and got a car parking space on

Level 3 straight away. The shopping center itself was busy, but not frantic.

I suffer from anxiety and one of the triggers is being in a large

crowd...generally speaking [my partner] does all our Christmas shopping as

I cannot cope with the crowds - today the crowd was barely a blip on the

radar.

At 11.30ish Gloria Jeans' was basically empty, there was a long queue at

Target, but not an outrageous one and even though we went to a large

number of disparate stores, we didn't have to wait for service once. Big Wwas busy, but not frantic. [My partner] got through the service queue in

less than 10 minutes.

After visiting Westfield, we crossed town to another shopping centre with

several "big" Christmas item stores: Bunnings, Harvey Norman and Spotlight.

In the underground car park which can take 520 cars, barely a fifth of the

car parking spots were taken. Spotlight was, again, busy but not frantic. I

had to wait about 5 minutes for service at the check out, when normally at

this time of year I'd expect to have to wait in excess of 10 minutes. I don't

know what the case was with Harvey Norman and Bunnings as we didn'tventure over there, but going by the number of empty spots in the car

park, they were doing a standard Saturday's trade. Were it not 7 days from

Christmas I wouldn't think anything of it.

Now again this is anecdotal, but we are witnessing much the same in Brisbane, there

are still people at all shopping centres but it is much like any normal shopping day.

"Busy but not frantic".

Our reader above mentioned Harvey Norman, and we note Gerry is in a panic about this

Christmas.

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4/12


5/12



Posted by Economic Delusion at 10:57 AM 0 comments

buying until the last minute. In Brisbane, a quarter of consumers surveyed

by the Australian National Retailers Association (ANRA) said they would

leave their gift buying until the last two to six days before the big day,

compared to a national trend of 15 per cent of shoppers.

We aren't so sure, it seems to us that the Australian consumer simply can't and/or isn't

willing to take any more debt. We'll say it once, we'll say it again. Sustained falls in the

rate of debt issuance in a debt driven economy lead to recession. There isn't enoughevidence yet to show that the contagion has hit retail yet, but the anecdotal evidence

is definitely mounting.






information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone whoclaims to have a qualification before making any investment decisions.

SATURDAY, DECEMBER 18, 2010

"Return to normal" coming and a BDI revisit

Not many e-mails this week that contain topics that we haven't already discussed, but

still a big thanks to everyone sending us e-mails with comments and topics that theywould like discussed.

Given that it is Christmas next weekend the mailbag won't be back until the new year.

In the meantime a couple of interesting things we have noticed in the last couple of

days.

Firstly we noted this article on Friday that is simply an extension of the flog in action.

Investors and first home buyers are expected to drive up house prices by

around 5 per cent next year, property analysts say.

While residential property prices remained relatively flat in the last

quarter of 2010, a tight rental market and return to normal trends in

first home ownership are likely to lead to firm growth late next year, they

say.

CommSec economist Savanth Sebastian said increasing rental demand and

rising wages would help fuel steady growth in house prices.

We will ignore the total lack of logic here; because we aren't going to repeat ourselves

again. We simply ask our readers to look at our post on mortgage issuance in Australiato understand exactly what is actually happening to the market.
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6/12


7/12



On Wednesday we noted this

NAB chief Cameron Clyne said that the treasury and the RBA don't know

what they are on about, and that the banks should move their cash rates

independently of the RBA so everyone understood that they were no longer

linked. Once they had done that everyone would understand it, and thenthe banks would then be free to do whatever they wanted.

This was also mentioned in a number of other places including here

AUSTRALIA'S banks should shift interest rates independently of the Reserve

Bank, Cameron Clyne says.

The National Australia Bank chief has flagged his desire for the banks to

break step with the RBA in a move that would reduce the power of central

bankers to control economic growth.

Australia's banks had fuelled a perception that the Reserve rate was a

proxy for credit costs by shifting mortgage rates in lockstep with the

central bank, Mr Clyne said.

Speaking at the Senate banking inquiry, he said the Reserve Bank and

Treasury's analyses of funding costs - which heavily influence prices for

mortgages and other loans - were wrong.

"They don't have all the data that we can see," said Mr Clyne - the firstchief of a major bank to appear at the inquiry.

....

"The banks have made a problem for themselves here by continually moving

in line with the Reserve Bank," Mr Clyne said.

"If the banks continue to move in line with the RBA, up or down, then we

are continuing to compound the view that our funding is related to those

movements in cash rates.

"There is some merit in each bank individually looking at their own

circumstances and making interest rate moves independent of the RBA."

To many this may simply seem like an extension of the usual banking rhetoric. But in

our opinion this is probably the most remarkable statement to come out of the whole

banking enquiry.

To understand why you need to go back to one of our previous posts where we made

the following statement.
http://delusionaleconomics.blogspot.com/2010/11/economic-knowledge-and-democracy.htmlhttp://www.adelaidenow.com.au/news/national/australia-cant-keep-raising-debt-rba/story-e6frea8c-1225970064657http://delusionaleconomics.blogspot.com/2010/12/circus-so-far.html


8/12



Posted by Economic Delusion at 5:50 PM 4 comments

... we believe that the economy is a public asset. The population have a

right to be properly educated about how their financial system actually

works, so they themselves can make better decisions about the shape of

their own economic future. That is one of the major reasons we started

this blog in the first place. We were sick and tired of vested interest

hogwash being reported as fact, and we felt there was a need to highlight

the other side of the story

The issue we have with Mr Clyne's statement is that it is a step too far in a on-going

attempt to move the economy from an asset owned by the public to an asset owned by

private institutions.

What Mr Clyne is not telling you when he says "he no longer wants to listen to the RBA"

about credit creation, is that his business has been granted a very special right by the

sovereign government of Australia, and by extension the citizens, that very few other

companies have; the right to loan money into existence.

This is something we hope to discuss next week, but it is without a doubt one of the

most fundamental concepts around sovereign control of the economy. Something that

in our view is overlooked by nearly everyone.








The GC moves to the next level

We have said previously, as credit issuance falls the market collapses, this in turns

takes down businesses , which takes down the economy and then the banks.
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9/12



As we showed last week credit issuance in Queensland has been trending downwards

since the GFC. Now that the short-lived government supported debt bubble caused by

the first home buyers grant boost has dissipated the trend continues.

So today it is with little surprise that we note that the Gold Coast is moving to the next

level.

ONE of Australia's largest apartment tower projects, the $850 million

Oracle Broadbeach complex on the Gold Coast, is in receivership. The 505-apartment complex at Broadbeach was being developed by Niecon

subsidiary South Sky Investments.

South Sky Investment director Michael Nikiforides placed the company into

receivership.

It is the second Niecon-related business to fail.

This month the Nirvana by the Sea residential Gold Coast project was also

handed over to its financier.

It is understood that the completed Oracle project collapsed because of

problems with settlements of up to 400 apartments within the towers that

had been pre-sold before the global financial crisis.

After the crisis hit, many were unable to come up with the cash.

The apartments had been in the process of settling since October, sources

said.

This is no "two-bit" apartment complex; this is a massive twin tower complex that takes

up an entire block at Broadbeach. We actually spoke about this complex previously

where we noted the large hit the banks are taking and also that there are a number of

other large developments in the same area in the same predicament. These were all

funded in the boom times on a promise of payment by money that is no longer

available. Everyone wants out as the Gold Coast market collapses, this isn't going to

help.

Once again we repeat. It has only just begun, without further government intervention

the Queensland economy is in deep trouble. We have little doubt that a recession is

coming.
http://delusionaleconomics.blogspot.com/2010/11/chk-chk-boom.htmlhttp://www.theaustralian.com.au/business/gold-coast-complex-crashes-into-receivership/story-e6frg8zx-1225972387131


10/12











THURSDAY, DECEMBER 16, 2010


Goodbye and Good luck to a fellow blogger

We noted today that a fellow blogger has signed off to pursue other endeavours. We

just thought we would say a final goodbye and a big thanks to Cameron as he was a big

influence and a great help to this blog in the early days.

Hopefully he will start a new blog in the future covering medical economics or

something similar, once he has completed his medical studies.

Good luck in the future Cameron, we will miss you unique economic perspective.








The flog just can't help themselves

We note today that even in the face of overwhelming evidence to the counter, theAustralian mainstream flog just can't help but repeat the same dribble that is being

proved wrong right in front of their eyes.

The frightening state of negative equity is looming large in some regional

centres and in areas that have had strong construction growth. Analysts

warn that Victoria is particularly vulnerable to an overhang of supply, just

as it was in the early 1990s, and Queensland's lifestyle centres, such as

Cairns and the Gold Coast, will continue to experience real declines in

housing prices next year.

RP Data-Rismark's recent market survey warned that rising interest rates,
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11/12



declining clearance rates and a rising stock of unsold houses "hint at

tougher times ahead" after very little growth in recent months.

RP Data's auction clearance figures highlight a generalised sagging in the

market this year.

Auction clearance rates around Australia have gradually fallen from about

70 per cent earlier this year to just 52 per cent this month.

Bring on the Iraqi ministers for information.

None of the 18 economists surveyed by The Australian say the nation will

experience a generalised US-style fall in house prices, but a number say

prices will remain flat and they warn of pockets that could record sharp

declines.

Repeat after me "There are no tanks in the city !!!", "There are no tanks in the city !!!"

Macquarie Group's Brian Redican says this could extend across Victoria.

Prices in Melbourne rose by 19 per cent in the year to September,

according to Bureau of Statistics figures.

"In those areas where housing construction activity has risen sharply (so

that there is no undersupply of housing), there is certainly a risk that high

interest rates will result in a noticeable decline in house prices," Redican

says.

" In this respect, Victoria is most vulnerable."

St George Bank's Justin Smirk dismisses the prospect of generalised falls in

house prices, but he identifies western Sydney, western Melbourne and the

tourist region of northern Queensland as places that "could face falling

house prices as rising interest rates squeeze affordability" because they

would not benefit from higher export income.

Across the nation, he expected prices to be "volatile but broadly flat in

nominal terms".

The same flog that have repeatedly told us this could never happen, are now telling us

it is happening. But in the face of evidence that their 3 pillar premise of undersupply,

population growth and underlying demand is bogus rubbish, out comes the crazy

theories of why it is happening. But when you have a crumbling belief system it is

important to ignore any evidence and simply repeat your message.

Overall, economists say continued immigration and strong employment

growth would maintain housing demand and keep pushing prices higher.

A key factor underpinning growth is the lack of supply, which in most

places reflects red tape and other planning bureaucracy.


12/12



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Our advice to the Australian is to find some new non-vested interest economists that

aren't afraid to adjust their models to fit reality. Our advice to our readers is to read

the entire article to get an overall view of what is ACTUALLY happening in the market.

But while you do keep this thought in your mind. "It has only just begun".

Disclaimer: The content on this blog is the opinion of the author only and should not be taken asinvestment advice. All site content, including advertisements, shall not be construed as a






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Delusional Economics-Regional Qld

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