27 Aug The state of ‘off the plan’ play – Jon Ellis
The first comprehensive report on the state of the Australian off the plan market has been released. The report is the result of in depth interviews with 201 of Australia’s leading developers and agents who between them sell almost 20,000 off the plan properties each year. Jon Ellis from Investorist gives us the lowdown.
Kevin Turner: So how many off the plan properties are being purchased in Australia, and where are they being purchased and by whom?
Kevin Turner: Well, we’ve got an interesting insight into that market, because Investorist have just conducted a survey, looked deep into this issue with 201 of Australia’s leading developers and agents, and let’s get an insight into those results.
Kevin Turner: Joining me now, the CEO for Investorist, and also its founder, Jon Ellis. Hi, Jon. Thanks for your time.
Jon Ellis: Hey, Kevin. Thanks very much for your time.
Kevin Turner: Jon, where did your studies show that the majority of these properties are being developed?
Jon Ellis: I think everyone in the off plan industry knows Melbourne’s been a bit of a hot spot lately for off plan property development. There’s been a lot of towers going up in Melbourne, followed secondly by Sydney, and third is Brisbane.
Kevin Turner: The government has certainly done a lot to try and dampen enthusiasm from overseas investors. Are we still seeing a lot of Chinese investors?
Jon Ellis: Yeah, we are. It’s interesting. The respondents came back and they’ve seen a huge dip off with Chinese investors. Over 20 percent reduction in buyers coming from that market. Of all foreign investors, respondents still believes 60 percent of them will come from China this year. So a huge number of buyers coming out of that market.
Kevin Turner: It certainly is. What did they show you was the sweet spot in both apartments and houses, or was there a preference for one over the other?
Jon Ellis: It’s really interesting. The sweet spot was under a million dollars. So between about $500 and a million. Obviously different by regions that you’re in, but a very, very similar profile in Melbourne, Sydney, Brisbane, and a very similar profile from apartments to houses.
Jon Ellis: And what it showed is the sweet spot is not actually driven as much by location and demand when it comes to off plan purchases, but the sweet spot is driven by the budget and the purchasing power of the buyer.
Kevin Turner: What have you seen in terms of owner occupiers compared to investors? I mean, we’ve seen a shift in focus towards owner occupiers, or we’re supposed to have been with many regulations coming from the bank and other authorities.
Jon Ellis: Yeah, absolutely. Look, we’ve seen a substantial reduction in investors and we’ve seen owner occupiers taking up a larger portion of those buyers, I think based on the reduction in investors.
Jon Ellis: Investors, mind you, still make up about 60 percent of the purchases for off plan property. So still a very significant percentage, but certainly 40 percent owner occupiers is not something we’ve seen historically on off plan property, but we’re now saying mass.
Kevin Turner: How would the market feel about any changes to negative gearing?
Jon Ellis: I think when 60 percent of your purchases …
Kevin Turner: Yeah, exactly.
Jon Ellis: I think that’s a rhetorical question, Kevin.
Kevin Turner: Absolutely, and I ask it in that manner. It just flies in the face of common sense that they would even want to play with that. Can I ask you about loan availability? The banks are getting a little bit tougher. Has that impacted the industry much?
Jon Ellis: Hugely. It is the single biggest issue in the off plan property industry. I’d actually say it’s the single biggest issue in the property market as a whole. So the tightening for investors, if you look at the secondary market, the secondary market is still an owner occupiers dominated market.
Jon Ellis: But investors are very important in that market. If you look at the economy as a whole, investors is what drives building and construction, which is one of our largest industries. Banking is the biggest issue.
Jon Ellis: We’ve had loans tightening up for foreign investors. We’ve to some extent turned off the tap for probably six months, but now we’re seeing them re-emerge in the market. We’re seeing new lending products come in to satisfy them, and we’re seeing probably a resurgence in shore investors now in Australia.
Jon Ellis: While we’re seeing the local owner occupiers being really hit. How much bank loan restrictions in Australia have affected your local investor client. Seventy seven percent of respondents said that they are worse than 10 percent down because of that. More than 50 percent of them are down by more than 30 percent. So it’s really big swings against investors because of loans.
Kevin Turner: Yeah, if that loan availability is such an issue, and I share your view on that, I have no doubt that it is. The Banking Royal Commission is certainly going to have an impact on the industry as well, I would’ve thought going forward.
Jon Ellis: The stage is set for another very bumpy 12 months, and it will be very interesting to say what happens and what falls out of that Banking Royal Commission. We’ve certainly seen the reduction and the clamp down on loans because of APRA.
Jon Ellis: But it’d be interesting to see if we start having further claims of irresponsible lending or investors that have been extended past their real borrowing capacity and that’s clamped down, it could become very difficult for the market.
Kevin Turner: What are you hearing in terms of oversupply? I mean, I think I’ve lost count of the number of reports I’ve read over the years about how this potential oversupply of units in Australia. What are you hearing from sellers?
Jon Ellis: If you’re a seller and you’re developing in Fortitude Valley in Brisbane, South Bank in Melbourne, you’d probably say to me that there’s an oversupply. But if you’re a developer developing in close to the city in Sydney, or you’re developing a town outlet in the eastern suburbs, or boutique developments in the eastern suburbs of Melbourne, you’re not reporting any supply.
Jon Ellis: And interestingly enough, more than 80 percent of sellers said they had bigger issues than oversupply in their market. All of them are seeing it and seeing it in pockets, but thankfully for 80 percent of developers, it’s not a big issue for them.
Kevin Turner: How does the industry feel about the next 12 months? Is it optimistic?
Jon Ellis: Yeah, very much so. So the majority of developers and agents are expecting to sell more property in the next 12 months, than they were in the last 12 months. More than 75 percent of them actually overwhelmingly said that they’re going to sell more in the next 12 months.
Jon Ellis: And what we saw in the report is that optimism is driven by the smaller end of town. Real estate agents where their agency, is doing less than 100 sales a year. Developers where they’re developing developments between sort of 50 units and 250 units. Those guys are much, much more optimistic.
Jon Ellis: Where the larger agencies that are doing 500, a thousand sales a year, or the larger developers that are doing very big towers, are less optimistic, but they’re not that pessimistic, that’s for sure.
Kevin Turner: Great insight there. Jon Ellis, founder and CEO for Investorist. Thank you for sharing that view with us, Jon. Appreciate your time.
Jon Ellis: Thanks very much for having me, Kevin.