Market Comment June 2018

Jun 02, 2018

Even though it may not be obvious from the number of vacant properties we have available, the Expedio team have not been asleep of recent times. With a significant proportion of transactions now occurring off-market, we have been busy with both sales and acquisitions. Thanks to those agents who keep in contact and keep bringing us the opportunities.

The trends that are very apparent are:

1) The last months have seen significantly more stock come on to the market. Some of that stock is obviously speculative – vendors attempting to cash in on an historically high market, with the view that if they don’t find a buyer, then they will hold.

2) There would appear to be a higher proportion of attempted sale and leaseback opportunities than we have seen for some time. Again, perhaps vendors attempting to cash out at what they perceive to be the top of the market

3) There is still money prepared to pay sub 5% for good investments. Particularly for investments under $3M.

4) Buyers reliant on bank funding are being made to jump through even more hoops. We contend bank “credit committees” are spending most of their time dreaming up obstacles to put in front of buyers – particularly owner-occupiers. Perhaps they should just be up-front and say they are not interested in lending.

5) The agents who are writing the business are those who are pro-active, and able to think laterally. There is a quote attributed to Einstein: The definition of insanity is doing the same thing over and over and expecting different results. Those getting results in this market are doing different things over and over.

We have said for some time that we believe the major disruption to our market will be external. The domestic political influences are well documented. We know the direction immigration is headed and the implications of that. And the Reserve Bank has clearly signaled the direction for interest rates.

But the decision of President Trump to withdraw from the Iran nuclear agreement has implications for the price of oil which will impact globally. Saudi Arabia and the US shale industry cannot increase production significantly enough to make up the shortfall, especially with the Venezuelan industry crumbling.  Which means that if the predictions of USD100 and then USD150 oil come about, that is probably the greatest threat to our market over the next 12 months. And it is a major all-encompassing threat.

Ultimately we come back to a very simple equation. If a building in need of work is not priced correctly, then spending money to bring it up to an acceptable standard will over-capitalise. Just as in the current market there is a compression of yields between A, B and C grade properties, there is also a compression of pricing between properties that need work, and those that don’t.

Both types of price compression can be explained very simply by the shortage of stock.  But it still often does not add up, and inevitably when the market corrects, buyers who have over-paid for B or C grade investments, or properties that need work will face an awakening.


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