The market is always presenting you with opportunities. This is one of them.
What’s the most interesting segment in the Australian property market right now?
The apartment sector, hands down. Have you been following what’s going on there? It’s nuts. Like totally nuts.
It’s come to a head recently with revelations that the 30-storey Opal tower in Sydney has cracks all through it. It kind of sounds like they’re going to just have to pull the whole thing down and start again.
But the thing is, it kind of sounds like this is just a pimple drawing attention to what is a wide-spread systemic issue.
Last week, property valuer and adviser, Anna Porter was telling the AFR that there’s shonky stuff going on all over the place.
“We see a lot of defects across most buildings… A study into new builds between 2000 and 2012 found around 80 per cent had reported structural defects, which is a very concerning number, and that’s fairly in line with what we are seeing in unit blocks today”…
80%!?!? Are you freaking kidding me? And we’re not talking about the taps not being screwed on properly. We’re talking about structural defects, like cracks in the walls.
And it’s systemic because it seems there’s problems all the way along the supply chain. Last week a bunch of academics told The Conversation that there are “deep cracks in Australia’s approach to building apartments.”
(Hey? How’s that pun? Who said academics are not fun to have around a parties?)
“Badly built apartment blocks are far from unusual. Right now across Australia’s cities many buildings have significant leaks, cracks and fire safety failings…
…developers owe buyers few legal obligations once the apartments are sold, which limits their risk if they get things wrong. There are also significant market pressures, particularly in boom times, to build quickly and cheaply. And there are gaps in how the construction process is overseen, meaning errors go unnoticed…”
And this is all on top of the revelations last year that the flammable cladding that caused the Grenfell Tower disaster in London has been used on tens of thousands of apartments across Australia.
This is just wild.
So what does it mean?
Well, obviously if your apartment is one of the ones that has to be remediated (i.le you have to replace the cladding or fix major structural issues), that’s going to hurt you. Either you have to pay for it, because it seems owners have little legal recourse, or it comes off your sales price.
That sucks. I’m feeling for owners in that situation right now. They’ve been let down by the system that they rightly believed should have been protecting them.
But while it hurts prices of the apartments affected, what happens if 20,000 apartments are suddenly taken off the market? That’s a massive supply shock. We could see rents and prices for quality apartment builds rocket upwards.
At the same time, with the whole industry thrown into doubt, vendors of development sites must be starting to take stock. Maybe they’re looking at their sites and thinking they’re not going to get such crazy prices for them after all.
And in the middle of a broader property market downturn, vendors might be open to some very ‘reasonable’ offers.
And in times of high-uncertainty like this, an options strategy really comes into its own. You can take an aggressive position without putting everything on the line.
And make no mistake. This isn’t the death knell for apartments in Australia. Our population growth means that we have to keep building higher density stock.
This is a temporary set-back.
Ok, so obviously this is a 600 word blog so I can’t get into the complexity of it all, and this is definitely not financial advice. The only point I want to make it that the market throws up interesting opportunities like this all the time.
The question you have to ask yourself is: Am I ready for opportunity when it comes?
Only you can answer that.