top of page

TIP: Ralan Group collapse heralds sector risks, rates will hold in AUG, project lending drying up

It's a big day for fortune tellers and crystal balls, and most aren't telling happy stories.

East coast apartment developer, Ralan Group has collapsed, owing more than half a billion dollars and leaving a workbook of 3,000+ apartments unbuilt across Sydney and the Gold Coast. This has coincided with the second downgrade in less than three months from building materials group, Adelaide Brighton; since May, the group has written down earnings by 37 per cent. As the AFR's Chanticleer puts it today, "Adelaide Brighton has fallen into a gap between a slowing residential market and an infrastructure boom that never quite seems to arrive."

These two events have given the harbingers of doom plenty of ammunition today. Combined with the drop in building approvals shown in latest figures from the ABS released earlier this week, there's plenty of pessimism abroad on the immediate prospects for the construction sector.

Ralan is a high-profile example of what appears to be happening on a larger scale across the market. Brisbane's off-the-plan apartment market received special attention from Michael Bleby today in the Fin, reporting BrisVegas developers have build less than half of all high-rise projects approved since 2009.

The same paper has this report that lender, Chifley Securities has raised the Closed shingle on lending for any new development project applications for Sydney growth corridor locations. Finance for new projects slated Schofields, Box Hill, Leppington, Badgerys Creek and Kemps Creek is being blocked by the non-bank lender, which says explosion of growth without the support of adequate infrastructure development makes new projects in these regions unviable.

This contrasts with comments from REA's Nerida Conisbee today, who is spruiking the western suburbs of Sydney and Melbourne as the best places to buy for long-term capital gains on property. She's spruiking greenfield in particular, especially in the context of population growth.

Not everything is doom and gloom today. Mortgage insurer, Genworth is having a great time at the moment, with a big boost in recent business. We're talking about two different things of course - Genworth is helping customers buy existing homes, while those mentioned above are in the business of building new - but the contrast between these parts of the property sector is stark.

If you need a spot of sunshine in the midst of all this, have a read of Robert Gottliebsen's column in today's Oz. He's listed the six forces that are driving a resurgence in the property market; while these factors will take longer to translate into joy for new housing builders and developers, it's heading their way.

Negative gearing crackdown - what?

After saying it wouldn't touch Australia's negative gearing rules, the Morrison government has quietly moved new legislation to end tax deductions related to vacant land.

Under the new laws under review, you will no longer be able to negatively gear vacant land you haven't started building on. The government expects to raise $50 million from these changes over the next two financial years.

It'd be naive to think it's accidental that the Property Council released new Deloitte Access Economics research today showing (a) Labor's negative gearing policies would have cost the economy $1.5 billion and (b) two-thirds of non-Labor voters didn't vote for the party due to their NGT and CGT policies. The Property Council is one of the many industry bodies that are a little cranky with the ScoMo Dance Crew over this new legislation.

The will they, won't they RBA debate - part #7,492

Inflation was a little higher than expected in the June quarter, meaning it's highly likely the Reserve Bank will keep interest rates on hold when it meets next week. We'll find out over the next 24 hours if this leads to futures market speculators changing their tune on the likelihood of a third consecutive rate cut in August.

56 views0 comments


bottom of page