Residential construction sector continues to deteriorate despite near record low interest rates

Near record low interest rates and talks of a property recovery has done little to instill confidence in a struggling residential construction sector.

The Age’s Chris Vedelago today reports:

Melbourne’s outer-suburban property market is facing a serious slump as distressed buyers and builders cancel one in every three new home purchases.

The collapse in sales could have serious repercussions for the state economy and the building industry, which employs more than 250,000 Victorians.

“We’ve never seen this before, so it’s a very strong signal that the fundamentals are wrong,” said Colin Keane, director of analyst group Research4, who compiled the new research.

Meanwhile, The Courier-Mail’s Michelle Hele reports apartment giant Mirvac has been forced to abandon two developments in Queensland as the market slows:

OFF-the-plan unit buyers have had their deposits refunded as a major Queensland property developer puts two major projects in Hamilton and Townsville on ice.

Mirvac has postponed development of its $300 million Foreshore Hamilton project at Hamilton in Brisbane and the final stage in its Mariners Peninsula development in Townsville, with confidence in the Queensland market at an all time low.

» Slump looms as a third of new home sales abandoned – The Age, 28th November 2012.
» Units put on ice as sales stall in Queensland – The Courier-Mail, 28th November 2012.


  1. Pop Goes the Ponzi, quick quick quick! The bubble has burst, and we’ll all be in the shit!!

  2. @ admin

    Great research there, had not seen those two.

    All I see is “Home affordability continues to improve”.

    Half full or half empty? Isn’t it obvious, if money’s cheap (low interest rates) and still these ‘great investments’ aren’t flying out the door, that the market is at or over the “fiscal cliff” (sorry couldn’t resist that one lol).

    Oh, how I sleep soundly with cash in the bank and great stocks, enough infact to buy outright……but we prefer to call the land lord when something breaks….we prefer to go on a day trip rather than stay home to ‘save cash’…….we prefer to buy when the market is sensible…..or hang on, even a bargain.

    It is coming guys, hold tight. Don’t doubt yourselves, the Aussie home market is going to tank. Might pick up some commercial property too, cos the land lord at work is annoying me…….actually, over 1/3 of our business complex will be vacant on 1st of January. Massive, massive collapse in comerical property to occur as well.

  3. Given that net rental yields on Melbourne housing is roughly = bank net interest margin = 2 – 2.5%, it follows that all incremental bank borrowed capital will generate an incremental 0% additional return.

    As a consequence net new debt creation will decline to zero growth at this price.

    From sections I and II of J. Benes and M. Kumhof, The Chicago Plan Revisited, IMF Working Paper No.12/202, August 2012

    The common element of usury is land, because most of the rental value of land is not collected for “the king’s tribute”, it is capitalized into a selling price, which can then be mortgaged to lenders. And because the rental value is increasing, the price/earnings ratio can be much higher than that of a constant income stream; that is, the rental yield of land can be much lower than the going rate of interest. If the rental yield is equal to the lender’s interest margin, and if the loan-to-value ratio is 100%, the lender gets the entire rental value of the land under the guise of the interest margin. Thus there is considerable overlap between the “this form of usury” and the classical definition of economic rent.

  4. @Matty

    yeah you are right. small and medium business are all suffering. so it will be “cheap office\store for rent” every where.

  5. I do the math every quarter. It is still much better to rent than buy. Just look at the government charges/overheads of ownership.
    I might go on a nice landlord subsidised holiday over Christmas. Thanks Mr Landlord

    Enjoy your soup while I scoff lobster!

    Interest rates can be lowered but it doesn’t help much if you borrow half a million for a shoebox on a main street.
    Unemployment will be the key to all this. 2013 might be an interesting year.

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