They may call it the Gold Coast because of the sand, they may call it the Gold Coast because it is home to some of Australia’s largest homes and wealthiest property investors but whatever the reason the shine is starting to tarnish along Australia’s very own millionaires row.
The last few days have thrown the Australian property market into turmoil with downbeat reports, underperformance all around and general mayhem in the markets. However, the surprise interest rate cut at least gave markets 24 hours of respite from the turmoil of the last few months. But that is as far as it went!
While it would be wrong to say there is panic in Australian property markets there is concern that a slowing economy will eventually catch up with what has been a very lucrative few years for Australian property investors. Even the banking system seems to be holding up better than most counterparts overseas and if it can make it to the end of 2008 unscathed then many believe the worst will have been seen off.
However, while the general market is down but not downbeat as such this is not the case with some of Australia’s more wealthy property investors. On the Gold Coast we have seen the likes of the Mermaid Beach strip of Hedges and Albatross avenues hit harder than most – commonly known as Australia’s ‘millionaire’s row’. If you think a five percent, ten percent or fifteen percent hit has knocked you for six, try a fifty percent hit on a multi-million dollar property which is the kind of losses some of these wealthy individuals are nursing on ‘millionaire’s row’.
So what is happening?
We appear to be seeing the emergence of a two tier Australian property market whereby the lower to middle end of the market is falling but not by as much as many other economies around the world. However, there seems to have been a massive correction in the higher end of the market, the market which in many places around the world was seen as recession proof until now.
Low to middle end of the property market
The lower to middle end of the property market is being seen by many as a possible home for investment funds in the not too distant future. A number of experts have come forward to suggest that as interest rates fall further in Australia we will see interest in the property market pick up.
Interest rates are forecast to move further downwards over the next 12 months with the next reduction expected before the end of 2008. A number of market observers believe that an interest rate level of 5% will be the key as it will be at this point which investors will be able to acquire properties offering the same rental yield but long term potential for capital appreciation.
Whether this fairly simple theory actually works in practice remains to be seen but it does seem to have some relevance. You could be better off in the long term investing in an asset which could appreciate and offer a rental income rather than a bank account where your only source of income or growth is from the interest rate applicable – although there are risks.
The higher end of the property market
After years of riding high it seems that doom and gloom has finally set in to the top end of the market, the so called ‘millionaires row’ areas of Australia. One area of Australia which has taken a massive battering is the Mermaid Beach strip of Hedges and Albatross avenues on the famous Gold Coast. Estate agents in the area have been reporting the disappearance of buyers at a time when many in the area are looking to sell up.
This has seen property prices in this millionaire’s paradise falling by up to 50% over the last 12 months and pushing many property owners into serious financial trouble. In the good times their business and incomes would cover their mortgages but now times are a little tougher it is not so easy – especially for those who may have over stretched themselves
One resident of millionaire’s row, AFL football star Rod Galt, is among many in the region who will be nursing his wounds at this moment in time. He paid a whopping $16.8 million for 49 Hedges Avenue, Mermaid Beach which was sold by milking giant Ken Lacey in March 2008. He had acquired the property for $5.9 million in January 2003 and sold it to Rod Galt for a cool $16.8 million after renovating the home.
It then appears that Lacey attempted the same property turnaround again when paying $9.75 million for a property in Albatross Avenue in March this year only to put the property up for sale just a few weeks ago for $8.95 million – a paper loss of near $1 million and counting in less that 7 months!
There are also rumours that two recent property sales in the area have resulted in losses of between $1 million and $4 million, although official confirmation is awaited on these deals.
Buyers strike
The Gold Coast area of Australia has always attracted more than its fair share of multi-millionaires over the years and property has also been high on the agenda for those with the cash to afford them. However, many would be buyers of today are struggling to arrange mortgages and as a consequence we are seeing the start of a downward spiral due to a major lack of buyers.
Even those with access to finance to acquire these multi-million dollar properties seem very keen to sit on their hands and watch prices fall further and further. While they will not fall forever there are some experts that feel the bottom of the market is still some way off.
Conclusion
Like so many countries around the world it seems as though the millionaire rows of Australia are under serious threat at the moment. Homes are not selling, prices are falling by up to 50% and those with the money to buy are more than happy to watch the suffering continue.
If it is any consolation, the millionaire property owners of Australia are not alone!