Changing Times

By Greville Pabst
CEO and Director

The last quarter of 2008 was, for many in property and finance markets, one of the worst trading periods they have ever experienced. Traditionally the property industry looks forward to the Spring season, epitomised by new property listings and a positive movement in stock levels. However, Spring as we know it, didn’t come in 2008 with many agents reporting stock levels and sales transactions to be down 50% on the previous year. For those who serve this industry: conveyancers, lawyers, valuers and others, this translated to a significant drop in sales volumes.

In September 2008 the collapse of Lehman Brothers signalled the start of the credit crunch. Finance approvals dwindled to a trickle and consumers began to lose confidence, delaying purchase and refinancing decisions. The major banks in Australia were buoyed by the governments guarantee and many other financial institutions suddenly became less  relevant with many shutting their doors, especially those too reliant on the securitisation market. Many of my colleagues and friends in the finance sector lost their employment during the period.

The property trust sector or Real Estate Investment Trusts (REITs), as they are now referred to, is in dire straights, and few will survive and remain in the form in which they exist today. Their share prices have been savaged and many have part of their portfolios for sale in an unforgiving market. Consequently, investment yields have risen to levels not seen in almost 20 years. Good quality retail investments such as shopping centres and supermarkets are now trading in a range of 7.5% to 9%, higher in some regional locations or for those with vacancy or weaker covenants. These same assets were selling on yields of 6 – 7.5% 12 months ago. The commercial market, however, will take longer to recuperate. Signs of recovery aren’t expected before 2010.

The residential property market is marching to a different drumbeat. In the second half of 2008 the residential market took a battering, but most losses were sustained in the prestige market above $1 million. Falls in this market segment have ranged between 10 - 30%. On the other hand, the bottom end of the market, defined as properties under $700,000, has held relatively steady and in the first quarter of 2009 activity has increased significantly.

Strong competition, fuelled by record low interest rates and the government’s First Home Owner Boost, is putting a floor under property prices at the lower end of the market. The  Federal government’s support of the housing sector appears to be working and consumer sentiment is beginning to improve with evidence of investors starting to move back into the housing market.

There are several reasons that support my views for a sustained recovery at the bottom end of the housing market: lower interest rates in the second half of 2009, retention of the first home buyers grant in some shape or form, the return of investors affected by higher yields, and strong immigration numbers that will add to an already tight supply.

The Federal Government’s reviewed fiscal policy will underpin this recovery. The property market was one of the first sectors to be hit midway through 2008 and it should be the first to benefit from improved conditions during the final quarter of 2009.

At WBP we have already noticed increased activity and enquiry fuelled by Federal Government initiatives and record low interest rates. We expect this to continue and gain momentum during the second half of this year as
confidence slowly returns to our markets.

One of the highlights for me over the last quarter of 2009 was the success of our newly acquired company, Retail Realty, which negotiated the purchase of Alexandra Hills Shopping Centre in Queensland for $40 million on behalf of a private client and successfully retained management of that shopping centre.

WBP Corporate, trading as Retail Realty, is a boutique commercial real estate office and asset manager with approximately $350 million of assets under management.

Interestingly, with WBP’s diversification into commercial real estate and asset management and the expansion of our valuations businesses into New South Wales, Queensland, South Australia, Tasmania, and Western Australia, Victoria now represents an approximate 64% of WBP’s total income. Three years ago, Victoria represented 95% of WBP’s entire business.

In 2009/2010 you will hear more about the growth of WBP’s valuation business nationally and our diversification into corporate advisory and asset management. In 2009 we continue to focus on providing the best customer service experience that we can deliver.

Thank you for your ongoing support and, as always, I am grateful for your trust in WBP as your preferred supplier of real estate advice and valuation services.

Click to download WBP News Issue 25 - Autumn Edition 2009