Billionaire Harry Triguboff’s housing shortage warning: Gottliebsen

Australia’s largest apartment owner and developer, Harry Triguboff, scoffs at the idea that there will be a housing bubble. He believes the shortages, the absence of stock and the fact that the cost of construction is close to selling prices will underpin values and eventually lead to a rise. And to back his view his Meriton Group is embarking on a major apartment building campaign and plans to erect 5,000 units – double his old building rate – in the Sydney suburbs of Epping, Zetland, Alexandria, Warriewood, Rhodes and St Ives. He is also building two massive towers in Brisbane.

Yet the decision by the Reserve Bank two months ago to lift Australian official interest rates to 4.5%, which brings dwelling loans to about 7%, is hurting. A large number of potential Meriton apartment buyers in Sydney are being told by their banks that when loan interest rates are around 7% they can’t afford to buy. However owner-occupier buyers in Sydney are being replaced by self managed superannuation funds who have taken money out of the share market and invested in apartments to benefit from the higher yields now available. In Brisbane the market is tougher and Triguboff may need to hold many of the apartments being built as an investment.

He says that it seems that as you go north prosperity declines with Melbourne the most prosperous city followed by Sydney a notch down and Brisbane two or three notches below Sydney. Prices of two bedroom apartments in Brisbane sell for about a 30 to 35% below Sydney, partly because of the lower cost of land and partly because of the lack of confidence in Brisbane.

However Triguboff believes, in time, the gap will narrow. Brisbane buyers’ confidence has been shaken by the collapse of a number of apartment projects. But Triguboff believes that in time Brisbane will regain its confidence and he will have the apartments there to sell.

There is no doubt that the 4.5% interest rate level is hurting wide areas of Australia. You will remember that last February, Matthew Quinn, CEO of one of Australia’s largest housing developers, Stockland, said that the dwelling market would start to be affected once interest rates went beyond 4.25 per cent. They are now at 4.5% and Quinn was absolutely right. The effect on the apartment market might have been greater but for the self managed superannuation funds.

Triguboff believes that the housing shortages are forcing people to cram into accommodation which will have long term social and educational effects. The housing shortage will eventually have to be tackled by the government and the only way to take effective action is lower interest rates on housing to around 5 or 6%.

Of course the greatest danger to Triguboff’s confidence in housing values is the possibility that oversees lending to Australian banks will reduce the flow of funds, causing an Australian credit squeeze. While the long-term danger remains the fact that the mining tax has been disemboweled reduces the risk.

This article first appeared on Business Spectator.