Commercial property holding up despite IMF warning, auction results

Despite last week’s warning from the International Monetary Fund that commercial property could hinder an economic recovery, the Australian commercial sector is continuing to hold up well, according to one property expert.

David Green-Morgan, research director at DTZ Research, says the commercial property sector has performed better than analysts thought it would at the start of the downturn.

“If it was going to be a problem, it would have been a problem before now. I think the panic situation for Australian commercial property has past. In many cases the banks have been more supportive of landlords in Australia than we thought they would be.”

“I think Australian banks have been fairly well capitalised, but having said that, I do think the banks are going to be fairly reluctant in giving any lending. I think they want to see 12-18 months of consolidation in the industry.”

Green-Morgan’s comments follow a warning from the IMF regarding weakness in the commercial property sector, which it said could cause the economy to fall back into recession.

“Leveraged commercial real estate investors are likely to face difficulties in refinancing the loans that are coming due, and soaring delinquencies therefore have the potential to create a second wave of financial distress in exposed financial institutions,” it said in a report.

“The commercial real estate sector turned later than other sectors, but its deterioration is now in full swing. Rising unemployment and vacancy rates, falling property prices, and tighter lending conditions are contributing to distressed sales and delinquencies in the US, UK and Europe.”

Meanwhile, auction results have continued to remain solid despite the first reduction in the Government’s first home owners grant, before it is eventually phased out after 31 December.

In Melbourne, 414 properties sold at auction out of 490 reported, with Real Estate Institute of Victoria chief executive Enzo Raimondo saying in a statement the figures make sense after a report last week found the median price of a Melbourne home has reached $520,000.

“Melbourne’s increasing population combined with low interest rates and financial assistance for first home buyers has resulted in buyers facing strong competition to secure the home that they want and ultimately, higher prices.”

Out of the 490 auctions, 81 passed in with 46 on a vendors bid, leading to a clearance rate of 84%. Total sales reached $250.31 million.

In Sydney, just 98 properties were put on the market with 79 sold, leading to a clearance rate of 75% with total sales reaching $61.49 million.

In Brisbane, just 9 properties sold out of 17 home on the market, indicating a clearance rate of 53% with sales at $3.33 million. In Adelaide, 13 homes sold out of 24 on the market, with a clearance rate of 54%.