Property Dashboard - 24 August 2022
The feature article of the week:
Below is our feature article for this week’s edition of the newsletter.
This is the article we found most interesting to read, and the one we think is a “must read” for all our readers.
Key takeaways:
Liquidators for failed developer Caydon are investigating whether or not the company was trading insolvent for over two years.
Caydon went into administration owing financiers over $200m and $285,000 for a luxury Mercedes G63 wagon.
Caydon is thought to have 43 unsecured creditors with claims totalling about $15.6 million.
Our Take:
The developer going bankrupt doesn't surprise us.
The thing that does surprise us is the fact that the liquidators are investigating whether or not Caydon was actually trading insolvent for almost two years before being put into administration.
A period where the company incurred more debts, including for a luxury sports car (Mercedes G63 AMG) totalling $330,000.
This reaffirms our view that no matter how good it looks on the outside, a lot of these builders/developers are suffering, albeit in private, FOR NOW.
Our internal view is that a lot of these companies are trying to dig themselves out of a hole and may be making the situation a whole lot worse…
We hope it really isn’t that bad.
Otherwise, the problems will quickly start to spread down to the subcontractors, who are mostly small businesses that are not able to absorb losses.
We recently wrote about what all of this means for property prices, check out that article here: A profitless boom? What does that even mean?
We also recommend everyone watches the short video from the ABC below:
Other Mainstream media 📰
Failed developer Caydon owes financier over $200m - and a Mercedes (AFR)
Auction clearance rates hit 12-week high ahead of spring selling bump (AFR)
Westpac predicts Sydney and Melbourne home prices to fall by 18% (News.com.au)
Is there a ‘buy the dip’ moment coming for the Australian property market? (Livewiremarkets.com)
Mortgage stress looms for borrowers who haven’t done their homework (AFR)
Builders are collapsing in a loss-making boom, and ‘greed’ is to blame (ABC news VIDEO)
Why should you care:
The ‘Westpac consumer housing sentiment index’ tracks sentiment amongst buyers and sellers in the property market.
Sentiment ultimately drives demand and supply, so we think it’s important to track.
Our takeaway:
The index shows that current sentiment is close to levels last seen in 2019.
Our expectation:
We expect to see this get worse as rates continue to rise above levels that most market participants are expecting.
The image below shows how the cash rate is expected to peak in Mid-2023 at around ~3.8%. This would imply mortgage rates of ~6 to 6.5% (an armageddon scenario, in our opinion).