How Noosa’s property problems are spreading: Gottliebsen

When later today Wayne Swan presents his big budget deficit for the 2011-12 year the last thing on his mind will be what is happening to Noosa property prices.

But Swan should be worried – the big fall Noosa is experiencing is exactly what many overseas property investors are predicting for the rest Australia. They believe our residential dwellings are over-priced and the budget deficit that Wayne Swan will announce will boost inflation further and will force the Reserve Bank to lift interest rates and trigger a substantial fall in the residential market. And, given the importance of residential property to Australia, if those overseas property investors are right it will shoot down the budget estimates and lift the deficit even further.

So what are the chances of a spread of the Noosa virus to the rest of the country? The Gold Coast is already experiencing a dose.

Here at Business Spectator we started reporting the staggering decline in Noosa property values last November when we revealed that Australia’s largest mutual, the RACV, had bought the 149 luxury Noosa Sanctuary apartment complex for an average price of just $400,000 an apartment and the restaurant and other faculties thrown in for nothing. The developers had been expected to sell each apartment for an average of well over $1.5 million.

Last week The Australian reported Noosa property values had fallen by 40% and cited some spectacular disasters, although none as big as the Noosa Sanctuary debacle.

According to the Australian Financial Review we are now seeing a sell-off of residential property stocks like Mirvac.

The Noosa virus developed because the banks, led by the UK-owned HBOS, financed too many developments and then failed to fund purchasers (HBOS later withdrew from Australia), and because overseas buyers were scared by our high currency and pulled back.

In other words, Noosa’s ills are mainly a bank-driven crisis.

In our major capital cities the banks have not funded over supply and so far they have held their nerve in funding home buyers. However, if the Reserve Bank keeps lifting interest rates, more people will be priced out of the market and values will fall. But a Noosa style collapse is highly unlikely.

Nevertheless, our property values are in the hands of our bankers and they do not always act in their own best interests – as we saw in Noosa.

This article first appeared on Business Spectator.