When Demand & Supply Don’t Correlate
Traditional Economic Theory states that low supply equals high demand and increasing prices and confidence…but since the GFC things have become very different in different markets.
Let’s look at Townsville as an example.
Townsville has always been known as the solid performer of Regional Australia. Not subject to big falls and dramatic market rises, due primarily to its diverse economic base that is not reliant on one or two single industries.
But for 10 years now Townsville has been bumping along the bottom with a few bright lights to lead us forward. However over the last 12-18 months there has been a distinct change in the general ‘talk’ around the city, in the industry, and in the media. The future is looking brighter than before with several large scale projects looking likely to become a reality. These projects will create employment and population growth, the two key factors Townsville has lacked since the GFC.
But an interesting market trait has emerged over the last few months which has been evidenced by several residential apartment projects that have been launched to the market. What has been evidenced is a strong demand, especially in the owner-occupier end of the market. The enquiry rate for medium to high end property has been very strong, and with nil supply of new stock in the market this should be a classic underlying demand story…but this demand has resulted in few converted off the plan sales. Why?
There are a few factors that contribute to this outcome -
Property values across all sectors of the market are down at one time. This includes high end property values so owner occupiers don’t have the equity in their existing homes, at this stage of their lives, that they thought they would.
Because its been 10 years of little to no economic activity, people have become doubting Thomas’s and will only believe something is truly happening when construction starts. This makes off the plan sales every difficult.
And one final factor I believe, is that the improved market sentiment is not all about the market actually improving…but is primarily about acceptance that this is “The new norm” and expectations have been lowered.
Food for thought…
