Anthony Klan | April 03, 2008
THE recent spate of corporate failures in the property sector was not caused by the US sub-prime crisis, but was a result of poor company structures, according to Australia's second-largest property company.
Stockland Properties Group managing director Matthew Quinn said recent failing companies such as Centro and MFS had used the US sub-prime crisis as a "scapegoat" to mask their own poor company models.
"Some of our competitors have blown up and blamed sub-prime -- it's not sub-prime," Mr Quinn said at a Committee for Economic Development of Australia seminar yesterday.
"It's about those who are silly and those who are sensible.
"When the tide's high everyone is swimming, but when it's low you can see who is naked and sub-prime just exposed people who didn't have an adequate business model."
Mr Quinn also chastised those companies that had expanded into foreign markets without adequate capabilities.
"We could do that tomorrow: we could go to the US and package assets and get into financial engineering, but it would come back to bite us in three years time," he said. "The reasons people go overseas are based on ego, money and capability. A lot of egos have been bashed."
Speaking about the outlook for the property sectors, Mr Quinn said "inferior" properties would continue to suffer in the soft market in coming months.
"The inferior quality stuff could blow out and unfortunately a lot of (investors) holding those properties don't yet know what they've got," he said.
Mr Quinn said many players had overpaid for retail assets before the downturn.
"Until this crunch there was the feeling you can buy a shopping centre anywhere and you can't go wrong," he said.
"Properties were being sold on 5 and 6 per cent yields -- how wrong can you be?"
There is speculation Stockland is adding to the glut of property on the market. It is rumoured to be negotiating to sell five regional shopping centres -- including a centre in Bathurst, in NSW's central west and one in Bateman's Bay on the NSW south coast -- for about $450 million.
Mr Quinn declined to comment on the speculation except to say Stockland constantly reviewed its assets to ensure the group's capital was invested in "appropriate areas".
Despite the negative outlook for inferior properties, Mr Quinn said underlying property fundamentals remained strong because of a cap on new supply, partly caused by the shortage of available debt.
"Property fundamentals are strong but we are very cautious about (the economic impact) of a potential drop in consumer confidence," he said.
"People are currently unsure about the state of the economy but they are not worried about their jobs. If they become worried about their jobs, we're in real trouble".
Mr Quinn said deteriorating housing affordability caused by a shortage of new houses was the biggest problem facing the property sector. He said there was a national shortage of 35,000 dwellings each year, which would cause rents to continue to rocket.
"It's getting to the stage where rents in most capital cities will be going up by double digits," he said. "The federal Government has been fuelling the problem with high immigration and the baby bonus but then leaving it up to local governments to decide what development goes where."