One of Australia’s major property groups Mirvac stands to lose hundreds of millions of dollars from the Brisbane flood, but so far there hasn’t been a peep from the company or a query from the ASX or ASIC.
In fact, investors seem to have ignored the potential losses with the shares trading at $1.30 today, steady on yesterday’s close and despite front-page news of one troubled development in Brisbane and its clients. That’s despite having nearly $400 million of unsold units in the three affected developments.
Another listed developer, FKP Properties, has about $160 million of unsold units at stake in a flooded development at Milton.
According to a story in today’s Australian, Mirvac is the most affected property group so far known from the Brisbane floods.
But while the thrust of the story, that Brisbane rents could very well jump because of the impact of the floods, the real story is the damage that could be done to Mirvac.
It has three projects in Brisbane that were flooded and where there are a substantial number of units unsold.
One is called the Montague in West end where 424 units with an average price of $550,000 are unsold on a development site that is under water.
That’s a rather nasty $230 million at stake.
The Pier at Newstead, where 43 units remain unsold, with an average price of $3.1 million (over $120 million). The paper says the car park flooded and the unsold units are looking to be settled in the next two months.
And the third is Farringford at Tennyson (which featured on the front page of today’s paper) on the site of the old power station, which flooded in the 1974 floods. The Australian says there are 47 unsold units with an average price of $1 million. The paper says the ground floor units, basement, car park and tennis courts flooded.
The listed FKP properties is another developer with a problem. The paper says it has 230 unsold units (average price $700,000, or a total of more than $160 million) at Milton. The site office was affected, according to The Australian’s report. No construction has started.
The listed Australand development company has a development at Kangaroo Point where 36 units (average price $1.01 million) are unsold. The paper says the hole for the basement filled with water.
Mirvac and other developers might well argue that it is too early to say anything, but one thing is certain, with damaging publicity on the front page of newspapers and in other media reports, along with the known locations, present valuations on the unsold units will not be met.
The selling price will be discounted to move the unsold units, meaning possible losses, and Mirvac could face legal action and other costs in the future from unhappy owners.
As well some buyers who are in the process of settling could abandon the deals and get back their money, meaning more delays, costs and possible legal bills.
The Australian claims some Brisbane property agents are talking about 50% discounts. If that is the case, then Mirvac is looking at a nasty $200 million or so loss on the value of those unsold units.
And irony of ironies, it was only in last week’s Weekend Australian that Mirvac chairman James Mackenzie was the subject of a glowing profile about how he had weathered various storms. Now he has another one, but so far he and his company have been silent, perhaps hoping it will be all right when the water goes away.
No it won’t.
The reporting on the Qld flood is getting a bit out of hand…most of the newly developed areas along the Brisbane River didn’t flood last week and if they did it had limited real impact. That includes Mirvac’s projects as mentioned above…the drop in value by 50% is just a quess and yes values could fall if owner try and sell now, but most are likely to stay put – see below an extract from my weekly email missive out tomorrow…
The 28,000 properties affected represent around 2% of the total housing stock in the area. Those properties inundated but away from the Brisbane River could see substantial drops in value if they try and sell prior to being completely restored. And whilst a quarter of the 850-odd houses on the Brisbane River were flooded, this property is tightly held and most owners are likely to renovate and stay put. Despite claims of armageddon, values along the Brisbane River aren’t likely to change much. In addition just 1.5% of the securitised mortgages across Queensland have been affected. We expect end values across SEQ to drop between 5% and 8% as a result; much of this in the first half of this year, with most of these losses potentially being regained during financial 2012. We were forecasting a 5% decline in values for the first half of 2011 prior to the flood anyway.
I concur with Michael Matusik (2.23pm). Especially regarding Pier at Newstead:
[The Pier at Newstead, where 43 units remain unsold, with an average price of $3.1 million (over $120 million). The paper says the car park flooded and the unsold units are looking to be settled in the next two months.]
I live close to this development and inspected several times during the flood. It is true that the basement of Pier flooded–how much was difficult to tell because the unfinished building site is still fenced off. It is not clear if the flooding occurred because the building was unfinished but in any case it seems relatively trivial to flood proof it (at least to modest flood levels as we saw this time). This certainly seems to be the case for the similarly priced Macquarie One apartments (cheapest=$3.25M) at the other end of Teneriffe.
As I have reported in various Crikey commentary over the past week there was very little flood damage in Newstead-Teneriffe-New Farm. To my knowledge none of the other buildings lining the river in these suburbs was flooded, including lower-ground (sub-marine) parking. This includes the whole stretch of buildings comprising Mariners Reach in Newstead (despite pictures of this bit of the river having been in papers, the water did not exceed the Riverwalk). MacTaggarts Woolstore (the only one right on the river) ditto and I was even surprised that Eves Restaurant on MacTaggarts lowest level stayed open throughout!
The media has exaggerated the flood. The relatively small areas of New Farm that were flooded “inland” by the river backing up the stormwater drains. Even the dramatic photo in Crikey of an apparently flooded Coles at Merthyr shops was incorrect–only the basement carpark was flooded and Coles opened as usual on Saturday (a few shops at the lower area at the rear were water damaged but by inches of water so minimal damage). The CBD was also almost completely back to normal on Saturday including both Coles & Woolies basement supermarkets.
Guys,
Doesn’t really matter, the sentiment has set in. Who the hell wants to live in a flood zone. I know I don’t.
Jason
@michaels
well this is what you get when the planning regulation is run over by corporate interests & a suspect corrupt state cabinet. the land was cheap as gov’t surplus (compared to other riverside properties) to start with & most of the above properties were sold to their ‘mate’ developers by both state & commonwealth gov’t departments. I know for a fact that various consultants were used for the Australand development at Kangaroo Point because they werent happy with their original development permit (read: unhappy at the low yield council permitted thus not enough profits). This would have included building restrictions due to locality.
Look at the sites at newstead and tennyson. Not only flood prone but also some of the worst toxic contaminated sites in Brisbane. Thats why tennyson is now practically one giant concrete slab – its a cover-up (literally) Future development sites they maybe but personally i wouldnt be spending any millions on buying into them.
There is very good reason why the gov’t were stuck with these crappy pieces of prime riverfront proerty for over decades & only recently sold them off to developers. Nobody wanted them. Enter cashstrapped gov’t departments & the ability of developers to get concessions & make huge dollars. Property development is supposed to be a huge risk & now the chickens have come home to roost. The mega developers have had it too good for too long & lost the whole concept of risk, being pacified by the notion of financial entitlement and easy money over the last 10 years.