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Wage Growth vs Residential Property Prices

Over the last 20 years, housing price growth has substantially outpaced wage price growth across Australia and New Zealand. This gap has been further exacerbated by a 21.6% and 23.4% growth over the last 12-months in Australia and New Zealand, respectively.

On a compound annual basis, wages have grown at around 3% in both Australia and New Zealand, compared to housing prices, which have grown at 5.5% and 7.2%, reducing the purchasing power of the average home buyer.

At Merricks Capital, we believe the current residential and land exposure in the fund is well suited to be absorbed when projects reach completion. In addition, on balance, our residential construction portfolio is 62% pre-sold (weighted average). The theme of strong sales continues on the NSW central coast, with 17 sales (out of only 100 units) made over the last month in one of our existing investments.

Since the last supply completion cycle, circa 2018, there has been a significant drop in the number of residential completions creating an opportunity for our funds to invest in selected new projects. However, there are segments of the market that are still distributing the remains of the last supply cycle, which also provides an opportunity in residual stock sector lending.

This week, we settled a 36 month, $120m loan for a luxury residential development in Southeast Queensland and we currently have two residential projects in due diligence. One is in Adelaide’s CBD fringe and the other is a large mixed-use construction loan in New Zealand with a significant residential component. Additionally, our investment team is reviewing a third residential opportunity North of Sydney.

Two loans were added to the agriculture portfolio this week. The first, an $82m loan provided to a diversified agribusiness in the Riverina region of NSW. A second $39m loan was settled, funding a grain port operator on the Eyre Peninsula, South Australia.

Following last week’s report, it has since been confirmed that the builder constructing our Kew project has been placed into liquidation. Merricks Capital, alongside strategic partner Debuilt is working with the borrower to decide on a suitable contractor to complete the build. There are currently two strong candidates and construction is expected to recommence in the early new year.

 

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