Investors are on tenterhooks as experts debate if we are on the cusp of a painful property market correction or a soft landing, and the Brisbane apartment market could be the canary in the coal mine.
Share market investors should be following this news closely as a hard drop in house prices will certainly have an impact on Aussie equities and the wider economy.
It appears that some property investors who bought apartments in the Queensland state capital are selling their investments at a big loss, according to a report in the Australian Financial Review.
The article featured a Chinese couple who bought an off-the-plan unit in Lendlease Group's (ASX: LLC) 'The Green' high-rise development in 2013 for $535,000, but had to sell it for a 28% loss recently as the market has turned hostile for offshore property buyers.
This is one of the biggest losses we've seen (at least in a very long time) and it is likely to have an impact on the rest of the city's property market.
International buyers are finding it much harder to get financing, while Australia has imposed additional taxes on this group and Chinese authorities have tightened capital export controls.
We could see more defaults from overseas property investors and that means price drops for apartments, noted the AFR.
It's too early to say if apartment prices will be discounted by 28% but behavioural finance theory suggests that there is a risk of that happening due to "anchoring". When market participants hear a number, they tend to stick around that figure and I am sure the big loss suffered by the Chinese couple is the talk of the town in Brisbane.
The more important question is the extent of the fall-out. A big drop in apartment prices is likely to impact on sentiment towards landed properties in that state, and depending on how far the broader Queensland market falls, this could become a contagion for other parts of the country.
While we shouldn't hit the panic button (at least not yet), at the very least, investors should be wary of stocks that are exposed to the Queensland market.
This includes Bank of Queensland Limited (ASX: BOQ) and potentially Suncorp Group Ltd (ASX: SUN). I would also be cautious towards apartment builder Mirvac Group (ASX: MGR) due to its large exposure to Sydney and to international buyers.
Sydney apartment prices have actually fallen more than those in Brisbane over the past year, according to Corelogic data. I think it is only a matter of time before we read about another distressed Chinese seller in that market.
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