Larry Schlesinger | 18 February 2013

Distressed property listings set to spike in 2013 led by defaulting development sites: Colliers International

Mixed-use development sites accounted for the highest number of properties listed for distressed sale in 2012 with the rising trend of distressed sales set to continue in 2013 - led by Queensland.

Distressed property listings surged 36% in the second half of 2012 on the back of 5,207 companies going into external administration in the first half of the year, according to a new report by Colliers International. 

Around 816 distressed properties were advertised for sale across the country in 2012, up by 5% from the 777 properties on the market in 2011.  

The second half of 2012 is expected to yield a similar number of company collapses (the monthly average to November is 900 compared with 883 in 2011) meaning a similar high number of distressed properties will be listed for sale by administrators and banks in 2013.

According to the Colliers report author Felice Spark, there was sharp spike in the number of distressed properties coming to market in the November – 177 properties compared with a monthly average of 68 in 2012 – as banks increasingly brought distressed assets to a more active market. 

While Spark expects a spike in the amount of distressed real estate coming to market in 2013, she says a market correction has taken place “with prices now having dropped as low as they can go to support sales”. 

“It is unlikely that market conditions will worsen in 2013, but also unlikely that we will see much improvement over the next 12 to 24 months. 

“With little change expected, now is as good a time as any to go to market. Recent distressed sales activity has revealed market interest from prospective buyers and prices holding strong,” she says. 

Development sites overtook industrial property in 2012 in terms of number of distressed assets on the market across Australia, followed by the industrial, commercial, residential and rural and agribusiness sectors. 

distressedpropertyFeb19chart

“While 2011 saw the number of distressed assets on the market increase across all property sectors over 2010; it was more of a mixed bag in 2012,” says Spark. 

“Three sectors, in particular, saw a big spike in the number of distressed assets coming to market; being development sites, rural and agribusiness, and mixed-use developments. 

"Pubs/hotels, retail and healthcare and retirement all saw a minor increase in distressed property," she says.

An example of a recent successful distressed development site sales ws a 1,271 square metre property at 124 Hoxton Park Road, Lurnea in Liverpool in Sydney’s outer west, which sold above the reserve for $1.405 million in August last year.

It had previously sold for $700,000 in 2000 and had been listed for sale for $1.6 million in August 2007. 

The property, which is zoned for high density residential, was put up for mortgagee-in-possession sale after the owner had trouble re-financing his loan. 

On a state-by-state basis, Queensland continued to have the lion’s share of distressed property sales, increasing slightly from 2011 levels and maintaining an almost 50% share of distressed properties nationwide.  

Queensland saw a marginal increase of 3.5%, going from 382 properties to 395 properties, whilst South Australia saw an increase of 20 properties to 32 properties. 

Victoria witnessed a substantial spike during 2012 of 56%, going from 61 properties to 95 properties.

Spark says the banks have now begun pushing through, forcing properties to be put to market, with a trend towards secondary or regional-based property.

Industrial led the way in Victoria in 2012 representing approximately 40% of appointments.

NSW saw a decline in the number of distressed properties on the market, falling back slightly from 256 properties to 242 properties.

Conversely, the industrial, commercial and residential sectors all witnessed declines in the number of distressed properties on the market in these sectors.

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