Noosa's Hotel California
A shocking property price dive in Noosa reveals the extent of the credit-fuelled development boom - though one major buyer has done well from the debacle.
Noosa Heads, Australia, is a long way from Ireland and California but it has experienced a similar real estate shock – a 70 per cent fall in the value of a major property. It's a long time since Australia has seen prime property fall by that much.
The ingredients which caused the big value falls in California and Ireland were repeated at Noosa (and the Gold Coast). In the boom there was a huge influx of loan money, fanned by overseas banks led by HBOS, small regional Australian banks, independent Queensland property lending groups and the major banks. This sent property values through the roof and triggered a large number of development projects.
Then suddenly the money disappeared. Most of the foreign banks went home, the independent financers went broke, the regional banks went back to what they were good at and the majors also cut back lending. In Noosa the value of run-of-the-mill apartments has fallen between 20 to 30 per cent and similar declines would have been experienced on the Gold Coast.
But 20 and 30 per cent is a long way from 70 per cent.
A group of NSW and Queensland property entrepreneurs operating under the corporate banner 'Resort Corporation' tapped the lending frenzy during the boom and originated development plans up the coast. But the jewel in their crown was 'Noosa Sanctuary' which consisted of 149 self-contained apartments and dwellings including 15 'super luxury' dwellings that were marketed for just under $3 million each and another 26 dwellings of 'high luxury'. There was a restaurant pool and other facilities in a gated community including exclusive facilities for the super luxury dwellings.
In all Resort Corporation spent $210 million on the Noosa Sanctuary resort and clearly believed that the market value of what they were creating was much higher than that.
The project went into receivership and it was generally thought that the very worst case scenario was a 50 per cent drop in value to $105 million. That would have gone close to covering the HBOS first mortgage debt which was in the vicinity of $120 million. But no. The highest and winning bid was just $60 million, payable in 21 days. HBOS lost half their money on a 60 per cent first mortgage security. Second and third mortgage holders plus the equity funds were wiped out.
The buyer was Australia's largest mutual organisation, the RACV which already has a massive Melbourne city club, plus major resort facilities at Healesville (Yarra Valley); Cape Schanck, Cobram, Inverloch (Gippsland) and Royal Pines on the Gold Coast. It is also building a major resort at One Great Ocean Road, Torquay.
The Royal Pines facility would now cost about $500 million to replace, but was purchased for $66 million in the middle of the global financial crisis.
The Noosa Sanctuary Resort is brand new. It was to have been managed by Mirvac but the RACV will now manage the resort.
A number of people have pre-purchased apartments at Noosa Sanctuary. There will be discussions with them, but their pre-sale purchase price is way above the market value.
In effect, the RACV has bought the dwellings for an average price of just $400,000 each with the restaurant and other faculties thrown in for nothing.
RACV has an enormous customer base and will begin offering the luxury accommodation to its members at a fraction of normal Noosa prices, so providing low-cost luxury Noosa accommodation as a member benefit made possible by the low purchase price.
RACV does the same thing on the Gold Coast.
The RACV has members' funds in excess of $2 billion and no borrowings, so it was able to settle quickly. RACV's cash power-house is the insurance joint venture it has with IAG covering NSW and Victorian cars and houses (RACV has 30 per cent of the venture).
If there is a change in control of IAG, then RACV has the right to buy out IAG's 70 per cent stake in the joint venture at 'fair value', which is likely to be lower than the sort of price a rival would need to bid to take over IAG (IAG's poison pill, August 2).
RACV is very happy with the current situation but is ready to pounce should there be an IAG control change.
The ingredients which caused the big value falls in California and Ireland were repeated at Noosa (and the Gold Coast). In the boom there was a huge influx of loan money, fanned by overseas banks led by HBOS, small regional Australian banks, independent Queensland property lending groups and the major banks. This sent property values through the roof and triggered a large number of development projects.
Then suddenly the money disappeared. Most of the foreign banks went home, the independent financers went broke, the regional banks went back to what they were good at and the majors also cut back lending. In Noosa the value of run-of-the-mill apartments has fallen between 20 to 30 per cent and similar declines would have been experienced on the Gold Coast.
But 20 and 30 per cent is a long way from 70 per cent.
A group of NSW and Queensland property entrepreneurs operating under the corporate banner 'Resort Corporation' tapped the lending frenzy during the boom and originated development plans up the coast. But the jewel in their crown was 'Noosa Sanctuary' which consisted of 149 self-contained apartments and dwellings including 15 'super luxury' dwellings that were marketed for just under $3 million each and another 26 dwellings of 'high luxury'. There was a restaurant pool and other facilities in a gated community including exclusive facilities for the super luxury dwellings.
In all Resort Corporation spent $210 million on the Noosa Sanctuary resort and clearly believed that the market value of what they were creating was much higher than that.
The project went into receivership and it was generally thought that the very worst case scenario was a 50 per cent drop in value to $105 million. That would have gone close to covering the HBOS first mortgage debt which was in the vicinity of $120 million. But no. The highest and winning bid was just $60 million, payable in 21 days. HBOS lost half their money on a 60 per cent first mortgage security. Second and third mortgage holders plus the equity funds were wiped out.
The buyer was Australia's largest mutual organisation, the RACV which already has a massive Melbourne city club, plus major resort facilities at Healesville (Yarra Valley); Cape Schanck, Cobram, Inverloch (Gippsland) and Royal Pines on the Gold Coast. It is also building a major resort at One Great Ocean Road, Torquay.
The Royal Pines facility would now cost about $500 million to replace, but was purchased for $66 million in the middle of the global financial crisis.
The Noosa Sanctuary Resort is brand new. It was to have been managed by Mirvac but the RACV will now manage the resort.
A number of people have pre-purchased apartments at Noosa Sanctuary. There will be discussions with them, but their pre-sale purchase price is way above the market value.
In effect, the RACV has bought the dwellings for an average price of just $400,000 each with the restaurant and other faculties thrown in for nothing.
RACV has an enormous customer base and will begin offering the luxury accommodation to its members at a fraction of normal Noosa prices, so providing low-cost luxury Noosa accommodation as a member benefit made possible by the low purchase price.
RACV does the same thing on the Gold Coast.
The RACV has members' funds in excess of $2 billion and no borrowings, so it was able to settle quickly. RACV's cash power-house is the insurance joint venture it has with IAG covering NSW and Victorian cars and houses (RACV has 30 per cent of the venture).
If there is a change in control of IAG, then RACV has the right to buy out IAG's 70 per cent stake in the joint venture at 'fair value', which is likely to be lower than the sort of price a rival would need to bid to take over IAG (IAG's poison pill, August 2).
RACV is very happy with the current situation but is ready to pounce should there be an IAG control change.
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