‘Fire Sale’ in the snow

The fire sale includes a big chunk of the recently completed $50million St Falls project - an overdevelopment if ever there was one.

The Fall of Falls …. (and Hotham?)

It comes as no surprise to me to read (in two separate but linked reports  in The Age) that the property development bubble at the nearby mountain resorts of Falls Creek & Mt Hotham has finally burst. It had to happen and next month it looks like this house of cards will finally collapse when one of the key developers conducts…

… a NO RESERVE PRICE auction of an entire portfolio of 77 properties at the Falls Creek ski resort.

This is a really desperate, fire-sale move. As one independent property valuer puts it:

“With only about 30 sales at Falls Creek this year, offering 77 properties to buyers may cause headaches and a glut for other vendors … I think there will be some really, really cheap properties ..”

Make no mistake, this marks the beginning of the end for these overdeveloped, overpriced, underperforming and, quite frankly, crass developments up there that are a blight on the landscape: 

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Snow properties on the skids

Melbourne property developer Morry Schwartz is set to auction his entire portfolio of 73 apartments and four retail spaces at Falls Creek next month. Along with his son-in-law, architect Callum Fraser, Schwartz developed the St Falls, Silverski and Huski projects which transformed the Falls Creek resort.

Falls was considered the poor cousin of nearby Mount Hotham until Schwartz’s developments were built, says Hay Property Group valuer Peter Hay.

… ”At the moment, for all snow mountains, this has been the slowest year for 10 years,” says Hay. ”The only movement is for entry level property,” he says. ”Your real entry level, it might be $80,000 to $200,000, is generally where things are moving.”

Schwartz expects prices between $100,000 and $1 million for the range of studio through to penthouse apartments he is selling.

Apartments in St Falls are currently being advertised online starting at $405,000 for a single bedroom unit and rising to $895,000 for a three bedroom dwelling with alpine views.

… The sale process, perhaps taking a cue from the Crown Casino venue, is a risky strategy. There will be no reserve price under a time-restricted Helmsman auction system more commonly used to sell livestock.

”That will be an interesting exercise,” says Hay.

… With only about 30 sales at Falls Creek this year, offering 77 properties to buyers may cause headaches and a glut for other vendors. ”I think there will be some really, really cheap properties if it’s not underpinned with some reserves,” says Hay. ”For the sake of Falls Creek I hope it works.”

… Mt Buller’s proximity to Melbourne helps drive sales, and the airport servicing Hotham and nearby Dinner Plain boosts off-season activities like hiking in the high country, says Hay.

All of Victoria’s resorts are located on crown land in national parks. Properties are sold under 50-year leasehold agreements – for which bank finance can be tricky – and rental returns are on the lower side averaging between 3 and 4 per cent.

Comment:

For years now, investors have been misled and tricked sold the dream into forking out $hundreds of thousands for sub-standard holiday accommodation at the mountain resorts that:

• Sits idle for most of the year.
• Adds to the glut of accommodation properties to service an industry (skiing) that is actually static and hasn’t grown in participants for over 20 years.
• Are propped up by ‘guaranteed rental returns’ for the first couple of years that were way out of whack to reality and were, in effect, built-in to the sale price (eg – they promise 7% return, when most properties struggle to produce 3%).
• Promise to develop ‘year round tourism’ which has never (and never will) eventuated – it’s bloody cold up there most of the year and there’s nothing to do. Nice place to visit for the scenery but only worth a day trip, not a holiday.
• Are only on 50 year leases - not freehold title - and can, therefore, be difficult to finance … and sell!

This all started in the mid 90s when the then Liberal Premier Jeff Kennett generously sold off the Crown land leases to developers for next to nothing and let them in. Labor Premiers Bracks & Brumby, ably assisted by Deputy Premier and good time boy John Thwaites (a real Falls man), continued the sweetheart arrangement, even contributing $3million to the landscaping of the privately owned St Falls project and $4million for Mt Hotham to make snow from recycled sewage (!!), while real towns like Bright went without vital infrastructure funding. Do you reckon it’s corrupt up there or what?

My advice to anyone contemplating snapping up a bargain in this no-reserve auction is this:

FORGET IT. You will only get what you pay for –  i.e. CRAP.

Investors would be better off (and always have been) investing in a real tourist destination like Bright that, even though it’s quieter in winter now, has genuine year-round tourism and (surprise, surprise) decent weather and realistic prices.

In fact tourists have flocked to Bright for over 100 years and there is no stopping them. Maybe that’s where the developers should have put their money in the first place instead of in the remote, cold & desolate mountain tops. 

Oh, but then they would have had to pay realistic prices for the land and get council planning approvals – you know, minor details that were bypassed in these State-governed kingdoms known as the Alpine resorts. What a joke.

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