A Century of Australian Property Booms, Busts and Scams


  • Introduction

  • The 1890s Victorian land boom

  • The 1960s building boom and the 1970s bust

  • Unlisted property trusts crash in 1989-90

  • Scams of the 2000s

  • AREITs and the GFC 2007-17

  • Chinese investment in Australia 2013-17

  • Last words


  • Property development is a cyclical industry because it is based on a mixture of short and long-run demand drivers:

Population, demographics and household formation in the LR;

Interest rates, GDP growth, employment and income in the SR.

  • The property cycle generally follows the business cycle. However the volatility of property cycles is much greater than the business cycle.

This is particularly the case for residential building which often has a short cycle of

around five years or less.

  • Property cycles are often stock driven, because supply adjusts to changes in demand with lags, due to the pipeline effect of completion times for current projects.

  • During the expansion phase of the cycle it is not uncommon for a speculative bubble to develop in property markets.

Property Dynamics

Demand and supply are rarely in equilibrium in a stock driven cycle.

Boom and Bust

  • There are some key factors that sometimes lead to booms and speculative bubbles in property markets.

  • The most fundamental is the availability of credit, cheaply and easily, creating a ‘wall of money’ that fuels demand.

  • Second is a real or expected increase in demand for land or buildings, above the level needed for occupation or use.

  • Third is the development of a business model that is highly profitable in the early stages of the boom.

  • Finally, a steady increase in the number of people who participate turns a boom into a bubble.

  • When a bubble ends developers and investors go bust, and that often leads to failures of financial institutions.

The Land Boomers

  • 1882-85. Adelaide land speculation and embezzlement by directors led to the collapse of both the Commercial Bank of South Australia and the Town and Country Bank in 1886.

  • 1880-95. The Victorian land boom was based on subdividing urban fringe land into lots and these being sold and resold to speculators.

  • Land buyers (the ‘boomers’) sold their land while financing the original purchase with loans from a bank they controlled. When demand for subdivisions collapsed so did the speculators.

  • The first to go in 1889 was the Premier Building Society, which failed and its founder went to gaol. In April 1893 the Commercial Bank of Australia closed and went into bankruptcy. The boom was over.

The Banking Crash

  • In 1891 six Victorian banks crashed.

Including the State Premier’s Real

Estate Bank

  • Most of these were not really banks but companies formed to finance land purchases through debenture notes.

  • The 1891-92 collapse of the business empire of the man at the centre of the Melbourne boom, Sir Matthew Davies, involved 24 property companies and 5 banks. Public losses were over £4m.

  • In 1893 another 13 banks closed their doors, with 12 reopening after reconstruction of their deposits (at pennies in the pound).

  • “The closures were the culmination of the Melbourne property collapse which began in 1888 … there were 64 ‘banks’ in Australia in mid-1891. By mid-1883, 54 of them had closed, 34 of them forever.” (Sykes 1988: 176).

The 1970s Boom and Bust

Circular Quay East 1963

The Property Boom 1960-74

  • In 1960 the Sydney CBD was still mostly 4 to 5 storey warehouses and government buildings.

  • British insurance companies that had profited from London developments built the first dozen CBD office blocks between 1957 and 1966.

  • Demand for space increased with the mining boom and 2m sqm of GFA was built between 1965 and 1976.

  • Typically a developer would do a sale-and-leaseback deal under which the building would be sold to an institution (usually an insurance company) who would give the head lease back to the developer in return for a guaranteed 9% yield.

  • The developer collected the profit on the building and agreed to share any extra revenue if rents rose.

The Panic of 1974

  • As more buildings were completed unmet demand for office space fell and vacancies rose.

  • Inflation took off after oil prices doubled in 1972, interest rates began to rise sharply, employment growth stopped and the property market turned down.

  • Interest rates continued to rise through 1973-74, credit markets dried up and a credit squeeze began, with highly geared property developers the main victims.

  • The stock market sold off all property companies in panic selling that took up to 90% off their share prices.

  • Over 4 months in 1974 five major developers and financiers failed: Home Units Australia, Mainline, Cambridge Credit, Landall, and Keith Morris.

Home Units Australia

  • HUA had 40 subsidiaries and was the biggest unit builder in Sydney, owning a large amount of Darlinghurst and Woolloomooloo. With a gearing level of 83% it was vulnerable to a change in the market.

  • HUA operated by borrowing to buy a property, getting it immediately revalued at twice the price paid, then borrowing 75% of the increased ’value’ of the asset (so a property bought for $1m would carry $1.75m of debt).

  • It was taken over by its financiers in 1974, who were owed $37mn, and liquidated in 1977 with $56m of mortgage debt on its books.

  • The increase in debt was due to capitalisation of development and holding costs of the trading properties that were the company’s assets.

Mainline Corporation

  • Mainline grew through the 1960s into a leading construction contractor with subsidiaries in New Zealand, Fiji, Indonesia, Malaysia, Singapore and the US.

  • Its first development was a joint venture in 1965 that resulted in Goldfields House at Circular Quay. The business model was based on joint ventures with major corporates, who were often the financier of the project.

  • In 1968 it listed on the Stock Exchange and became one of the glamour stocks of the 1970s property boom.

  • In Sydney Mainline built the AMP Centre, 3 finance company head offices and the old Westpac HQ in Martin Place, and in Melbourne the Collins West and the twin tower Collins Place projects.

The Problem was Debt

  • By 1973 Mainline’s gearing level was77%, it was increasing its land holdings, but earnings were only 1 or 2 cents in the dollar on sales. In 1973 it was hit by a shortage of materials, which caused delays, and the collapse of its industrial relations.

  • In the early 1970s the Builders Labourers Federation turned the industry into a war zone and the industry’s IR into guerrilla warfare, Mainline was a particular target.

  • From a peak of $7.26 in 1973 Mainline shares fell to 23c in the property panic of August 1974.

  • Receivers were appointed and Mainline was wound up with debts of $57m. Its failure was completely due to over-gearing and misjudgement of the market.

Cambridge Credit Corporation

  • Origins were in a Newcastle business inherited by Mort Hutcheson in 1962. He invested in land for subdivision financed by borrowing from the public through debenture issues.

  • In 1974 Cambridge crashed and the Corporate Affairs Commission (now ASIC) conducted an investigation that found profits had been overstated every year between 1966 and 1974 in two ways:

1. Sales of bulk land by joint ventures that Cambridge held 50% of to other joint ventures

that Cambridge held 50% of were described by the investigators as ‘front-end profits’.

Half of these profits (the share controlled by Cambridge in the transaction) should

have been treated as unrealised profits in the accounts.

2. Secondly, Cambridge did not include losses made by any of its subsidiaries in its


A Total Loss

  • In 1974 a liquidity crisis hit the company, borrowers dried up and the huge stock of property in Queensland and NSW could not be finance -the interlocked network of companies folded.

  • Cambridge had liabilities of $196m, of which $69m was first mortgages, $84m was debenture holders and $35 to noteholders.

  • The CAC investigators accused the directors of manipulating the structure and accounts of Cambridge to deceive anyone who dealt with the company, but it took 10 years for the directors to be charged with fraud and the judge dismissed the case because of the delay in 1986.

  • After Cambridge collapsed the stock market crashed on Sept. 30, 1974 then in October a run began on building societies in SA, Vic and Qld, with queues of depositors forming on the streets outside branches.

Last Rites in the 1970s

  • In 1976 six Qld building societies were suspended, three later going into liquidation.

  • In March 1977 the major finance companies announced around $50mn in write-offs on property loans, many to Parkes Development.

  • Parkes Development had grown over 18yrs into one of Sydney’s biggest builders and developer, founded by Sir Paul Strasser.

  • Its success was due to the knack of buying fringe city land before it was rezoned, and he may have been the first developer to form a land bank.

  • Parkes was an immediate casualty of the credit squeeze in 1974, eventually going into liquidation in March 1977 owing $60mn.

  • Finally, in 1979 two big property financiers with excessive bad debts collapsed -Associated Securities Ltd. (ASL) and Finance Corp of Australia (FCA).

  • FCA was owned by the venerable Bank of Adelaide, which had to be merged into the ANZ after a run started on its deposits.

1980s Bubble

Inflation and Interest Rates

The 1980s Property Trusts

  • Managed funds boomed in the 1980s, with unlisted property trusts regularly pulling double-digit returns and attracting new investors looking for income.

  • They occupied a regulatory blind spot that allowed them to sell debentures and offer units without a prospectus.

  • Lend Lease, Hooker Corporation, Westfield and new entrants such as Brick Securities Ltd. launched new funds. The most prominent fund managers in the 1980s were Aust-Wide, Growth Equities Mutual (GEM) and Armstrong Jones.

  • The 1980s Australian boom was based on extremely aggressive bank lending, which led to overbuilding focused on speculative CBD office developments.

  • The oversupplied residential and commercial markets fell in the late-1980s and property rents and prices dropped sharply.

  • Commercial and industrial property prices plunged around 50 per cent and more in real terms.

Construction Cycle

Office Building

Many Failures

  • Hooker Corporation been in financial trouble since 1984 and went into liquidation four years after being taken over by Melbourne real-estate mogul Georg Herscu (who was subsequently gaoled).

  • Newcastle based builder/developer Girvan Bros failed in 1992, taking 400 subcontractors with it, due to overgearing.

  • Other major contractors that got into trouble were KBH (Northpoint), Concrete Constructions (Qld hotels), and Stewart Bros.

  • Essington, Malcolm Edwards’ unlisted public company, had been one of the most spectacular boom companies of the 1980s and had 100% gearing from Tricontinental and Estate Mortgage, then went down with them in 1993 when it could not refinance its debt.

  • The failures of developers and contractors fed back into the financial system and further weakened banks and other lenders with heavy exposure to the property market.

Estate Mortgage

  • The unlisted property sector crashed in mid 1990 as investors attempted to withdraw their funds before the fall in property prices was reflected in unit prices.

  • Thousands of investors lost their life savings.

  • Estate Mortgage advertised itself as "better than a bank", offering high-yielding securities of 17.5 per cent with an advertising blitz featuring prominent radio personalities.

The Crash of 1990

  • Estate Mortgage had a ‘giraffe’ TV campaign in the late 1980s promising low risk and high returns while the trusts were being exposed to an increasing number of speculative property deals.

A run on its funds led to it collapsing in 1990.

Three of the directors, Carl Davies, and father Reuben and son Richard Lew went

to goal.

  • Similar runs threatened to bring down the entire unlisted property trust sector and led to a Federal Government freeze on unit redemptions in 1991. Major property industry fund Aust-Wide collapsed in 1992.

  • After these failures a series of mergers and takeovers subsequently restructured the property sector.

  • An attempt to run a redeemable listed trust market failed and within a few years most of the surviving property trusts had listed.

After the Boom

  • On Black Monday, Oct. 20 1987, the stock market crashed and ended the M&A boom and easy credit of the 1980s. The property market followed in 1990 as interest rates rose to 17 percent.

  • The State Bank of Victoria and the State Bank of South Australia were absorbed in 1992 into the CBA and NAB due to heavy losses.

  • The largest credit union, Teachers' Credit Union of Western Australia, and the second-largest building society, the Pyramid Building Society, both failed. Estate Mortgage, and a friendly society, the Order of the Sons of Temperance were liquidated.

  • The three merchant banks at the centre of the 1980s property boom were wound up -Tricontinental, Rothwell's and Spedley's.

  • Many businesses bought by highly geared corporate raiders like Bond, Bell, Elders, Qintex, and Adsteam were sold by receivers.

  • Two of the Big Four private banks incurred heavy losses on loans to raiders and developers and had to be recapitalised (Westpac and ANZ) in 1992.

Coda: The Japanese Bubble