Archive for January, 2012
According to SQM research, Melbourne’s rental vacancy rate surged 1 percent in December to a 6 year high of 4.4 percent as the city deals with an oversupply of residental property. There is now 16,000 rental properties sitting empty.
A fortnight ago, the Herald Sun reported on a rental glut in West Melbourne where the vacancy rate had hit 22 percent in the month of November. December’s figures show further increases with West Melbourne now sitting at 26.4 percent. New four bedroom, two bathroom homes are reported to be renting for $275/week.
The increases are not limited to Melbourne. In the Sydney suburb of Rhode, the rental vacancy rate is now 13.6 percent. Gordon is 8 percent.
» Melbourne full of empty homes – The Age, 26th January 2012.
» Rental vacancy rate an ‘ominous development’, says SQM – News Limited, 26th January 2012.
Posted in Australian Economy, Australian Housing | 11 Comments »
According to Skelton Sherborne, a freight forwarder of mining and construction equipment, imports of heavy machines into Australia fell 62.5 percent in November and December. Skelton Sherborne Director Brad Skelton said the last slowdown of this rate occurred in December 2008 / January 2009 when imports fell 77 percent.
He told the Australian Associated Press, “If everything is as wonderful as they (miners) say, why is there a slowdown in the last two months in the volume of equipment coming into the country?”
“That’s what I can’t reconcile … the real underlying story is that there is a lot of concern about just what’s going on in the world”
Earlier this week the International Monetary Fund (IMF) predicted non-oil commodities will continue to fall in 2012. It expects prices will come off 14 percent this year as world growth weakens further.
Mr Skelton said “And if commodity prices fall, I don’t think Australia is immune to a pretty difficult 2012 economically.”
Posted in Australian Economy | 8 Comments »
More doom and gloom headlines circulate Australian media today with comments from an United States based property analyst suggesting Australian property could crash by more than 60 percent. At the same time, Australian experts counteract the argument saying it can’t happen in Australia, in fact – some say we have no bubble.
Is there any substance to the article?
Jordan Wirsz says “Right now is not a time to be buying real estate in Australia.”
“The market has slowed substantially but residential prices are likely to fall up to 60 per cent, possibly even more, within five years.”
We don’t believe the 60 percent figure has been simply pulled from the air. It is consistent with the Economist Magazine that calculates Australian housing is overvalued by 53 percent on a rent to price basis (sort of like the PE ratio for shares) and 38 percent on an income to price ratio. Such a large bubble can scar the indebted and cause markets to over correct. I would be cautious about the 5 year time frame, although. I would expect prices to deflate over a decade or two, although the large falls will occur in the first couple of years in this window.
“I’m bearish about world real estate but I couldn’t be more bearish about the Australian market, There have been corrections but they don’t hold up to the scale of what is coming, ” said Mr Wirsz.
This is also consistent with The Economist report that states house prices in Australia, Belgium, Canada and France is more overvalued today, than during the peak of the American housing bubble. Assuming house prices fall back to nominal levels, this would suggest we could potentially have a bigger housing downturn than America.
But experts in the thick of it here in Australia disagree.
Paul Bloxham, HSBC’s chief economist, said there would have to be sharp rises in interest rates, unemployment and housing stocks for property values to crash. As per our prevous post, unemployment in Australia looks shaky and is expected to be worst this year as the effects of high household debt take their toll.
SQM research shows there are now 48,586 Victorian homes on the market in December 2011, up 43 percent for the 12 months. Stock on the market is up 23 percent in Sydney, 26 percent in Adelaide, 52 percent in Hobart and 21 percent in Canberra.
Peter Green from Laing+Simmons in South Sydney told the Sydney Morning Herald in a different article today, “In the last three months, the number of people visiting open houses has been cut by half. And buyers may show up to auctions, but they don’t bid.”
This could suggest turnover of stock is falling and is likely to contribute to even more stock on the market this year.
The official cash rate is likely to go down this year, although banks may choose not to pass rate cuts on, especially the ANZ who now set their own mortgage rates independent of the Reserve Bank of Australia. But with the World Bank warning on Wednesday that we are on the brink of GFC 2 and it is expected to be deeper than GFC 1, the cost to access international credit markets is anyone’s guess.
Mr Bloxham reassures News Limited readers that the combination of rising interest rates, unemployment and housing stocks levels is not on the cards.
He also says “Surely if the market was going to collapse it would have happened in 2009 after the Lehman’s collapse when we had the biggest aversion to housing assets that you’ve seen.” Maybe he forgot the First Home Owners’ Boost was “designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market.”
Ray White Inner West agent Charlie Bailey has the same thoughts, telling News Limited he believes the bubble can’t bust because there is no bubble. “People have been predicting house prices to fall every year and every year we have an increase in prices.”
The comment that there is no bubble because it would have burst by now is common. It’s a similar concept to boiling a frog, because the market is slow moving there is a perception the market hasn’t changed, just like the rising water temperature before the frog boils. This is also common among baby boomers who will tell Generation Y that they thought housing was expensive when they brought, but if they hadn’t taken the plunge, they would still be renting. While housing debt as a percentage of household income has quadrupled, it has done so over a period of three decades.
But the quote that a housing bubble can’t burst, because there is no bubble was first made famous by Alan Greenspan and Ben Bernanke. They both testified before Congress in 2005 that a bubble didn’t exist in the United States. Three months later, the America housing market started one of the biggest corrections in history (blue line):
» Bloodbath to hit Australian real estate, US property analyst Jordan Wirsz says – News Limited, 20th January 2012.
» World Bank’s crisis warning – The Sydney Morning Herald, 18th January 2012.
» How much property is on the market in your capital city? A state-by-state analysis – The Property Observer, 18th January 2012.
» Hammer falls on auctions – The Sydney Morning Herald, 20th January 2012.
Posted in Australian Economy, Australian Housing | 12 Comments »
Australian Bureau of Statistics figures released today show Australia lost 29,300 jobs in December. For the year, there was close to no new jobs created making job growth last year the worst since 1992.
Unfortunately this year is not expected be any better. Excessively high levels of household debt and house asset prices has seen growth in mortgage lending fall to levels not seen since world war II and left banks no choice but to start slashing staff numbers. UBS expects banks will slash 7,000 jobs over the next two years as banks align to a lower growth environment.
And pain is not limited to mortgage lending. Australian households are trying to deleverage after a decade of binge spending where households spent more than they earned for a number of consecutive years. Rising property prices and the wealth effect made spending beyond your means not only fashionable, it also appeared sustainable. It wasn’t as if you didn’t have the money, it just wouldn’t be realised until the sale of your home.
Household net savings have now sprung back to around 10 per cent to levels not seen in 25 years coincidently starting the same month than the collapse of Lehman Brothers. The paying down of debt and extra savings is thought to have wound back some discretionary spending, causing retail sales to decline and making it the worst period for retailing in a couple of decades.
IBIS World’s Ian MacGowan told the Sydney Morning Herald, “The period from 1998 to 2008 was a boom time, a golden era, for retailers, with well above average growth as Australians spent large sums on their credit cards and hire purchase”
This supported extra retail jobs that are no longer needed today with more prudent discretionary spending. Andrew McClennan, a retail analyst with the Commonwealth Bank said “there is no doubt there are going to be significant layoffs through further business failures.”
Some analysts are expecting a wave of retailers entering administration in March, while others will close stores and/or layoff staff.
» Thousands of bank jobs face axe: UBS – The Sydney Morning Herald, 16th January 2012.
» Retailers brace for job cuts – The Sydney Morning Herald, 18th January 2012.
» Debt Bubble Cripples Retail Spending – Who Crashed the Economy, June 8th 2011.
Posted in Australian Economy, Australian Housing, Unemployment | 5 Comments »
While the real estate lobby groups put on a brave face and shower us with news of a recovery (0.1% increase in property prices in November), surging rents, housing shortages, tight rental vacancy rates and that it is never a better time to buy – you will get in at the bottom of the market, there are signs something is not quite right in property land here in the lucky country.
The Herald Sun reported yesterday on a rental glut in Western Melbourne. This rental glut has left almost 1,000 new homes sitting empty (housing shortage) and has seen the rental vacancy rate surge to 22 percent (extremely tight rental market). New four bedroom, two bathroom homes are now renting for $275/week (surging rents) as landlords fight with each other to secure tenants and an income. If they can’t find tenants, holding costs are likely to send these investors to the wall very shortly.
The Weekend Australian Financial Review reported yesterday “The housing market on the edges of Australia’s major cities is showing signs of significant distress as banks increasingly refuse to lend against sale price valuations in a falling market.” Valuations in many new suburbs have fallen 15 percent last year. According to the article, the problem is most severe in Melbourne with Dennis Family Homes CEO Peter Levinge saying “Banks have tightened up on their finance requirements, part of which is valuation, and we are noticing a higher level or cancellations than 12 months ago due to finance issues.” Dennis Family Homes is one of the biggest developers in Melbourne’s west and says about 25 percent of buyers are walking away from contracts, up from about 10 percent a year ago.
Mirvac’s John Crasi has also reported a sharp rise in cancellations telling the AFR, “This is happening all over the country,”
Despite reassurances we don’t have subprime lending in Australia, The Age has reported today of a potential, but massive, class action against the banks for essentially lending struggling home owners’ too much money. An estimated 300,000 could join Roger Brown’s legal action with Mr Brown saying “The people we are talking about are experiencing severe financial hardship through no fault of their own because they shouldn’t have been given a home loan in the first place or they have been lent way too much money, I think the banks have a case to answer for the irresponsible way they have been lending.”
There must be problems in property land if mortgage holders now want to take legal action. Real Estate agents better watch out, they could be next for endlessly saying house prices always go up, in fact “if you look over the past 100 years, house prices double every 7 to 8 years.”
» Rental property glut means investors are feeling the pinch – Herald Sun, 14th January 2012.
» Banks pull financing rug on outer estates – The Australian Financial Review, 14th January 2012.
» Banks face home loan suit – The Age, 15th January 2012.
Posted in Australian Economy, Australian Housing | 13 Comments »
It’s the 64 thousand dollar question – With the housing market once again collapsing, just like in 2008, will the government re-introduce the first home buyers’ grant to prop it back up?
With a federal election due next year, Aussie Home Loans boss John Symond expects a new boost towards the end of the year.
He told the Property Observer, “Probably my cynical self says six to 12 months ahead of the next election, it would not surprise me that the government might stimulate housing by helping first-home buyers and they may possibly introduce a bonus or a boost to the first-home owner’s grant.”
According to Treasury, the government introduced the original first home owners’ boost in 2008 to encourage first timers who had been saving for a home to bring forward their purchase and prevent the collapse of the housing market. Bringing forward so much demand, has left a large void now that the free money is no longer available.
Figures out today show the first home buyers grants have also helped some 1,200 South Australian investors enter the market, or at least until they had to pay the grant back.
South Australian Minister for Finance, Michael O’Brien told the Advertiser, “This program is designed to help South Australians get a roof over their head, not to help them into an investment property.”
» First-home owner’s boost could return this year: John Symond Property Observer – Friday 6th January 2012.
» 1200 forced to repay home grants – The Advertiser, Tuesday 10th January 2012.
Posted in Australian Economy, Australian Housing, First Home Owners' Boost | 15 Comments »
It was December 2008. Three months earlier Lehman Brothers had collapsed – credit markets have frozen over. Two months earlier, Prime Minister Kevin Rudd announces the First Home Owners’ Boost, designed to save the housing market, or at least temporary, by encouraging first home buyers to bring forward their purchases and help prop up ailing demand.
By now Australian houses prices had come off 4.7 percent. During all the panic, the Rudd Government announces legislation to ‘streamline’ some of the administrative requirements for the Foreign Investment Review Board (FIRB). According to the Government, the changes would enable the FIRB to concentrate on larger issues in the ‘National Interest’.
But as the Australian public would later learn, this streamlining of administrative requirements really translated into the opening up the floodgates to allow temporary foreign residents such as students to buy property of any value in Australia, effective from the 18th December 2008. Previously they could only spend up to $300,000 on their primary place of residence in Australia.
With the housing market oversupplied, and demand dwindling, many questioned the timing of the announcement. Was it just another measure to save our already highly inflated housing market? If it was, you have to admit it was a genius scheme. Domestically, mortgage approvals had fallen off a cliff. Why not enlist the help of foreigners? It was cheaper, a lot cheaper, than giving first home buyers free money.
By March 2010, the Australian media started asking for data on just how many foreign residents were buying houses in Australia. There were endless reports each weekend of Australian’s being outbid by an army of Chinese residents, effectively pricing Australian’s out of their own housing market. But the ‘streamlining of administrative requirements’ actually meant no records were kept, or more specifically it would seem that these foreign residents no longer needed to lodge applications with the FIRB. There was public outcry and no real data to support just how big or small this issue actually was.
The outcry was so intense, that on the 24th April 2010, a tightening of foreign investment rules relating to residential property was announced, complete with a package of new civil penalties, compliance, monitoring and enforcement measures. The government even set up a 1800 hot-line for residents to report suspicious property buyers and help calm a heated public. It was sold to the Australian public as a reversal of the changes made in December 2008. But some are not convinced.
The problem is, there is no longer any transparency in the sector.
Only on Friday, The Sunday Age’s Property Reporter Chris Vedelago vented his frustration on a Freedom of Information (FOI) request to access this information. He quote’s the government response in his article – ‘‘Around 19 documents have been identified as potentially falling within the scope of your request. Given the nature of the documents I envisage that most, if not all, of the documents will be exempt from release,’’
You must admit, it doesn’t portray a good image of the government. As Chris writes, the FOI wasn’t targeted at troop movements in Afghanistan, the prime minister’s private schedule or the names of ASIO’s anti-terrorism informants? “No, it was a request for some basic facts and figures about the state of foreign investment in Australia’s residential real estate market.”
What do they have to hide? Is there a loop hole in their legislation?
A day after Chris’s article, The Courier Mail reported under the headlines “Foreigners outspend locals on Queensland residential property in 2011” that foreign buyers’ had spent $334.2 million on residential property in Queensland. Based on research by Colliers International, foreign Chinese increased their spending on Queensland real estate by 50 percent over the year prior, to $106.8 million.
While the figures presented in the article didn’t quite tally, about 70% of the sales were as investments with the other 30% for owner occupiers.
The Weekend Australian Financial Review printed a two page story in the December 17-18, 2011 edition under the headlines of “Chinese prop up property market”. It writes “While vast tracts of the Australian property market suffered the staggers this year, the Chinese kept Harry Triguboff’s cement mixers turning.” If you don’t know, well known billionaire Harry Triguboff AO is managing director of Meriton Apartments, regarded as Australia’s largest property developer. According to the article, 70% of Meriton’s sales are to Asians notably the Chinese.
Justin Wang, founder of Property Investors Alliance told the AFR, “If you sell to demand overseas, then you will find the settlement is not certain. I think the [Australia] government should kept a tight policy and not open the door to overseas investment. It’s very dangerous. The big danger is lots of speculators come here and if something goes wrong, it will crash.” According to figures from BIS Shrapnel and published by the AFR, Justin has 8 percent market share of new apartment sales in Sydney, selling 600 apartments a year, with 95% of them being Chinese.
Justin’s comments makes you wonder what happens when foreign Chinese residents find out that perpetual growth in real estate is not guaranteed and prices can and do fall? – just like what mainland China is experiencing now. Will this cause these investors to abandon Australia, or will it have the opposite effect and they flock here to a ‘strong and stable economy’. What ever the result, we can only have a guess at what the consequences will be without accurate and transparent data on foreign investment in Australia’s real estate market.
And has anyone noticed the Sydney Morning Herald is now reporting on Chinese house prices, down for the fourth month.
» Australia for Sale – Who Crashed the Economy, 27th March 2010.
» Foreign investment is overheating our property market – The Punch, 10th April 2010.
» Australian Federal Government gets tough on foreign ownership rules – News Limited, 24th April 2010
» Secret government business – The Age, 30th December 2011.
» Foreigners outspend locals on Queensland residential property in 2011 – The Courier Mail, 31st December 2011.
» China’s house prices fall for fourth month – The Sydney Morning Herald, 4th January 2012.
Posted in Australian Economy, Australian Housing, China, Foreign Investment Review Board | 8 Comments »
When the BBC last Thursday warned international markets about a 22.5 percent rise in mortgage repossessions down under in NSW, we thought the Australian media had swept this news under the carpet.
Under the headlines of “Fears mount over health of Australia’s housing market”, the BBC reported on what is considered a “worrying development” for observers of the Australian housing market, that is, repossessions and loans in arrears are rising. Australians for Affordable Housing told the BBC that over the past decade, house prices in Australia has surged 147 percent, yet incomes have only increased 57 percent. It shouldn’t take much to work out this is not sustainable.
Brendan Timmins who works in Auburn told the BBC, “People shouldn’t go too far into debt. They are trying to get the Australian dream but it is out of reach for a lot of people,”
“I used to have a house before, But it was no good, I couldn’t afford it, so I lost it”.
Figures show Australian’s have quadruped their household debt as a percentage of household disposable income in the last 20 years, trying to leverage themselves into the housing market.
Almost a week after the BBC story, the Sydney Morning Herald has today finally reported on these figures saying that the total annual figure is unlikely to reach the levels recorded during the GFC.
Campaign Manager for Australians for Affordable Housing, Sarah Toohey told the Herald the same figures regarding the rise in house prices verses income over the past decade, going on to say households were paying more of their income on mortgage interest payments today than when interest rates were at 17 percent.
Channel 7’s Today Tonight has jumped on the band wagon and dedicated an entire 5 minutes 43 to the topic following the even news tonight, showing what it calls is some of the ‘foreclosure ghettoes’ around the country. You could have mistaken some of the footage was from Spain with half built homes laying dormant on the Sovereign Island.
Watch the video here. (Mansion repossessions)
SQM Research’s Louis Christopher was interviewed saying “2011 was a bad year for many people who owned a home – no doubt about it. Many first home buyers who basically took out that First Homeowners’ Boost in 2009 got burnt in 2011. And that was as a result of the rising interest rates that we had in 2010,”
He blamed the Rudd Government’s First Home Buyers Boost – “it was all designed to actually save the housing market. Well they saved the housing market for a time, but at a major expense for their voters. Right now, many of them are facing bankruptcy.”
Treasury Executive Minutes show “This [FHOB] short-term stimulus was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market.”
Will repossessions continue to rise in 2012? Or is it, as buyer’s agent Tony Coughran says, never a better time to buy – “I think now is an opportune time, especially if you go to auction and buy it.”
» Fears mount over health of Australia’s housing market – The BBC, 29th December 2011.
» Foreclosures rise as more borrowers fail to repay – The Sydney Morning Herald, Tuesday 3rd January 2012.
» Mansion repossessions – Today Tonight, Tuesday 3rd January 2012.
Posted in Australian Economy, Australian Housing | 6 Comments »