Students push up inner-city property prices, says RBA
PUBLISHED: 0 HOUR 46 MINUTE AGO | UPDATE: 0 HOUR 0 MINUTE AGO
The RBA’s Luci Ellis told an urban planning seminar at Sydney University on Monday night that pent-up demand in Sydney and other urban centres for more medium- and high-density living had driven prices for all types of inner-city properties well above the national median. Photo: Tamara Voninski
MARK MULLIGAN
Demand for student rental accommodation was driving up the premium for inner-city property in Sydney, but housing affordability in Australia generally was manageable, says the head of financial stability at the Reserve Bank of Australia.
Luci Ellis told an urban planning seminar at Sydney University on Monday night that pent-up demand in Sydney and other urban centres for more medium- and high-density living had driven prices for all types of inner-city properties well above the national median.
However, people’s ability to service existing mortgages had not changed much in the past 10 years. During that time, houses prices had fallen as well as risen, she said.
“Prices have risen faster than consumer prices, but they have not risen materially faster than household incomes,” she said.
She said house prices actually fell in 2004, in the 2009 aftermath of the global financial crisis and then “for an extended period around 2011”.
“In Sydney they fell on all three occasions,” she said.
“This is not a country where we haven’t experienced house price falls; we have experienced house price falls. There is risk in the system that people have already experienced,” she said.
“It’s simply incorrect to treat the Australian history as if there had never been any kind of downturn.”
She said unlike in the US, Ireland and Spain, where the global credit squeeze of 2007 and 2008 had exposed oversupply in housing markets which subsequently crashed, Australia was still struggling to keep up with demand.
Some of this came from foreign students looking for inner-city rental accommodation and graduates who stayed on with working visas.
“There is an assumption here that we need more housing to accommodate the people are who arriving [from overseas],” she said.
“But it’s little appreciated just how concentrated that population growth has become in students and former students.
“Where do students want to live, and where are recent graduates likely to want to live?
“Well it’s not big family homes on the fringe. It’s apartments in the inner areas near the universities.
“There’s a consequence to that, though – the premium to being closer in has increased. There’s always a premium to being close in, but it’s got larger.”
Although conceding that risks can always build up in the housing market, Ms Ellis kept her distance from any talk of bubbles.
Nor did she mention the macro-prudential controls currently being considered by colleagues at the RBA as a way of cooling some segments of the housing market. Governor Glenn Stevens has referred to the more speculative elements of the market, and says the banks is consulting the Australian Prudential Regulation Authority about the possibility of controls on some types of property investment lending.
However, Ms Ellis said doomsayers who warned of the sharp rise in debt to income ratios in Australia over the past four decades ignored financial liberalisation, inflation targeting and the use of household savings to provide emergency buffers.
The current low-interest, low-inflation, high-savings rate environment meant servicing mortgages today was no more onerous than 10 years ago, she said.
“The affordability of a current mortgage is not unusually high,” said Ms Ellis.
The Australian Financial Review
How the Young Rich property developers made the 2014 list
Published 28 October 2014 11:55, Updated 28 October 2014 16:51
Beverley Head
How the Young Rich property developers made the 2014 list
BPM Construction and Developments’ Jonathan Hallinan: ‘I’ve been in the business since 1996 and I’ve been told this is a bubble since 1996.’ Photo: Jesse Marlow
When Credit Suisse released its Global Wealth Report 2014 in October, Australians took out the top ranking in terms of median wealth, which stood at $US225,000 ($255,500).
The nation also achieved a creditable second place (behind only the Swiss) when it came to average wealth, which rose to $US431,000.
Property, which accounts for the lion’s share of individuals’ assets, has made the nation rich. It has made nine young Australians extremely rich.
While property investment and development delivered 67 individuals with a ranking on the 2014 BRW Rich 200 List, it has also spawned nine Young Rich listers.
The nine are: Jonathan Hallinan, director of BPM Construction and Development Group; Metro Property Development chief executive Luke Hartman, who is enjoying a meteoric rise and debuts on the list this year; Melbourne-based Paul Fridman of Fridcorp; Tim Gurner who set up Gurner™ last year; Perth-based Ronnie Elhaj from Nicheliving Group; Patrick Coughlan, founder and former CEO of pub property investor the Riversdale Group; 8Hotels founder and CEO Paul Fischmann; Marcus Gilmore, CEO of MLG Realty; and Nick Georgalis, managing director of Canberra apartment company Geocon, who also makes his debut on the list.
Combined they have a total estimated wealth of $574 million – and rising.
Australia weathered the global financial crisis comparatively well, but robust property prices fuelled by historically low interest rates have driven a strong increase in average and median wealth figures.
Not everyone is happy, though. There have been dark mutterings about a property bubble and over-enthusiastic lending practices. The Reserve Bank of Australia and the Australian Prudential Regulation Authority are consulting with other members of the Council of Financial Regulators to assess how lending practices can be managed to ensure Australians don’t over-extend themselves and hence risk the market heading into reverse.
Yet the young guns of the property sector remain bullish about the prospects for further growth – both the sector’s and their own.
Private portfolio for a rainy day
Jonathan Hallinan, who ranks No. 17 on the BRW Young Rich List with $113 million to his name, owns BPM Construction and Development, which has a heritage forged from developing luxury apartments for high-end downsizers. He’s not convinced there will be any sort of downturn. “I’ve been in the business since 1996 and I’ve been told this is a bubble since 1996,” he says.
Part of that sanguinity could come from Hallinan’s weekly strategy meetings with his business coach, which he says mean he doesn’t stress any more. After enduring sleepless nights for 16 years while he built the business, Hallinan says he now sleeps well.
Not that he doesn’t have a belt-and-braces approach to his business or his wealth, having bought up to 20 per cent of all his development projects which he has kept in a private portfolio for the last 19 years in order to deliver cash flow should tough times emerge. It’s a strategy he says he borrowed from Meriton maven Harry Triguboff.
Hallinan has also diversified the business internally with in-house construction, strata management, finance and property management capability. “Every facet of the development phase we own,” he says.
BPM is broadening its horizons offshore now and has opened an office in Los Angeles, although it has yet to commence any US developments. The company also has business relationships in south-east Asia to facilitate international sales, which Hallinan describes as “imperative in the current market”. Actual developments have been concentrated to date in the Victorian and Queensland markets.
No purchases without an exit plan
Metro Property Developments’ Luke Hartman: ‘Our strategy is we won’t buy something unless we know how to sell it at the other end.’Photo: Luis Ascui
Ranking 20th on the BRW Young Rich List is Luke Hartman who has debuted with $92 million. Hartman is managing director of the four-year-old Metro Property Development which has a $2.5 billion project pipeline spread across Queensland, Victoria, Western Australia and South Australia with expectations of $500 million in revenues this financial year.
Metro has been built by Hartman, David Devine and Ken Woodley, who all left Devine Ltd when Leighton Holdings took a major stake in the business.
Today Hartman says Metro benefits from the mix of “old heads and youthful enthusiasm”, and fortuitous timing which saw the company established in time to secure sites at the bottom of the financial crisis and ride the market up.
Right now he’s most bullish about the Brisbane market, which he says is at the beginning of the growth cycle, although the company is starting to make inroads into NSW despite having missed the start of the boom in Sydney.
By having a diverse portfolio across Australia he believes the business is well placed to ride out any lumpiness across the state markets. Even so, he says, “our strategy is we won’t buy something unless we know how to sell it at the other end”.
And while he acknowledges that low interest rates have been a great driver for the Metro business, he believes there is some room in the market to absorb at least some interest rate increases without dampening demand.
Like Metro, Paul Fridman’s Fridcorp is also pushing into the Sydney market, recently spending $60 million on two inner-west apartment sites. Fridman, who ranks 27th on the BRW Young Rich List with wealth pegged at $78 million, has been a high-profile fixture of the Melbourne property market but declined to be interviewed for this article.
Driven by renter demographics
Property developer Tim Gurner: ‘The only thing that is pushing cost up is supply and demand and in Melbourne it’s not easy to bring supply on because of planning issues.’
Unlike Fridman and Hartman, Tim Gurner, chief executive officer and founder of Gurner™, isn’t planning a NSW push. He’s frank, noting that, “with Sydney I didn’t move fast enough – but it’s still got huge legs to go”.
However, opportunities abound elsewhere, he says, adding that the property market in general has become a lot more sophisticated and essentially global in nature.
The company currently has nine sites under development in Victoria and Queensland, with the 2050 apartments being built expected to sell for more than $1.1 billion. Gurner™ was established last year by Gurner who was previously co-founder of Urban Inc.
A commerce graduate from Melbourne University, Gurner says he is a very risk-averse developer. “It’s all about the numbers – the demographics,” he says.
The company only buys sites within two kilometres of central business districts which will attract tenancies from 25- to 40-year-olds, who then become buyers of similar properties. This leads to very low vacancy rates, which acts as a further lure for investors, Gurner says.
“In Collingwood we have three sites; 75 per cent of the population is 25 to 40 [years old], 60 per cent are renters. At some point they become buyers, but there is a good tenant pool for investors,” he says.
Brisbane’s Fortitude Valley is also in his sights, given that his analysis suggests 76 per cent of the population are renters and 78 per cent fall into the 25- to 40-year-old sweet spot.
With a Young Rich ranking of 28 and wealth of $77 million, Gurner doesn’t see clouds on the property horizon, and isn’t convinced that interest rates will rise at all, although increases of between 1 per cent and 2 per cent would have a negligible effect on his target market, he says.
“The only thing that is pushing cost up is supply and demand and in Melbourne it’s not easy to bring supply on because of planning issues.”
But being a self-confessed numbers man he laments the lack of reliable data that is available for the property sector. “This is by far the worst-recorded industry in Australia,” he says. Unlike the sharemarket, which can be monitored minute by minute, the property market he says is poorly served by data.
House prices rise strongly in October after flat sales in September
AAP OCTOBER 30, 2014 11:35AM
NEW home sales were flat in September, weighed down by a 2.3 per cent fall in the sale of detached houses.
However sales of apartments and semi detached houses rose 11 per cent in the month, and were up 8.7 per cent in the September quarter, the Housing Industry Association (HIA) said.
HIA chief economist Harley Dale said the strong result shows that the multi-unit dwelling category is bouncing back from a slump a few months ago.
“The overall profile for new home sales is consistent with a healthy year for dwelling construction in 2014/15,” he said.
“It would be desirable to see that outcome in detached and low density construction in addition to the high rise sector.”
Preliminary figures from the RP Data Core Logic home value index, also released today, showed that housing prices rose strongly in October after stalling in September.
RP DATA: October strength
In the first 29 days of the month, prices in the mainland state capitals were up by an average of 1.2 per cent, after a tiny rise of just 0.1 per cent in September.
RP Data’s national research director Tim Lawless said early indications were that price gains in Sydney and Melbourne could be more than one per cent in October.
“As we move into the third month of spring, the housing market remains relatively strong. However, despite the strong monthly result, the annual trend in capital gains has been moderating since a recent peak in April earlier this year,” Mr Lawless said.
The final RP Data CoreLogic home price measures for the whole of October will be released on Monday.
AAP
Ms Lloyd-Hurwitz said a shortage in housing supply was driving property prices and not investor activity.
Mirvac sees no regulatory hurdles
THE AUSTRALIAN OCTOBER 31, 2014 12:00AM
Sarah Danckert
Property Reporter
Melbourne
Mirvac sees no housing hurdles
MIRVAC does not expect any major impact on its business if prudential regulators move to rein in lending to investors, saying it was on track to settle a bumper 2200 lots this financial year.
The developer revealed at its first quarter update yesterday that it had settled 588 lots in the first quarter and the group is anticipating the initial stages of its Green Square project in Sydney will perform well.
Following the strong sales over the first quarter, Mirvac chief executive Susan Lloyd-Hurwitz said the group would release 2700 lots to the market during 2015, putting the company in a good position for the following year’s earnings.
The strong residential performance led Mirvac to reaffirm its full-year earnings per share guidance of between 12.0c and 12.3c. The result comes as the banking regulator Australian Prudential Regulation Authority considers cracking down on investment activity in the housing market.
Ms Lloyd-Hurwitz said a shortage in housing supply was driving property prices and not investor activity.
“There is a fundamental under supply and the excess demand, driven by immigration, primarily, is driving the market — it’s not about foreign investment or investor activity,” Ms Lloyd-Hurwitz said. She said usually investors counted for between 40 per cent and 50 per cent of sales across Mirvac’s residential projects but at the moment it was a bit above this range.
Macquarie analyst Paul Checchin said there was little risk to development earnings for Mirvac.
“However we see potential for a short-term soft patch following the implementation of macro prudential policies with over 50 per cent of Mirvac sales currently going to investors.”
However, CLSA analyst Sholto Maconochie said he expected any impact on Mirvac and rival residential developer Stockland due to potential macroprudential regulation had been overstated.
Over the first quarter, Mirvac also recorded a 1.7 per cent increase in specialty sales at its malls.
Occupancy across Mirvac’s office portfolio fell during the quarter to 95.9 per cent from 96.1 per cent and there were no further updates on the leasing program for its three new developments, 699 Bourke Street and 2 Riverside Quay in Melbourne and 200 George Street in Sydney.
Separately, shopping centre owner Federation Centres copped a 14.78 per cent protest vote against its remuneration report at its annual meeting yesterday.
Chief executive Steven Sewell told investors that having the “right performance and remuneration systems to attract and retain high-performing people” was a key factor in delivering returns. Despite the protest vote, the remuneration report was passed at the meeting.
For the record I think it is great that GG posts all these here so that in 12 months time we will see whether the supply shortage issue becomes another deja vu Singapore. Isn't it interesting that Singapore moved from undersupply to oversupply relatively quickly?
Any old enough observer can see it doesn't just apply to Singapore. Just that Singapore has better familiarity for most forumers here. Nothing new under the sun.
PS I don't think Aussie property will crash next year per se... but I think we will get some real signs of who is swimming naked in 12 months
For as far as I have been tracking the Australia prop mkt, demand has never been filled as the mkt has been constantly under supply.
One should never use the cosmopolitan mentality to analyse a big continent like Australia. Each state is way too big that dynamics of which is so difficult to understand.
At the right price, there will be buyers. In any event, Australian properties have never had quantum leap like Asian property markets hence, a crash for them could well be a 10 - 15% correction.
I have no vested interests apart from the shares that I invest in but I just want to caution anyone in their analysis.
Australia is a boring place to make big $. However, there are excitement to thrill in such low beta environment.
GG
(31-10-2014, 12:59 PM)specuvestor Wrote: [ -> ]For the record I think it is great that GG posts all these here so that in 12 months time we will see whether the supply shortage issue becomes another deja vu Singapore. Isn't it interesting that Singapore moved from undersupply to oversupply relatively quickly?
Any old enough observer can see it doesn't just apply to Singapore. Just that Singapore has better familiarity for most forumers here. Nothing new under the sun.
PS I don't think Aussie property will crash next year per se... but I think we will get some real signs of who is swimming naked in 12 months
With 97% LVR available and most homebuyers now being investors, its more like demand from investor exceeding supply, rather than just homebuyers needs exceeding supply.
Easy credit as usual is the culprit, that combined with the flow of corrupt monies from China
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Whatever it is, Australia has land mess sufficient for migrant population growth.
Australia's migrant flow is sustainable at a decent growth rate. Migrants bring along with them wealth for home purchases.
In addition, there is a good proportion of the population that are always asset light for whatever reasons - inability to purchase or long term rental due to mobile work commitments across the huge continent.
Its a big continent with cosmopolitan cities. Depending on location, there will be over/under supply situation.
We just have to follow the lead of the established developers and not be confused by the newbies that brought along their home experience Down Under.
More often than not, they are the ones who will be swimming naked when the tides go out. Investors that have accumulated substantial wealth via negative gearing - on paper its a stack of cards but are the banks that stupid to keep extend credit without evaluating the credit standing at the prevailing mkt conditions?
Low doc mortgages have always been around and the quantum of financing is high. There is no doubt that low doc loans will create trouble again but then again that is part of Aussie property cycle.
GG
ANZ and Macquarie keep tabs on hot cities
THE AUSTRALIAN NOVEMBER 01, 2014 12:00AM
TWO of the nation’s major lenders have declared they are closely watching lending standards in the hot Sydney and Melbourne property markets, with ANZ saying it was prudent to ensure that borrowers can repay their loans under higher interest rates.
As official data showed investor lending has risen to a post-global financial crisis high, ANZ chief Mike Smith said concerns were valid, particularly given the rise in household debt to pre-GFC levels.
But Mr Smith said risks were mitigated by the concurrent rise in savings and the market was not overly “frothy”.
Greg Ward, head of banking and financial services at Macquarie, added he was alert to the rapid rise in house prices in “some geographies”.
Their comments come after the Reserve Bank recently indicated that regulators may be forced to introduce measures to cool the investor-led housing booms in Sydney and Melbourne, such as forcing banks to hold more capital against investor loans. RBA data yesterday showed investor credit in September rose 10 per cent year-on-year — the highest level in more than six years.
“I can understand the concern in terms of the growth in investor demand,” Mr Smith said. “Quite clearly that’s something which is giving them (the RBA) a little bit of pause for thought. (But) I think overall the housing market is in pretty good shape. I don’t think there is too much froth at the moment ... but it’s just something we need to continue to watch.”
Weighing into the debate at a conference in Sydney yesterday, Communications Minister Malcolm Turnbull yesterday said there was too much focus on demand in periods of “anxiety about housing affordability” and cities had to become more dense.
“The fundamental reason why housing is less affordable than it should be in Australia is because we are not building enough houses,” he said. “There are just too many planning restrictions that make it too hard to build new dwellings particular close to the cities in infill areas.”
Mr Smith said the banks’ underwriting standards remained “pretty conservative” — pointing to ANZ’s use of a 2.25 per cent “buffer” when assessing mortgage borrowers — and default rates were “tiny”.
But he suggested banks may increase the buffer when assessing borrowers’ ability to repay under higher interest rates.
“The assumption that interest rates are going up at some stage in the future is probably quite realistic and it’s a question how much additional rate rise will there be,” he said.
Mr Ward added Macquarie was carefully ensuring borrowers were not taking on too much debt through loans at high loan-to-valuation ratios.