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Like every good govt, they need to protect and warn. They can slow it down but will not crash it. Look at Singapore. Correction after many rounds of measures but crash? Maybe in sentosa or st regis which most of us if not all are not potential buyers anyway. one thing for certain is affordability in future. I know I can't afford now in singapore due to tdsr and absd.

(07-06-2015, 10:11 AM)greengiraffe Wrote: [ -> ]Bubble trouble

1112 words
6 Jun 2015
The Australian Financial Review
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English
Copyright 2015. Fairfax Media Management Pty Limited.

Housing Are warnings from several quarters of a dangerously hot property market cause for alarm? Robert Harley considers the evidence.

The bubble babble, led this week by warnings from Treasury Secretary John Fraser and the Organisation for Economic Co-operation and Development, is a timely reminder that house prices will not rise for ever. And when the boom is over, prices will subside.

On consensus, Sydney housing is not yet in bubble territory. Price growth elsewhere in the country is moderate, though specific markets show bubble characteristics. In the resource towns of the Pilbara and central Queensland, the bubble has clearly burst. In Melbourne's CBD, the sheer volume of new supply looks like a bubble in the making.

Rapid house price growth in the country's two biggest cities is not just a problem for Sydneysiders or Melburnians. As shown in the table on the next page, there have been substantial prices gains over the past three years in Canberra, Brisbane, Adelaide and Perth.

The Reserve Bank of Australia has hinted that it is not so worried about a price correction causing pain for the banks and threatening financial stability. Its real concern is for the broader economy. Falling house prices would make Australians feel poorer and likely cause them to spend less on discretionary items. This would weigh on business and consumer confidence, add to slowing pressures on the entire economy - and affect house prices everywhere.

For those looking to buy or sell - particularly in Sydney - the traditional benchmark, the interest rate lever, is on full throttle.

For Sydney house prices to slow down, there would have to be a number of forces at play - perhaps the city becoming unaffordable, or because of a surge in new supply that was much stronger than in the boom of the early 2000s. Other triggers could be investment returns dropping, crimped investor buying thanks to the new macro-prudential controls or slackening demand from offshore. Or if the government suddenly turned against the market with a punitive tax response on negative gearing, land tax or stamp duty for foreign buyers.

ANZ senior economist David Cannington says investors should not look to the past for guidance because the market drivers are changing "pretty quickly". For Cannington, the current exuberance is a "rational" response to the step down in mortgage rates.

The "current mix is pretty unusual", says Westpac senior economist Matthew Hassan. "How those pieces of the puzzle fit together is hard to know. It's about trying to guess where the surprise will come from," he adds. "Interest rates are pretty accommodating, so you are trying to second-guess non-standard policy measures. It is very hard to gauge their effectiveness and the willingness of regulators to apply pressure."

Hassan says rising supply will start to have more effect in 2016.

"That could see a more abrupt slowdown. But to get substantive price declines, you need an aggressive rise in interest rates, a change in the availability of credit or a weakening in macroeconomic conditions."

For Macquarie Capital's head of real estate strategy, Rod Cornish, the key is affordability - measured as the proportion of household income needed to meet mortgage payments. Significantly, Sydney's affordability has hardly changed in the past year, with interest rate falls and rises in household income offsetting the jump in prices.

"Housing affordability is still not yet at a tipping point for a broad downturn, though it is closest in Sydney," Cornish says. "It does take interest rate increases to tip the balance for affordability.

"Affordability is the overriding factor ahead of turning points in the cycle. Lower rates will immediately improve affordability but we expect the tipping point level to be eventually reached in Sydney first, then Melbourne through higher house prices." Cornish does note that the demand-supply equation, which has long kept upward pressure on prices and rents, is starting to change. The rate of growth in population and net overseas migration is starting to moderate. "The population demand/housing supply balance will start to shift this year … and increased supply will have an impact on the equation over the next few years," he says. "The annual demand/supply balance is to remain positive in NSW this year but decline elsewhere."

Tim Lawless, national research director of house price analyst group CoreLogic, says affordability constraint and the challenges in obtaining credit will start to have an impact. He notes that, with average housing debt now more than 140 per cent of household income, it will not take much of a rise in mortgage rates to slow demand.

"Those investors buying around the peak, which will be pretty soon, may not see much capital gain for some time, even experience some falls, at a time when cash flows will be low to negative," he says, pointing out that Sydney took four years to recover its peak of the early 2000s.

So what does a price collapse look like? Over the past 45 years, Australia has had six house price corrections. Prices did correct after each boom but, according to numbers from Westpac, not very far.

The worst was in the mid-1970s when, after years of economic growth, high migration and a resources boom, Sydney land prices were rising at 5 per cent a month. The boom collapsed under the weight of rising interest rates, oversupply, global economic downturn and the turmoil of the Whitlam years, taking with it a plethora of property companies, financiers and ultimately the Bank of Adelaide.

Yet house prices in Sydney and Melbourne fell by only 15 per cent, in real (after-inflation) terms. This would have caused pain at the time but was forgotten within five years as prices surged into the 1980s.

Prices have fallen further in specific sectors. The supposedly gold-plated mansions lining Sydney harbour lost nearly half their value in the early 1990s as the corporate high flyers who had bid up their prices went broke. In the Pilbara, investors have lost half the value of their property investments, and generally all their equity.

But in half a century Australia has not had a housing bust like the US collapse that preceded the global financial crisis. Caused by massive oversupply (with 2 million homes vacant at the end of the boom) and a collapse in credit, US home values fell around 30 per cent and up to 60 per cent in cities like Las Vegas.

The key factor is interest rates. The challenge for the Reserve Bank in trying to rein in the boom, and for investors, is to predict its future in the new "lower for longer" mortgage rate environment.


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Highs and lows of a hot market
1130 words
6 Jun 2015
The Australian Financial Review
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English
Copyright 2015. Fairfax Media Management Pty Limited.
Housing Which neighbourhoods are most vulnerable to price falls if the bubble bursts, asks Duncan Hughes.

Outer suburbs up to 40 kilometres from central business districts have posted some of the biggest gains in real estate prices during the past 12 months, as soaring prices for prestige inner suburbs push buyers further out, an analysis of the nation's best-performing postcodes shows.

Traditionally wealthy inner suburbs in Melbourne and Brisbane have also nearly doubled in value in the past year, more than twice the rise of Sydney's "super hot" top performers, despite the huge number of new apartments being built, increasing supply and possibly pushing down prices.

Other capitals, such as Perth and Darwin, are posting falls in property values and rental income, despite double-digit gains in some suburbs, as the minerals slump reduces demand for real estate. At the same time projects started during the boom times are being completed and boosting supply.

The mixed performance has caused some leading analysts and advisers to challenge Treasury secretary John Fraser's claim that there is "unequivocally" a housing bubble in Sydney and evidence of a "bubble in the higher-priced areas of Melbourne".

"We do not - and should not - have a bubble," says Andrew Wilson, senior economist for Domain Group, about the conditions for a precipitous slump across the nation's residential housing market.

He says there are as many "property markets" as postcodes because of local issues, such as unemployment, affordability and overseas buyers, that influence the behaviour of buyers and sellers.

Real estate agents in outer Sydney suburbs that have posted the biggest gains describe the rises as "unbelievable and unprecedented".

"It's super hot," says Janeta Biviano, a director of Ray White Real Estate, about price rises in Sydney's western suburbs.

Biviano is based in Homebush, about 15 kilometres west of Sydney's central business district, where median prices during the past three years have jumped more than 80 per cent to $1.2 million.

"It's a golden nest egg for sellers. Buyers are fighting against each other," she says of bidders pushing up apartment prices by tens of thousands of dollars in the same block over a month.

In Schofields, about 30 kilometres west of Sydney, prices have risen by 75 per cent during the past 12 months, despite it being an hour's train trip from Sydney and a two-hour drive in peak traffic. Much of the area was farm fields only five years ago.

Joshua Meyer, project and development consultant for LJ Hooker Real Estate, says: "It's a real mixed bag of buyers. Anything from investors, to mum and dads, Aussie battlers … I scratch my head as to how they afford it."

Agents say many buyers claim they have been priced out of inner Sydney and are frightened of being priced out of the market.

Average loans for Sydney buyers are increasing at twice the rate of growth of median incomes, Adelaide Bank reports.

Christopher Koren, principal of buyer's advocacy Morrell and Koren, advises investors or home buyers considering new developments to look before they leap.

"Consider what it costs in tolls, transport, how much and how long to get from X to Y. It will take years for infrastructure to catch up," Koren says.

The biggest and most sustained rises are happening in traditional middle-class suburbs, typically along the eastern seaboard, populated by households with secure incomes, savings and good prospects, Wilson says.

For example, median prices in leafy Ascot, an affluent suburb seven kilometres from the city centre and renowned for its beautiful old homes, have nearly doubled during the past three years to $1.2 million. That means a decade of capital appreciation in one year, if the traditional mantra of residential property values doubling every 10 years is applied, agents say.

Traditional middle-class, two-income family suburbs about 15 kilometres south-east of Melbourne, such as Box Hill, Glen Waverley and Wantirna South, have posted gains of more than 40 per cent in the past three years, making the region one of the nation's top performers.

"These middle markets are reasonably immune to sharp falls," Wilson says.

But Martin North, principal of Digital Finance Analytics, a boutique research group, says rapid price increases are out of kilter with static incomes, low and falling rents (except in Sydney), rising unemployment and sluggish economic growth.

"There's no use calling it an inflating bubble - the horse has already bolted and the barn door has shut," North says. "It's 25 to 30 per cent overvalued. It is going to come back - and when it does, it will come back quickly."

Damian Percy, general manager of Adelaide Bank, says large amounts of overseas investment, particularly from China, are turning Melbourne and Sydney into "an international asset class".

That means the Chinese diaspora, particularly from Singapore, Hong Kong and mainland China, look at local real estate as a safe haven for their capital. Ray White's Biviano says foreign buyers are driving up prices by between 20 and 25 per cent.

Some of the nation's worst-performing postcodes highlight how the loss of an industry, or an economic slowdown, can weaken demand, lower confidence and cause prices to fall.

In Gladstone, just over 500 kilometres north of Brisbane's leafy New Farm, property values have nearly halved during the past five years after a residential building and speculative boom collapsed when plans for a major coal development fizzled out.

It's a similar situation in parts of Perth, until recently a market for minting property millionaires, where prices are falling because a steep downturn in mineral prices has reduced jobs, investment and wealth.

Trigg, a beachside suburb about 14 kilometres north of Perth, posted the biggest gains during the past 12 months with 20 per cent, or a median price of just over $1 million. Perth rents have fallen by about 6 per cent for apartments and houses during the past 12 months.

In Darwin, where the mining boom also triggered a speculative building boom, rents for houses have fallen by more than 15 per cent over the same period.

In Munno Para, about 30 kilometres north of Adelaide, the planned closure in 2017 of the nearby Holden plant, a major local employer, has contributed to property prices plunging by nearly 24 per cent during the past 12 months.

Property investors should look for unique qualities, such as proximity to facilities and transport and good design, to underwrite long-term value.

"Go in with your eyes open," North says.

He recommends investors consider what would happen if prices corrected by 30 per cent and income from rentals needed to pay borrowings was static.


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Australia is a Continent on its own and hence there are plenty of options for housing... bubble or not is unlikely to cripple the country IMHO.

New home buyers happy to sing country tune
THE AUSTRALIAN JUNE 11, 2015 12:00AM

Sarah Elks

Reporter
Brisbane

Tara Lill and Matthew McCulloch bought a three-bedroom home in Tamworth after realising that even a unit in Bondi would have been a stretch. Picture: Antony Hands Source: News Corp Australia
First-home buyer Tara Lill swapped the sea for trees when she and her fiance moved from Bondi Beach to Tamworth — and they couldn’t be happier.

Their hard-earned savings, which may have just stretched to buy a one-bedroom apartment in Sydney’s eastern suburbs, have comfortably put Ms Lill, a business development executive, and Matthew McCulloch, an accountant, in a three-bedroom Federation cottage in Tamworth.

Now, the 30-year-old has a message to others struggling to break into the property market in the capital cities, particularly Sydney and Melbourne: go regional.

“The lifestyle here is completely different; you can have a healthy and beautiful life in the country,” she told The Australian.

The couple moved to Tamworth late last year and haven’t looked back. “We wouldn’t have been able to buy a house in Bondi,” she said. “Tamworth is home now.”

It’s still possible in the regional city to buy a basic, three-bedroom home for less than $200,000, while agents said a house and land package on 2ha, close to town, would cost between $450,000 and $550,000 in Tamworth.

Agriculture Minister Barnaby Joyce, Tamworth’s local federal member, said the town had plenty of jobs. The abattoir is expanding and looking for 200 more workers — plus there’s no traffic jams and there’s affordable property. “Opportunities are not just restricted to Sydney,” he said. “In the country, you can buy a house with a backyard on the salary you earn.”

Builder Craig Martin moved with his wife and three children from the Gold Coast to Tamworth late last year. He’s been inundated with work, petrol was cheaper and the commute was a dream. “I don’t intend on going back,” he said. “We love it.”

The latest Herron Todd White report said the downturn in mining investment had seen Tamworth’s house prices dive 12 per cent, after a peak in 2012-13. Newly built small homes on small land packages were suffering the most, with larger established houses holding their value.

Regional cities across Australia yesterday backed Mr Joyce’s rallying call for young people to leave the capitals for the country. Paul Antonio, the Mayor of Toowoomba on the Darling Downs, where property values are rising, said the city was a desirable destination for young people. “The median house prices are low, but opportunity is high, and we’ve got health and education (services) covered,” Mr Antonio said. “They can sell their house in Sydney and live in Australia’s garden city and live happily ever after.”

‘Home buying was hard then, and it’s still hard’: Gerry Harvey
SAMANTHA HUTCHINSON THE AUSTRALIAN JUNE 11, 2015 12:00AM

Growing up in the lower Blue Mountains of NSW, retailer Gerry Harvey recalls the time a newly­wed couple achieved local fame when they bought a home straight after marrying.

“To be that comfortable, that well off so you could buy a home at that age ... it was the 1950s and that was unthinkable,” Mr Harvey said yesterday. “It was ingrained in me then that no young couples could ­afford to buy a house, and I believe it’s no different now.”

Mr Harvey’s recollections come at a time when the claims of an ­affordability crisis in Sydney have reached a fever pitch, stoked by comments from Joe Hockey proposing “a good job” as a panacea for young people struggling to get a foot on the property ladder.

Sydney’s median house price hit $914,000 in the first three months of the year, following a three-year period during which national house prices leapt by 24 per cent, led by gains in Sydney, which has appreciated by 39 per cent, and Melbourne, which has lifted 22 per cent in that period.

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The average home owner is now tipping just less than 25 per cent of their annual income into mortgage repayments, substantially lower than recent peaks of 37 per cent in 2008 and almost 40 per cent in 1990.

Housing Industry Association data comparing mortgage rates and median dwelling prices shows house prices will initially fall in line when interest rates drop suddenly yet, the more sustained the interest-rate trend, the more ­likely house prices are to continue their upward trajectory, signalling that prices are likely to track ­higher.

Grattan Institute chief executive John Daley said: “The current rates of affordability measured by mortgage rates versus annual ­incomes aren’t too bad, and they’re actually higher today than they were 30 years ago. But that’s calculated with interest rates at historic lows. If interest rates go higher from here, affordability will drop through the floor, and I think that’s what keeps young people awake at night.”

More than 70 per cent of 15 to 19-year-olds consider it to be ­“extremely likely” or “very likely” that they will one day own a home, according to the Grattan Institute. But census data from 2011 reveals home ownership has slumped to its lowest level since 1954.

There is some evidence that young people are less prepared to buy property in affordable suburbs further out from the city centre, choosing instead to rent where they can be close to jobs, public transport and the convenience of the inner city.

Urban Taskforce chief executive and former NSW chief architect Chris Johnson said: “People increasingly are being forced to trade off size over ­location, and if you want something close to the city or where you work it has to be small — or you might even have to rent.”

Mr Harvey purchased his first home in Sydney’s Sylvania ­Waters in 1965 at the age of 24. He chose the waterfront location ­because it was pretty and close to his business, and paid the £10,000 price tag with two mortgages secured against future income.

He had no deposit, but his wage of about £100,000 a year — compared with the average salary of about £1000 a year — was all the security he needed.

“I was in a completely different category because I was doing very well for my age, but buying a home was hard then, and it’s still hard now,” he said.

“You can argue it forever, but the reality is if you’re in a couple and earn adequate money — say $60,000 and $70,000 each — you can certainly afford a property. It might be a cheap one to start with and it might be a unit, but over a period of time you can trade up. It’s just what you’ve got to do.”

Economists and property experts claim that advice to scrimp and save and to keep an open mind about where to buy is not enough to guarantee entry to the property market in Sydney or Melbourne.

Moves by the Australian Prudential Regulatory Authority to crack down on risky lending means banks are placing more scrutiny on borrowers taking out high loan-to-value ratio loans, and others are issuing requirements that deposits are made up of “genuine savings” rather than gifts borrowers have received from parents or a wealthy relative.

The average home buyer is now saving for more than five years to purchase a first home, according to Mortgage Choice, even as evidence emerges that young people are saving more than their parents and the generation above them did at the equivalent age.

Individuals aged between 25 and 34 currently save about 13 per cent of their annual income compared with less than 6 per cent in 2004, according to data from the Grattan Institute. Individuals aged between 55 and 64 save about 14 per cent of their income, up from less than 2 per cent in 2004.

Mr Daley argues that the real problem keeping a lid on home-ownership rates is rising prices, which mean a 10 per cent deposit requires saving for much longer.

Merrill Lynch economist Saul Eslake agrees. “Your average 25-year-old today is paying nine percentage points into compulsory super and another percentage toward HECS and that’s before they’re even in a position to start saving for a deposit ... it’s enough to make some people just give up,” he said.

One in four suburbs in Sydney now has a median house price of more than $1 million, while experts at property research outfits RP Data Core Logic and SQM Researc­h believe the citywide median­ will break $1m by the year’s end.

The surge in house prices has been labelled “worrisome” by HSBC economist Paul Bloxham, who believes low interest rates have principally benefited invest­ors who already own homes, and that prices in the city, rising at 15 per cent year-on-year, are running well ahead of national household disposable income growth.

“The main driver of the ramp-up in housing prices continues to be investors, rather than first-home buyers or repeat purchasers for owner-occupation,” Mr Bloxham said. “This is more unexpected.”

Investor loan approvals have risen by 112 per cent since their trough in 2011, according to HSBC data, while loans to repeat buyers are up by 47 per cent.

First-home buyer loan approvals have only risen by 13 per cent.

Mr Daley rejects the suggestion that young people these days aren’t saving like their parents. “The evidence is overwhelmingly to the contrary,” he said. “The evidence is that they’re saving quite substantially, and a lot more than they used to. The issue is the price.”

Generous first-home buyer incentives and stamp-duty discounts at play since 1999 have been embedded into house prices and pushed them up, according to Mr Eslake, with benefits that have gone principally to people who ­already own homes.

“I’m surprised there isn’t more anger among young people about the way housing has been rigged to their parents’ benefit,” he said.

“But instead of marching down the streets calling for change, they’re taking their revenge out on their parents by refusing to move out of their homes.”

Mr Eslake bought his first house in 1989 when mortgage rates were at their peak of 17.5 per cent. “And while prices are higher and rates are lower now, housing affordability isn’t as bad now as it was back then,” he said.

“The difference is that affordability didn’t stay like that for an extended period.”

Why the Chinese are willing to pay over the odds for local property
THE AUSTRALIAN JUNE 11, 2015 12:00AM

Rowan Callick

Asia Pacific Editor
Melbourne

Sydney's narrowest house auction at 29 Terry St Surry Hills. The property sold for $965,000 to a Chinese phone bidder. Picture: Stephen Cooper. Source: News Corp Australia
The columnist and broadcaster Andrew Bolt asked two questions yesterday, about the National Australia Bank report that during the first quarter, 20 per cent of housing sold in NSW went to Chinese buyers.

“What on earth are we doing?” demanded Bolt. “And why are politicians permitting this?”

Myriad folk are asking and answering these questions.

But other questions are also important, but rarely tackled.

They include what is driving such Chinese purchases, and what may be in the minds of the buyers?

China has been not just in a state of uncertainty, but has itself been a state of uncertainty, for much of the past 150 years.

Australia’s gold rushes, which saw the first large scale migration of Chinese people here, coincided with the start of a big drift from Guangdong and Fujian provinces particularly to Southeast Asia.

Australia infamously shut its doors to Chinese migration through the first half of the 20th century, and after that, during the dark days when China was ruled by Mao Zedong, it was difficult for people to leave — certainly with any assets.

Since then, as China entered its “reform and opening” period, it has been easier for people to accumulate wealth, to take it out, and to accompany it.

The government has actively encouraged investing overseas — though it prefers, naturally, to play a role in directing it, and deciding which people are deployed to manage it.

In recent times, the “push” factor has been enhanced by the anti-corruption campaign, whose targets are difficult to discern since in hindsight many of the ways in which individuals and families have accumulated wealth over the last 20-30 years may be open to question.

Such uncertainties at home are again acting as a driver.

Why is real estate the prime target, though? What is its “pull” factor?

Property has always been the cornerstone of confidence and stability for Chinese people. They may have a flutter on stockmarkets, especially during this bumper year. Even more likely, they will run a cash business.

But traditionally, they like to be able to view their assets. They may own gold jewellery, perhaps keeping it in a bank vault. And the family home lies at the heart.

Often, financing is far from the biggest issue. If a loan is needed, it may well come from a personal connection, or if the family is of sufficient status to obtain Chinese bank backing, the repayment of either principal or interest need not follow any recognisable timetable.

Carl Jetter, managing director of Australia China Connections, says that “the knowledge that Australian property is theirs for ever” is a powerful attraction.

For in China, all land remains state owned, and the maximum lease for residential property is 70 years. The Australian homes will be bought with their children in mind, and thence for dynastic generations.

Chinese buyers also tend to relish newness. They are pioneers in creating a brave new Chinese dominated world.

Culturally, some Chinese people also prefer if they can afford it not to live in a place where someone might have died. They don’t like to buy second hand cars, and certainly not op-shop clothes. The same goes for housing.

If they buy a “used” house, their instinct is often to knock it down and build anew.

And the older generation of Chinese buyers still tends to lack confidence in its own taste, thus tending to build in a template that is taken from the faux-classic ­European style that dominates the sometimes-gated estates of identical “villas” that surround most Chinese cities today.

Chinese property buyers often mentally convert prices instantly into yuan, says Jetter, who has witnessed hushed discussions about yuan values during auctions on Melbourne streets.

This has helped provide a perception of value for money as the dollar has slipped further behind the yuan.

Losing face, he points out, is another big issue fostering Chinese purchases for high prices. Especially in front of an auction crowd of, say, 50 people including friends and relatives, “losing face can be a more important factor in driving people to pay a higher price, than value”.

And after buying a property, the owner may well be prepared to keep it empty rather than let it out — puzzlingly, for many Australian neighbours.

That might be because the owner intends to use it herself or himself at some undecided time, and would prefer to keep it “new” rather than have it rented.

Or it might be that the price the owner has determined is not being met by any potential renter.

Rather than drop the price and lose face, the owner may leave it empty — especially if there’s no financing involved, or no pressure from the financing source.

I take some small pleasure from recalling how I too was faced by this seeming nonchalance about renting a new Beijing apartment on the part of the owners, a married couple of Chinese hi-tech high-flyers — since my budget wouldn’t quite stretch to meet their expectation.

In a stroke of luck more than inspiration, our negotiations ran on into New Year’s Eve — a crucial time in Chinese tradition to resolve such financial issues.

I cheekily suggested that settling the contract would guarantee them good luck throughout the coming Year of the Dog. They looked at each other, smiled, and settled.

Good news for renters as Australian property rental growth hits the skids
SAMANTHA HUTCHINSON THE AUSTRALIAN JUNE 11, 2015 12:28PM

Property investors banking on strong rental returns to cover steep mortgage repayments are set to be disappointed by rental growth, which has slowed to its lowest rate on record.

A boom in housing supply is keeping a tight lid on rental growth as the rental market is flooded with new stock.

Rents in national capital cities increased by just 0.1 per cent in May this year, bringing the 12-month gain to just 1.5 per cent, according to Core Logic RP Data. Annual growth is well below its 10-year average levels.

Gross rental yields for houses are at their lowest level since late 2010, while unit yields have increased slightly over recent months.

“Most of the new capital city housing stock is units and this type of stock is much more likely to be owned by investors providing additional rental options across the capital cities,” according to CoreLogic RP Data analysts.

“The sluggish pace of rental appreciation can likely be attributed to the ongoing boom in dwelling construction across Australia’s capital cities accompanied by record high participation in the housing market from investors.”

ABBOTT: Daunting but not impossible to buy

GERRY HARVEY: Home buying was hard then, and it’s still hard

PROPERTY: Buyers prefer to invest than dwell

But the unequal spread of housing development activity around the country means that rents between capital cities are delivering vastly different returns.

Rents in Perth, Darwin and Canberra rolled backwards during the month, while Sydney and Hobart recorded the greatest annual increases.

Rents in Sydney, Melbourne, Brisbane, Adelaide and Hobart all moved ahead by 0.2 per cent. Sydney’s average rent now sits at $595 a week, representing a 12-month increase of 3.1 per cent.

Melbourne rents now sit at $446 a week, representing a 12-month gain of 2.3 per cent.

Brisbane rents of $435 a week have appreciated 2 per cent in the past 12 months, while Adelaide has moved ahead 1.2 per cent and Hobart has rebounded with an appreciation of 3.2 per cent in the past 12 months.

Perth and Darwin have been hit hard by their heavy exposure to the mining industry, with rents falling 4.5 per cent and 5.5 per cent respectively. Yet rents in the resource hubs remain high compared with the national average of $488 a week.

The average rental property in Darwin brings in $567 a week, and a yield of 5.7 per cent. The average rental property in Perth lets for $477 a week and a yield of 4.4 per cent.

Renters are expected to take advantage of the rates by being able to choose from a wider pool of accommodation types.

Gross yields across all capital cities now sit at 3.6 per cent for houses and 4.6 per cent for apartments. A year earlier, gross rental yields sat at 3.9 per cent for houses and 4.7 per cent for units.

Yields on houses are lowest in Melbourne, where houses are delivering 3.2 per cent, compared with 5.6 per cent in Darwin. Sydney homes and apartments are delivering a yield of 3.4 per cent and 4.5 per cent respectively.

There is some evidence nationwide of renters preferring apartments to houses, which could in part be attributed to the surge of new apartment stock hitting the market.

“Although the recent data shows stronger rental growth for houses, over the past year

house rents have increased by 1.5 per cent compared to a 1.9 per cent increase in unit rents,” the analysts said.

That's neo monetarist speaking. Policy changes can also affect property prices greatly. From a country as small as Singapore to as big as China it can be done. Monetarism works in certain context, but it is not a cure all and end all. To paraphrase Glenn Stevens that is "crazy"

It should be obvious by now that RBA cutting rates is not so much about housing but because the core economy is slowing down, after the initial smoke and mirrors. Propping up property prices from lower interest rates is unintended consequences as they are still stuck in the market deterministic dogma of Greenspan and latter GFC which the world should have learnt a lesson by now. Sometimes dogmas rule over historical evidence and lessons

(05-06-2015, 09:56 PM)Boon Wrote: [ -> ]Three things that could trigger a house price crash: interest rates, unemployment, the dollar

June 4, 2015

Jennifer Duke

Bubble has replaced boom as the major descriptor for Australian house prices in the past week, but those betting on a sudden pop may be disappointed.

On Wednesday, the Organisation for Economic Cooperation and Development joined the chorus of doomsayers, saying Australian property prices were at risk of a "sharp correction".

Earlier in the week Treasury Secretary John Fraser said Sydney and up-market areas of Melbourne were showing unequivocal signs of a bubble.

However, Domain Group senior economist Andrew Wilson is not convinced.

"We have nothing like the pre-conditions for a sharp fall in house prices," he said.

In the current housing market, he said there were only three scenarios that could feasibly trigger a dramatic price drop of 5 to 10 per cent in Sydney and Melbourne – and none of them were particularly likely.

Trigger 1................

http://news.domain.com.au/domain/real-es...hes4d.html

http://www.smh.com.au/business/time-to-c...hmlm7.html

Time to cash out of housing stocks?
Date
June 12, 2015 - 4:16PM

Rose Powell
Journalist
View more articles from Rose Powell

Are we heading towards a house price correction? Shareholders of housing-related stocks should keep a close watch, UBS recommends.
Are we heading towards a house price correction? Shareholders of housing-related stocks should keep a close watch, UBS recommends. Photo: Supplied
Australia's housing boom has sent share prices of housing-related companies soaring, but one leading wealth consultant group has begun asking if it might be time to cash out of or diversify from those equities.

Housing approvals and developments have never been higher, with 230,000 projects per year, bolstering stocks of property developers such as Mirvac, Stockland and Lend Lease, real estate companies such as REA Group, as well as construction materials companies such as Boral and Adelaide Brighton. Companies such as logistics company Asciano and furniture and electronics retailer Harvey Norman have also benefited from strong home demand.





But UBS strategist David Cassidy reckons shareholders should reconsider the future of their housing-exposed equities, with investors likely to rejig their portfolios over the next years when the cycle cools.

"Potential catalysts for a significant house price correction could be either rising interest rates, a significant rise in unemployment or clear housing oversupply," Mr Cassidy wrote in a note to investors.

"The sharemarket would almost certainly look through a strong underlying construction pipeline if a clear downward trend in dwelling prices began to unfold."

Yet for now, Mr Cassidy says UBS funds will stay overweight on equities exposed to the housing market. While there were expectations building approvals will peak this year, it was likely there would be no rate rise before 2016, he said.

"If the forecast is correct, 2016 raises the prospect of an unusually extended cycle with approvals/commencements staying significantly above trend through both 2015 and 2016," Mr Cassidy said.

UBS keeps a close eye on potential emerging oversupply and the impact of foreign demand, factors that could influence home prices, construction demand and therefore housing-related stocks.

The threat for oversupply pushing down home prices has not materialised so far as home construction activity slowed during and in the wake of the global financial crisis, and UBS sees the risks remaining low for the next two years.

But foreign demand has been growing, with Foreign Investment Review Board approvals for housing doubling in 2014 and expected to continue to rise.

Most of this investment, 78 per cent, was going into new housing developments, which could potentially help tip the market towards oversupply.

In a note released on Friday, Deutsche Bank also argued there was still some distance to go for housing-exposed stocks even as they were nearing their peak, thanks to population growth, sustainable construction rates and rising prices for building materials.

HOUSING STRESS

1735 words
13 Jun 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Politics Joe Hockey's fumble over home affordability has given Labor the impetus to put contentious reform on the agenda, write Phillip Coorey and Jacob Greber.

Tony Abbott was not making it up when he told reporters this week he knows what it is like to feel mortgage stress. After John Howard lost the November 2007 election Abbott, like other ministers, became a shadow minister and his pay dropped by about $90,000.

Back then, shadow ministers were paid the same as backbenchers and Abbott, with a large North Shore mortgage and kids in private schools, was the first to go cap in hand to then manager of government business Anthony Albanese proposing a pay rise for shadow ministers.

"The advent of the Rudd government has caused serious mortgage stress for a section of the Australian community, i.e former Howard government ministers," he joked to The Australian newspaper in January 2008.

"You don't just lose power . . . you certainly lose income as well, and if you are reliant on your parliamentary salary for your daily living, obviously it makes a big difference."

A few years later, the change was made. "We made them wait," says Albanese. MPs' pay was restructured significantly and everyone, shadow ministers included, received an enormous boost.

Losing a ministry or even your job is an accepted risk that arises in federal politics with each election. That's why they are paid pretty well and, until Howard lost his nerve to Mark Latham in 2004, were well superannuated.

But as it was back then and is today, the rest of society has no such recourse to the public teat should they find their salary insufficient to buy a house or service a mortgage, in Sydney particularly but in parts of Melbourne too.

The political debate over housing affordability is not new but it is at its most pronounced since the lead-up to the 2007 election when then opposition leader Kevin Rudd appointed a shadow minister for housing, holding a round table of experts and proposing policy ideas.

Howard did not denigrate Rudd. He, too, acknowledged a problem, empathised with voters and tried to outbid Rudd with policy proposals of his own.

Neither leader claimed to have a single solution but it was smart politics to try.

Joe Hockey's sin this week was twofold. When asked if housing in Sydney was unaffordable, he should have said that for many people it was and that the government was very concerned about it and, while there was no silver bullet, it was exploring policy solutions. Instead, he said it was not unaffordable because houses were still selling.

And people with good jobs unable to crack into the market felt patronised when the Treasurer said a good job that paid well was an important starting point.

The response to Hockey's comments differed greatly depending on geography, demonstrating just how sensitive the issue is in Sydney, where the median house price rose 15 per cent in the year to the end of May to $752,000 and is tipped to reach $1 million by Christmas.

While he was generally being taken apart, in Adelaide, where the median price rose 3.4 per cent over the same period to $400,000, talkback radio was overwhelmingly in support of the Treasurer, who they said was simply stating the obvious.

Talkback and listener feedback on top-rating commercial station 5AA was running nine to one in Hockey's favour.

While a schoolteacher married to a police officer in Adelaide can still buy a house, the same couple in Sydney is far more pessimistic.

Before Hockey's comments, Labor had been tip-toeing towards doing something about housing affordability. At the National Press Club two weeks before the budget, shadow treasurer Chris Bowen mentioned Labor would be looking at changing negative gearing as part of a housing affordability policy it was developing.

Bowen emphasised two core principles - any changes would not affect existing investors who had invested in good faith, and they must do nothing to dampen the supply of new housing. Options included restricting gearing to new homes or restricting the number of properties which could be geared by an individual.

Soon after, the government used the admission to bolster its case that Labor was the party of tax increases.

One Labor source says Hockey's fumble on Tuesday has provided Labor with the political opportunity to swing the debate. Only days before the gaffe, Labor had been playing down negative gearing.

"In order to tackle that issue, we think there's a lot of focus that needs to be on the supply side. Negative gearing changes are not the focus of the Labor Party," leader Bill Shorten said on Monday.

The day before, Greens senator Scott Ludlam announced a policy to abolish negative gearing for all new investment properties from July 1, 2015, onwards - a move the Parliamentary Budget Office estimated would save $42 billion over a decade.

By Wednesday, the same day Reserve Bank governor Glenn Stevens said Sydney house prices were "crazy", shadow finance minister Tony Burke said Labor's policy would examine capital gains tax concessions for investors, as well as negative gearing.

The government, which is busily ruling out tax changes as part of its pre-election strategy, went into overdrive.

"They want to hit your super with more tax, they apparently want to drive down the value of your existing home and now it seems they want to put rent up by fiddling with negative gearing," Abbott said.

The Labor source says the party will take its time before arriving at any policy decisions, explaining a "light touch" is needed in order to cool down the growth in house prices without devaluing property prices.

"That is a tension you need to land on the right side of," he says.

The Greens policy is excessive, he says, as it will create negative equity. "If you were starting from scratch, you wouldn't have negative gearing but it's here now."

Changes to negative gearing would have to avoid a stampede in investor purchases before any deadline and any impact on flatter markets elsewhere would have to be considered.

One of the more seasoned property experts, CBD-based real estate agent Chris Curtis, describes specific parts of Sydney's market as a "time bomb" and that federal politics could do little to change affordability.

"Sydney has never been this risky," says Curtis, who worries that many are buying in areas that will soon be disrupted by projects such as WestConnex, or pouring money into "future slums" such as the rapidly growing high-density areas of Alexandria, Wolli Creek and parts of the North Shore.

Curtis says few people recognise there is now a real chance of an oversupply of dwellings in such areas, which are also suffering from second-rate services and throttled by traffic gridlock.

"They're bad investments and people are going to do their dough when interest rates go up," he says.

Despite those specific worries, Curtis also questions much of the hype around high-profile property sales in the city, saying the current so-called frenzy is nothing compared with 2002 or even 2007, when "it was across-the-board lunacy".

'My feeling is that there is not a collective gripping of madness," he says of the current price boom. "Affordability levels are what they were before. Incomes aren't going up. People are still more prudent than before the GFC [global financial crisis]."

Curtis also questions why Hockey opened the fraught affordability debate, given much of its causes relate to state issues such as land supply.

"The feds are bloodying their noses unnecessarily - they can't change anything."

The first-time buyers and lower-income households locked out of Sydney's latest price explosion are essentially the collateral damage of a broader failure of economic management. Had the promises of the Coalition government been realised, there would be less need for today's ultra-low official interest rates. The very same low interest rates that are causing the property frenzy in Sydney that Stevens himself described as crazy.

Yet the fact Stevens pointedly opened the door on Wednesday to even more official rate cuts shows he won't let one city's property market become the tail that wags the broader economy.

With the resources investment boom in rapid retreat and national income shrinking as commodity prices fall, there is a desperate need for fresh drivers of growth.

One option would be for governments to accelerate many of the infrastructure projects badly needed in cities such as Sydney and Melbourne. For now, however, most of that is mired in political deadlock. Even if someone does get a major project under way, the timing is likely to be sluggish.

As Stevens put it, when it comes to infrastructure, the "evidence of history is that it takes too long to start and then too long to stop". Once again, had successive governments at both state and federal levels worked harder at preparing a long-term pipeline of road, railway and services projects, many would be in a position to roll them out today.

Stevens has also been waging a war against the high currency - which remains above the US75c level he says would better reflect the drop in commodity prices.

The result is an economy that is in far worse shape than the Reserve Bank forecast two years ago, ahead of the 2013 federal election, when many in business hoped the change of government would be a catalyst for reform, productivity and growth.

Instead, the Reserve Bank now expects economic growth to finish the current financial year at a sub-par pace of less than 2.5 per cent. Even more concerning, consumer confidence continues to be weak. Westpac's monthly survey this week showed it fell after a brief rally following last month's budget.

The weakness means Stevens has a legal obligation - set out by the Reserve Bank Act - to do all he can to bring down unemployment by using the only lever at his disposal, interest rate cuts. This is, in turn, likely to produce fresh instability across pockets of the Sydney property market.

Stevens and Treasury Secretary John Fraser, who this month described the market as being in a bubble, are not the only observers increasingly worried by the city's excesses.


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Cabin fever

1910 words
13 Jun 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Prefab frontier Savvy investors are turning caravan parks into mobile housing estates for cash-strapped Baby Boomers, writes Nick Lenaghan.

In December last year, in the baking heat of a Pilbara summer, a small crew of workers disassembled a $200,000 modular home at the Pilbara Holiday Park in Karratha. The bungalow was one of 46 two-bedroom cabins used as accommodation for miners and owned by a fund run by a company named Aspen Group. The mining boom had been good for the company, but occupancy at the park had slumped to 30 per cent as the boom subsided and demand for workers ebbed.

The cream-coloured cabin was split in two and transported a day's journey south on two trucks with float trailers. Reassembled and replastered, it began its new life as a permanent residence at the Perth Vineyards Holiday Park in the Swan Valley.

Aspen explained the Pilbara-to-Perth move to its shareholders in a presentation labelled succinctly "Reallocating capital".

"It's exactly that story," chief executive Clem Salwin tells AFR Weekend. "We're shifting capital out of the weaker resource markets into, in this case, metropolitan Perth, where there is strong affordability and retirement demographic trends."

More cabins have since followed, taking their place in a "manufactured housing estate" (MHE) , where residents own their demountable home and pay weekly rent of about $140 for their plots.

They are income-poor and usually have modest assets. By selling the family home and buying into low-cost housing parks (demountable homes typically sell for between $250,000 and $300,000), mobile home residents free up what little capital they have to splash on their retirement years.

And it adds up to an ideal opportunity for investment into Australia's ageing population. The haulage of Aspen's cabins down the North West Coastal Highway to Perth is one part of a bigger story, a broader movement of capital. Call it the switch from mining capital to reclining capital. It's bringing investment bankers together with pensioners, transforming caravan parks into housing estates, and providing affordable homes for the first wave of cash-strapped baby boomers to retire.

Alongside Aspen, the listed MHE sector is expanding. On Thursday the $500 million parks operator Gateway Lifestyle made its debut on the sharemarket.

Lurking in the background of that float are veteran financiers Phil Green and Trevor Loewensohn. Once tarred by their involvement in the collapse of investment bank Babcock & Brown, the pair are back in a new guise, steering the smart money into seniors' housing. Elsewhere in the emerging sector, private equity players such as Blackstone and KKR have been circling.

Aspen's Salwin has felt the zeitgeist. By April, the former UBS banker had packed up his own desk in Perth and moved to Aspen's corporate office to Sydney. Aspen is transforming itself into a pure-play accommodation provider, offloading its office and industrial portfolio.

From now on a lot more of its business will be running MHE - high-end caravan parks. In just 12 months the company has gone from writing down its assets linked to the mining sector to buying up new residential parks in Ballina in northern NSW and at Hervey Bay in Queensland.

"Broad social and demographic trends, which are likely to be in place for many years, are likely to be key drivers for this industry," says Salwin. "They are the ageing population - the fact people are living longer, living more actively - and a lower return on capital generally, so people need to downsize."

BT Investment Management has stakes in Aspen and another listed player in the sector, Lifestyle Communities. For its property head, Peter Davidson, the reality of the ageing bulge finally hit at a Bob Dylan concert in Sydney last year.

As the last chords faded on the encore, Blowing in the Wind, Davidson had his own epiphany. "The lights came on, I just thought 'Oh, my God.' There were all these Zimmer frames in the State Theatre. For me, it was a watershed moment: this is actually happening."

Demography is a prime driver of the sector. About 3.1 million Australians - or 13 per cent of the population - are aged 65 to 84. By 2054-55, that cohort of grey will have swollen to 7 million, or close to 18 per cent of the population.

Many of them will have spent a significant portion of their careers without the benefits of compulsory superannuation. The boomers bring fewer savings with them as they slip into their twilight years.

A glance at their finances is sobering. For even a modest lifestyle in retirement, men at 65 would need $340,000, according to recent Deloitte report. For women, the figure is $370,000.

But average super account balances fall sadly short of those targets. For men at 66, it is $151,000. For women it is $133,000.

And almost half those retiring in the years to 2055 will not have enough income to comfortably meet their needs, according to an Industry Super Australia submission to the federal tax review this month.

Retirees face a less affordable housing market, and so the need for a low-cost housing option becomes even more pressing.

Both federal and state governments are retreating from the burden of social housing. The MHE sector, held in private hands, answers that need.

The demand for MHE dwellings is forecast to increase by almost 30,000 additional units by 2026, almost a 40 per cent rise on the 2011 level, according to an industry report last November by Colliers.

Assuming even slightly greater pick-up of the concept, demand could surge to almost 50,000 extra units over the same period.

And there is a cultural shift. Long a feature of American society, the maligned trailer park has meant something else in Australia, the land of the unending coastline. For decades, caravan parks have only ever been the destination for holiday-makers. Now those summer days are being transposed into the golden years of retirement through the MHE sector.

Martyn Jacobs, a Pattersons analyst who started covering the sector last year, says there is a generational change under way, along with a "new breed" of providers for seniors' accommodation.

Lingering in an empty nest on a tight budget and often unable to afford the higher cost of a retirement village, retirees, typically on a pension or part-pension, can instead recycle what equity they have in the family home into a lower-cost demountable house.

"It's the difference between the war generation and the Baby Boomer generation," Jacobs says. "The Depression generation was a far more conservative group of people. The Baby Boomers are more individualistic. The opportunity to downsize, release equity in their home so they can spend a bit before they get too old is a very appealing concept for people who have lived modest lives but have managed to build up savings in the family home."

Caravan parks and manufactured housing estates fall under different regulations to retirement villages. While residents of MHEs own their factory-made homes, they pay a ground rent to the operator. That can make them eligible for Commonwealth rent assistance, along with whatever pension they may receive. In contrast, there's no way a person in a retirement village can get rent assistance because they don't rent.

Aspen's listed peers include Lifestyle Communities, which has built its business on developing greenfield manufactured housing estates in Victoria, and Ingenia Communities, which was previously controlled by ING Real Estate and is now expanding quickly into the MHE sector.

Now they are joined by Gateway Lifestyle, which becomes the largest player in the sector. Green and Loewensohn are behind one of three investment managers that put together the property syndicates selling their park assets into the float. AFR Weekend requested interviews with the former Babcock & Brown frontmen but they declined, opting to stay back in the wings and keep the limelight on Gateway chief executive Trent Ottawa.

Thursday's debut on the stockmarket was a success, with the stock closing 4 per cent above its $2 offer price. The float's advisers picked up a tidy fee too, with overall transaction costs amounting to $53.7 million.

On listing, Gateway controls 36 parks, with 5800 sites, two-thirds of them already taken up by manufactured housing. That gives Ottawa scope to convert another 1800 sites. "We have no intention of competing with people in the tourism sector; our absolute business focus is on operating MHEs," he says.

Already Ottawa has an eye to acquisitions in a sector ripe for aggregation. There are more than 2500 caravan parks and manufactured housing estates in Australia, according to the Colliers report.

Ownership is highly fragmented. The eight major players - Aspen and its peers along with four private operators - control just 9 per cent of the market.

It's a classic consolidation play and it has caught the attention of offshore investors.

"It's gone from a cottage industry to investment grade in the space of four years," says Colliers' Shane Nicholson.

Last November, US private equity investor Blackstone invested $150 million in Perth-based, family-owned National Lifestyle Villages, which has 12 estates.

America's largest home-park owner and operator, Equity Lifestyle Properties, has taken a tour through the Australian market, making its own approach to Gateway last year. The US giant, listed with a market cap of $US4.5 billion ($5.8 billion), is chaired by Chicago-based investor Sam Zell. Private equity player KKR is also believed to be looking at the sector. Both Nicholson and colleague Stuart Strong have cultivated links to the world's largest MHE market, attending the industry's annual conference in the US.

"A lot of the operators wanted to speak to me about the Australian market," says Strong, who was in Las Vegas in April. "There's a number of operators and investors over there who want to get into the Australian market."

The US market is mature compared with Australia, with massive park portfolios held by powerful players. Investor Warren Buffett has exposure, owning finance groups for the sector and the largest mobile home maker in the US.

There is even a Mobile Home University, based in Colorado, to educate prospective investors on how to succeed in the area.

In Australia the sector is pulling in mainstream investors.

The Gateway raising was fully underwritten by UBS and Macquarie, and attracted cornerstone investors including AMP and BT Investment Management.

The investment in the sector is, BT's Davidson points out, a prime example of the institutionalisation of an alternative property class. It is a similar observation made by others in the sector, including Aspen's Salwin. "In the last few years you can see different forms of real-estate sectors coming to market and being corporatised," he says.

"You've seen that in the childcare centre sector, you've seen that in the self-storage sector, and you're now seeing that in this MHE and holiday park sector.

"It's the rationale of corporatising and bringing a different capital base to an industry. Many of the characteristics of those new property types, where there has been a lot of fragmented ownership with a lot of mum-and-dad ownership, are evolving. That's how we see the future of this industry segment."

250

$ thousand

starting price of a demountable.


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