10-07-2014, 07:43 AM
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12-07-2014, 09:07 AM
Asian dynamic drives housing
THE AUSTRALIAN JULY 12, 2014 12:00AM
Turi Condon
Property Editor
Sydney
THE rising aspirations of Asia’s middle class is the new dynamic in the housing market and their involvement may make Australian property more affordable, according to Mark Steinert, chief executive of Australia’s largest residential developer, Stockland.
“Whatever we say about affordability — in the context of the region and international cities generally — Australian housing is still very affordable for what you get,” Mr Steinert told The Weekend Australian.
The harbour views, access to parks and CBDs, access to hospitals and education — “that’s where Australia stands out”, he said. “Prices could be moving closer and closer (to international cities), but that amenity and quality of life in Australia is pretty much unmatched anywhere else in the world.”
Mr Steinert’s comments come amid concerns that the influx of foreign, mostly Asian, buyers will drive up Australian housing prices, with a federal government inquiry into foreign investment in residential real estate continuing to hold hearings this month.
Mr Steinert said a report by consultants McKinsey & Co forecast China’s middle class living in cities would rise from 256 million people in 2012 to 357 million in 2022. China’s increasingly affluent middle class was growing at about 20 per cent a year, he noted.
“Combine our own birthrate — Australia has the highest birthrate in the developed world — I think demand and supply for Australia (housing) looks pretty healthy for the next five years,” Mr Steinert said.
With Australia a drawcard for foreign buyers and investors, international — mostly Asian — developers have followed.
Mr Steinert believes the influx of Asian developers combined with NSW and Victorian state governments’ focus on releasing land for development will increase the supply of housing and keep a lid on skyrocketing prices.
“Whatever they (Asian developers) have paid for the sites doesn’t necessarily translate into higher prices for the apartments, unless demand is well in excess of supply,” he said.
“You may well see the situation where they create a lot of supply and that has the effect of reducing the cost of apartments.”
That echoes remarks made by RBA governor Glenn Stevens, who said it was incumbent on governments to encourage new supply to meet growing demand.
About 36,000 apartments are planned around the nation by foreign developers, with more than half to be built in Melbourne, according to property economic consultancy Deep End Services. Asian developers have also charged into Sydney, where they are building 37 per cent of the upcoming unit towers being undertaken by offshore groups.
Mr Steinert said the surge in house prices in Sydney and Melbourne had prompted a “pretty aggressive response” from developers: “All those projects coming to market will absolutely moderate the rate of prices increase. How much I can’t tell you.”
National housing values increased 10 per cent in the year to June, with Sydney surging by 15.4 per cent to a median value of $690,000, Melbourne up 9.4 per cent to $560,000 and Brisbane housing values up 7 per cent to $455,000, according to researcher RP Data Rismark.
Mr Steinert said he agreed with comments last week by Mr Stevens that housing price growth would moderate from the high levels of the past year.
However, he said Sydney would face housing shortages for the next six years, keeping a floor under prices. “I don’t want to trivialise the affordability challenge,” he said. “The way to deal with this, as both federal and state governments have acknowledged, is land release to facilitate supply.”
THE AUSTRALIAN JULY 12, 2014 12:00AM
Turi Condon
Property Editor
Sydney
THE rising aspirations of Asia’s middle class is the new dynamic in the housing market and their involvement may make Australian property more affordable, according to Mark Steinert, chief executive of Australia’s largest residential developer, Stockland.
“Whatever we say about affordability — in the context of the region and international cities generally — Australian housing is still very affordable for what you get,” Mr Steinert told The Weekend Australian.
The harbour views, access to parks and CBDs, access to hospitals and education — “that’s where Australia stands out”, he said. “Prices could be moving closer and closer (to international cities), but that amenity and quality of life in Australia is pretty much unmatched anywhere else in the world.”
Mr Steinert’s comments come amid concerns that the influx of foreign, mostly Asian, buyers will drive up Australian housing prices, with a federal government inquiry into foreign investment in residential real estate continuing to hold hearings this month.
Mr Steinert said a report by consultants McKinsey & Co forecast China’s middle class living in cities would rise from 256 million people in 2012 to 357 million in 2022. China’s increasingly affluent middle class was growing at about 20 per cent a year, he noted.
“Combine our own birthrate — Australia has the highest birthrate in the developed world — I think demand and supply for Australia (housing) looks pretty healthy for the next five years,” Mr Steinert said.
With Australia a drawcard for foreign buyers and investors, international — mostly Asian — developers have followed.
Mr Steinert believes the influx of Asian developers combined with NSW and Victorian state governments’ focus on releasing land for development will increase the supply of housing and keep a lid on skyrocketing prices.
“Whatever they (Asian developers) have paid for the sites doesn’t necessarily translate into higher prices for the apartments, unless demand is well in excess of supply,” he said.
“You may well see the situation where they create a lot of supply and that has the effect of reducing the cost of apartments.”
That echoes remarks made by RBA governor Glenn Stevens, who said it was incumbent on governments to encourage new supply to meet growing demand.
About 36,000 apartments are planned around the nation by foreign developers, with more than half to be built in Melbourne, according to property economic consultancy Deep End Services. Asian developers have also charged into Sydney, where they are building 37 per cent of the upcoming unit towers being undertaken by offshore groups.
Mr Steinert said the surge in house prices in Sydney and Melbourne had prompted a “pretty aggressive response” from developers: “All those projects coming to market will absolutely moderate the rate of prices increase. How much I can’t tell you.”
National housing values increased 10 per cent in the year to June, with Sydney surging by 15.4 per cent to a median value of $690,000, Melbourne up 9.4 per cent to $560,000 and Brisbane housing values up 7 per cent to $455,000, according to researcher RP Data Rismark.
Mr Steinert said he agreed with comments last week by Mr Stevens that housing price growth would moderate from the high levels of the past year.
However, he said Sydney would face housing shortages for the next six years, keeping a floor under prices. “I don’t want to trivialise the affordability challenge,” he said. “The way to deal with this, as both federal and state governments have acknowledged, is land release to facilitate supply.”
14-07-2014, 04:08 PM
Home buyers could be better off renting: RBA
JULY 14, 2014 3:30PM
Elizabeth Redman
Business Spectator Reporter
Melbourne
The average home buyer would be better off renting if house price growth slows below its long-term average, according to the Reserve Bank of Australia.
The central bank said if real house prices continue to grow at the average rate of the past six decades, then buying a house now would be about as costly as renting.
But the RBA noted some forecasters' predictions that house price growth could ease, meaning the average household would probably find it cheaper to rent than buy.
In a research paper, the RBA said expectations of future capital gains implied by current house prices are in line with historical norms.
"That allays some concerns about a housing 'bubble'," the Reserve Bank said.
The paper said real house prices have increased at an average annual rate of slightly less than 2.5 per cent since 1955.
"If this rate of appreciation is expected to continue then our estimates suggest that houses are fairly valued," it said.
But the central bank warned that forecasting house price growth was subject to considerable uncertainty.
JULY 14, 2014 3:30PM
Elizabeth Redman
Business Spectator Reporter
Melbourne
The average home buyer would be better off renting if house price growth slows below its long-term average, according to the Reserve Bank of Australia.
The central bank said if real house prices continue to grow at the average rate of the past six decades, then buying a house now would be about as costly as renting.
But the RBA noted some forecasters' predictions that house price growth could ease, meaning the average household would probably find it cheaper to rent than buy.
In a research paper, the RBA said expectations of future capital gains implied by current house prices are in line with historical norms.
"That allays some concerns about a housing 'bubble'," the Reserve Bank said.
The paper said real house prices have increased at an average annual rate of slightly less than 2.5 per cent since 1955.
"If this rate of appreciation is expected to continue then our estimates suggest that houses are fairly valued," it said.
But the central bank warned that forecasting house price growth was subject to considerable uncertainty.
15-07-2014, 09:24 PM
Sydney’s push to remain a global city must mean that the sky’s the limit: city’s building height limit has not changed in 40 years
EXCLUSIVE Alicia Wood State Political Reporter
The Daily Telegraph
July 14, 2014
SYDNEY’S skyline could soon rise higher, amid concerns the city’s existing 235m height limit is stifling growth and leaving the city trailing its international counterparts.
The height limit has not changed in 40 years, and experts say Sydney could run out of office space within 10 years — even allowing for the Barangaroo development. The tallest structure in the city — which exceeds the height limit — is Sydney Tower at 309m....................
http://www.dailytelegraph.com.au/news/ns...6987564646
EXCLUSIVE Alicia Wood State Political Reporter
The Daily Telegraph
July 14, 2014
SYDNEY’S skyline could soon rise higher, amid concerns the city’s existing 235m height limit is stifling growth and leaving the city trailing its international counterparts.
The height limit has not changed in 40 years, and experts say Sydney could run out of office space within 10 years — even allowing for the Barangaroo development. The tallest structure in the city — which exceeds the height limit — is Sydney Tower at 309m....................
http://www.dailytelegraph.com.au/news/ns...6987564646
16-07-2014, 11:45 PM
Wake up to pitfalls of great Australian dream
CALLAM PICKERING BUSINESS SPECTATOR JULY 17, 2014 12:00AM
OWNING your own home remains a dream for many Australians, but an increasingly difficult one. In our pursuit of home ownership we are frequently ripped off, with new evidence from the Reserve Bank of Australia suggesting housing is severely overvalued. Combined with a soft economic outlook, younger Australians would be well advised to think hard before taking on excess leverage, borrowing from their parents and entering Australia’s housing market.
The RBA released a research paper yesterday on housing valuation by economists Ryan Fox and Peter Tulip. They ask the pivotal question: Is housing overvalued?
I have addressed housing valuation a few times during my tenure at Business Spectator. My general view is that Australians are frequently ripped off when buying a home.
A combination of poor housing policy — including negative gearing, capital gains tax concessions or exemptions and the first-homeowner grant — combined with housing supply restrictions, excessive bank lending and stamp duty have resulted in arguably the most expensive housing stock in the world.
And yet Australians keep buying homes, at increasing values and with increasing levels of mortgage debt. Some argue that it is a bubble but many Australians believe they are getting a good deal.
Fox and Tulip have taken an opportunity cost approach to home ownership. A house is considered “overvalued” if the individual would be better off renting the home compared with owning a similar dwelling.
Should you rent or buy? It’s an age-old question but one with a simple answer for most Australians: “Of course you should buy!” Yet it is far from a no-brainer, as the analysis from Fox and Tulip shows.
The decision to rent or buy excludes the decision of whether to become a property investor. Investors face a very different set of trade-offs compared with those contemplating home ownership.
The goal of Fox and Tulip’s analysis is to create a superior method of valuation compared with measures such as the house price-to-income and house price-to-rent ratios. Both these measures are simple but have some obvious limitations.
Both ratios have also increased significantly over the past few decades, resulting in organisations such as the International Monetary Fund and OECD declaring that Australian house prices are significantly overvalued.
Fox and Tulip argue that an upward trending price-to-income ratio is not surprising. They suggest that it is to be expected when land is in limited supply; prices need to rise faster than incomes to keep demand in line with supply.
Land supply is an important determinant of house prices but the willingness of our banks to lend is more significant.
Although they are often ignored, banks determine the level of house prices by controlling the purse-strings. They could create a house price bubble or bust by simply changing their tolerance to risk.
House price multiples increased because of greater access to credit, with supply restrictions playing a more modest role. But returning to their model, Fox and Tulip compare the cost of renting against buying a home using a matched sample of properties.
They find that the decision to buy or rent is highly sensitive to one’s expectations regarding capital appreciation.
Their base scenario assumes that house prices will continue to grow at their post-1955 average, during which time real house prices rose by 2.4 per cent annually. Under this scenario, housing is perfectly priced compared with rents.
But it is unreasonable to assume that future house price growth will match past gains.
One scenario considered by Fox and Tulip is where real house prices grow at the rate of household income growth. Under this scenario, housing is overvalued by around 20 per cent.
The great Australian dream may be to own your own home but financially it no longer makes sense for many Australians. By comparison, rents remain relatively cheap and are a better option for many younger Australians.
Callam Pickering is the economics editor for Business Spectator. Visit businessspectator.com.au
CALLAM PICKERING BUSINESS SPECTATOR JULY 17, 2014 12:00AM
OWNING your own home remains a dream for many Australians, but an increasingly difficult one. In our pursuit of home ownership we are frequently ripped off, with new evidence from the Reserve Bank of Australia suggesting housing is severely overvalued. Combined with a soft economic outlook, younger Australians would be well advised to think hard before taking on excess leverage, borrowing from their parents and entering Australia’s housing market.
The RBA released a research paper yesterday on housing valuation by economists Ryan Fox and Peter Tulip. They ask the pivotal question: Is housing overvalued?
I have addressed housing valuation a few times during my tenure at Business Spectator. My general view is that Australians are frequently ripped off when buying a home.
A combination of poor housing policy — including negative gearing, capital gains tax concessions or exemptions and the first-homeowner grant — combined with housing supply restrictions, excessive bank lending and stamp duty have resulted in arguably the most expensive housing stock in the world.
And yet Australians keep buying homes, at increasing values and with increasing levels of mortgage debt. Some argue that it is a bubble but many Australians believe they are getting a good deal.
Fox and Tulip have taken an opportunity cost approach to home ownership. A house is considered “overvalued” if the individual would be better off renting the home compared with owning a similar dwelling.
Should you rent or buy? It’s an age-old question but one with a simple answer for most Australians: “Of course you should buy!” Yet it is far from a no-brainer, as the analysis from Fox and Tulip shows.
The decision to rent or buy excludes the decision of whether to become a property investor. Investors face a very different set of trade-offs compared with those contemplating home ownership.
The goal of Fox and Tulip’s analysis is to create a superior method of valuation compared with measures such as the house price-to-income and house price-to-rent ratios. Both these measures are simple but have some obvious limitations.
Both ratios have also increased significantly over the past few decades, resulting in organisations such as the International Monetary Fund and OECD declaring that Australian house prices are significantly overvalued.
Fox and Tulip argue that an upward trending price-to-income ratio is not surprising. They suggest that it is to be expected when land is in limited supply; prices need to rise faster than incomes to keep demand in line with supply.
Land supply is an important determinant of house prices but the willingness of our banks to lend is more significant.
Although they are often ignored, banks determine the level of house prices by controlling the purse-strings. They could create a house price bubble or bust by simply changing their tolerance to risk.
House price multiples increased because of greater access to credit, with supply restrictions playing a more modest role. But returning to their model, Fox and Tulip compare the cost of renting against buying a home using a matched sample of properties.
They find that the decision to buy or rent is highly sensitive to one’s expectations regarding capital appreciation.
Their base scenario assumes that house prices will continue to grow at their post-1955 average, during which time real house prices rose by 2.4 per cent annually. Under this scenario, housing is perfectly priced compared with rents.
But it is unreasonable to assume that future house price growth will match past gains.
One scenario considered by Fox and Tulip is where real house prices grow at the rate of household income growth. Under this scenario, housing is overvalued by around 20 per cent.
The great Australian dream may be to own your own home but financially it no longer makes sense for many Australians. By comparison, rents remain relatively cheap and are a better option for many younger Australians.
Callam Pickering is the economics editor for Business Spectator. Visit businessspectator.com.au
16-07-2014, 11:48 PM
Shopping centres full but rents on hold
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 17, 2014 12:00AM
Redevelopment begins at Pacific Fair in Queensland. Picture: Brendan Radke Source: Supplied
SHOPPING centre rents will be subdued or may fall for at least the next two years, according to industry analysts and investment brokers, even as vacancy rates remain low and investors continue to flood into the sector.
Difficult trading conditions have already seen the collapse of retailer Discount Super Group, owner of the Crazy Clarks and Sam’s Warehouse chains.
The company is closing 39 stores, and The Australian understands a further 25 store closures will be announced tomorrow.
Figures compiled by real estate agency JLL show retail vacancy rates fell 0.2 per cent across Australia for the six months to the end of June to sit at 3.8 per cent, driven by falling vacancies at the subregional and CBD level.
Retail rents have shown little movement in the past five years, according to BIS Shrapnel analyst Maria Lee. Figures provided to The Australian show regional shopping centres have recorded rent growth of only 1.1 per cent a year over the past five years. Similarly, subregional centres have seen rent increases of 0.8 per cent a year for the five years, while neighbourhood centres are up by 0.7 per cent.
Ms Lee said all categories had seen little or no movement for the past two years, meaning rents had gone backwards once adjusted for inflation.
She said anecdotal evidence suggested rent incentives had also increased in the past five years.
“Landlords Westfield, GPT and CFS Retail are more skewed to major regional and super-regional centres, where there was more discretionary spending, and are more exposed to underperforming department stores and speciality clothing retailers,” Ms Lee said.
“We had a period where rents were growing faster than turnover and occupancy costs were going up, and that can’t happen indefinitely,” she added, suggesting the adjustment process could run for the next two or three years.
That trend was confirmed by JPMorgan broker Adam Fairfax, who said his figures showed rent reversions across the industry of between -5 per cent and -6 per cent over the last financial year.
“This typically comprises -2 to -4 per cent for sitting tenants and -7 to -9 for new tenants,” Mr Fairfax said.
He said the declines were “likely to continue for the next six to 12 months before rents are deemed to be at market levels”.
In March, Westfield Group reported the 500 leasing deals across its Australian and New Zealand portfolio had been struck at rents 4.6 per cent lower than the expiring lease, even while occupancy remained at 99.5 per cent.
Other real estate investment trusts, including Federation Centres, were less affected because their portfolio was skewed towards subregional centres and convenience stores, according to Brandon Phillips, Federation’s external affairs manager.
“This means there is a bias towards non-discretionary retail spending and our sales are not so influenced by fluctuations in consumer sentiment,” Mr Phillips said.
But larger “destination” centres and areas should be better placed to withstand any weakness in retailers and trading conditions, according to Mr Fairfax, and redevelopments would continue, albeit on a more conservative basis and led by better-quality centres.
Owners such as AMP Capital Shopping Centres were actively pursuing “destination” strategies with redevelopments at Macquarie Centre and Pacific Fair, hoping to entice international retailers, tourists and to keep shoppers in the centre for longer periods.
CBRE’s Melbourne retail specialist, Zelman Ainsworth, said international brands were helping sustain growth, with J Crew and Paul Shark “aggressively looking for big flagship stores” before expanding to Melbourne’s Chadstone and other destination shopping centres.
Mr Ainsworth said United Colors of Benetton was also “very close” to signing a lease.
BIS Shrapnel expects retail construction commencements to peak in 2016, with regional shopping centres beginning to dust off expansion plans shelved in the wake of the global financial crisis.
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 17, 2014 12:00AM
Redevelopment begins at Pacific Fair in Queensland. Picture: Brendan Radke Source: Supplied
SHOPPING centre rents will be subdued or may fall for at least the next two years, according to industry analysts and investment brokers, even as vacancy rates remain low and investors continue to flood into the sector.
Difficult trading conditions have already seen the collapse of retailer Discount Super Group, owner of the Crazy Clarks and Sam’s Warehouse chains.
The company is closing 39 stores, and The Australian understands a further 25 store closures will be announced tomorrow.
Figures compiled by real estate agency JLL show retail vacancy rates fell 0.2 per cent across Australia for the six months to the end of June to sit at 3.8 per cent, driven by falling vacancies at the subregional and CBD level.
Retail rents have shown little movement in the past five years, according to BIS Shrapnel analyst Maria Lee. Figures provided to The Australian show regional shopping centres have recorded rent growth of only 1.1 per cent a year over the past five years. Similarly, subregional centres have seen rent increases of 0.8 per cent a year for the five years, while neighbourhood centres are up by 0.7 per cent.
Ms Lee said all categories had seen little or no movement for the past two years, meaning rents had gone backwards once adjusted for inflation.
She said anecdotal evidence suggested rent incentives had also increased in the past five years.
“Landlords Westfield, GPT and CFS Retail are more skewed to major regional and super-regional centres, where there was more discretionary spending, and are more exposed to underperforming department stores and speciality clothing retailers,” Ms Lee said.
“We had a period where rents were growing faster than turnover and occupancy costs were going up, and that can’t happen indefinitely,” she added, suggesting the adjustment process could run for the next two or three years.
That trend was confirmed by JPMorgan broker Adam Fairfax, who said his figures showed rent reversions across the industry of between -5 per cent and -6 per cent over the last financial year.
“This typically comprises -2 to -4 per cent for sitting tenants and -7 to -9 for new tenants,” Mr Fairfax said.
He said the declines were “likely to continue for the next six to 12 months before rents are deemed to be at market levels”.
In March, Westfield Group reported the 500 leasing deals across its Australian and New Zealand portfolio had been struck at rents 4.6 per cent lower than the expiring lease, even while occupancy remained at 99.5 per cent.
Other real estate investment trusts, including Federation Centres, were less affected because their portfolio was skewed towards subregional centres and convenience stores, according to Brandon Phillips, Federation’s external affairs manager.
“This means there is a bias towards non-discretionary retail spending and our sales are not so influenced by fluctuations in consumer sentiment,” Mr Phillips said.
But larger “destination” centres and areas should be better placed to withstand any weakness in retailers and trading conditions, according to Mr Fairfax, and redevelopments would continue, albeit on a more conservative basis and led by better-quality centres.
Owners such as AMP Capital Shopping Centres were actively pursuing “destination” strategies with redevelopments at Macquarie Centre and Pacific Fair, hoping to entice international retailers, tourists and to keep shoppers in the centre for longer periods.
CBRE’s Melbourne retail specialist, Zelman Ainsworth, said international brands were helping sustain growth, with J Crew and Paul Shark “aggressively looking for big flagship stores” before expanding to Melbourne’s Chadstone and other destination shopping centres.
Mr Ainsworth said United Colors of Benetton was also “very close” to signing a lease.
BIS Shrapnel expects retail construction commencements to peak in 2016, with regional shopping centres beginning to dust off expansion plans shelved in the wake of the global financial crisis.
20-07-2014, 09:02 PM
GLOBAL QE IS PROBABLY ANOTHER EXTERNAL FACTOR NOT MENTION IN THE ARTICLE
CHRISTOPHER JOYE
Stretched housing valuations mean bubble is here
PUBLISHED: 19 JUL 2014 02:59:25 | UPDATED: 19 JUL 2014 08:31:53
Joye
CHRISTOPHER JOYE
In April 2008, Reserve Bank of Australia governor Glenn Stevens was asked by Malcolm Turnbull why housing affordability was so bad.
“The big problem is not that interest rates are too high,” Stevens responded. “Prices are very high. We have very high prices in Australia relative to income. I think there are probably both demand and supply elements to that story.”
Turnbull knew what he was talking about, having chaired John Howard’s 2003 home ownership task force (which commissioned me to write a 380-page report on the subject).
A crucial finding was that improving the “elasticity” of otherwise sluggish housing supply – the construction of new homes – to changes in buyer demand would ameliorate affordability woes.
The RBA was not a subscriber to this supply-side thesis back then – publicly claiming it was all about interest rates and incomes.
But it has become a vocal advocate of the need to “elastify” supply to mitigate extreme price distortions.
The contemporary challenge is that since Stevens’s stark 2008 assessment that housing was expensive, median prices have surged 36 per cent.
In March 2008 the median capital-city home was worth $400,000, says RP Data-Rismark. By June 2014, this had rocketed to $545,000.
It is reasonable to think housing costs will track buyer incomes over time. Stevens was certainly right in 2008 when he said the ratio of prices to incomes was “very high”. RBA estimates put it at five times in April 2008, or about 20 per cent above the average ratio since the RBA started targeting inflation in 1993. The worry is Australia’s house price-to-income ratio is dearer again and rising. RBA data has it at 5.1 times in March 2014, a touch below the 5.2 records in 2007 and 2010. After both episodes, prices fell 6 per cent to 8 per cent. My analysis suggests the ratio has crept further since March as national prices continue to outstrip incomes.
LIGHTER SIDE OF CAPITAL RETURNS
With Australian home values in absolute terms and compared to incomes now at, or near, multi-decade peaks, there is a case that we have an emerging bubble. While Stevens has been reluctant to mention the “b-word”, the RBA’s latest research lends weight to the notion valuations are getting stretched.
In a new paper the RBA presents two main estimates of valuations: one based on house price growth rates since 1955 and another using capital gains over the last decade. Both are used as proxies for future gains.
The RBA’s 1955 number, equivalent to annual future price appreciation of about 5 per cent in nominal terms, appears to have been cherry-picked to engineer the politically palatable result that Australian home values were exactly fully priced in April 2014.
The RBA knows we don’t have reliable housing data before 1980 and has often argued the unusually strong gains over the last 30 years were boosted by the big one-off decline in interest rates after inflation stabilised in the mid-1990s. The average variable mortgage rate between 1980 and 1993 was 13.2 per cent, but has averaged 7.6 per cent since. The message is prospective capital returns are likely to be much skinnier than during the 1980s, 1990s and early 2000s.
So when the RBA deploys its alternative assumption – which is the more modest annual house price growth rate since 2004 of about 4 per cent in nominal terms – its model finds that Australian homes are 19 per cent overvalued. This just happens to be the same result you get if you compare the house price-to-income ratio to its average since 1993.
Other credible benchmarks on which to base future house price appreciation – including household income growth, the returns consumers think they will get and the rate at which rents rise – similarly imply that housing is overvalued by between 20 per cent and 30 per cent.
One of my preferred anchors for capital gains is household income growth per capita. Here the RBA paper echoes an observation I have posited before: that housing has historically been a “superior good”.
This means families have been prepared to spend a growing share of their earnings on buying properties even as prices climbed. But this process cannot continue indefinitely and may have run its course.
QUARTER-ACRE DREAM NO LONGER
Housing is becoming more commoditised as cities inevitably densify and, as I argued in 2003, the “great Australian dream” of owning a quarter-acre block fades from the consciousness of younger buyers.
The home ownership aspiration is likely to be increasingly balanced against competing consumer priorities, like being close to work, social hubs and major amenities. When urban dwellers are living in apartments, or densely packed properties, it is harder to tell the difference between owners and renters. The convergence in the social cache imputed to owning and renting will work to accentuate the costs and benefits of investing in these assets.
In concert with record levels of leverage, more objectivity around the decision to buy or rent could elevate price volatility as values adjust more quickly to changing circumstances.
So what is a “bubble”? Simply put, it’s where prices materially exceed fair value. Speculative mania and/or rapid credit growth are only portents, not conditions, precedent to a bubble existing.
RBA officials claim they are not worried about a bubble because credit growth is low. This is muddle-headed for two reasons: first, housing credit growth is outpacing incomes, which is the key criterion; second, credit growth is only meaningful in respect of the light it sheds on changes in the level of household leverage and the probability of borrowers defaulting.
Low leverage combined with strong credit growth is a sign of dangerous conditions ahead. But RBA data shows that historically and internationally lofty leverage has already arrived: Australia’s 150 per cent household debt-to-income ratio is approaching its pre-financial crisis apogee. All we need now is an interest rate, income or unemployment rate shock to crush house prices and send leverage into uncharted territory.
And contrary to RBA rhetoric, house prices are hardly “cooling”. In the first seven months of 2014, prices have inflated at a 9.5 per cent annualised pace (triple wages growth).
Melbourne values are appreciating more rapidly than Sydney, with both realising strong double-digit gains this year. Many pundits were fooled by the winter seasonal slowdown, which has been reversed. With banks promoting the cheapest mortgage rates ever, I suspect Australia’s nascent housing bubble will get bigger.
The Australian Financial Review
BY CHRISTOPHER JOYE
CHRISTOPHER JOYE
Stretched housing valuations mean bubble is here
PUBLISHED: 19 JUL 2014 02:59:25 | UPDATED: 19 JUL 2014 08:31:53
Joye
CHRISTOPHER JOYE
In April 2008, Reserve Bank of Australia governor Glenn Stevens was asked by Malcolm Turnbull why housing affordability was so bad.
“The big problem is not that interest rates are too high,” Stevens responded. “Prices are very high. We have very high prices in Australia relative to income. I think there are probably both demand and supply elements to that story.”
Turnbull knew what he was talking about, having chaired John Howard’s 2003 home ownership task force (which commissioned me to write a 380-page report on the subject).
A crucial finding was that improving the “elasticity” of otherwise sluggish housing supply – the construction of new homes – to changes in buyer demand would ameliorate affordability woes.
The RBA was not a subscriber to this supply-side thesis back then – publicly claiming it was all about interest rates and incomes.
But it has become a vocal advocate of the need to “elastify” supply to mitigate extreme price distortions.
The contemporary challenge is that since Stevens’s stark 2008 assessment that housing was expensive, median prices have surged 36 per cent.
In March 2008 the median capital-city home was worth $400,000, says RP Data-Rismark. By June 2014, this had rocketed to $545,000.
It is reasonable to think housing costs will track buyer incomes over time. Stevens was certainly right in 2008 when he said the ratio of prices to incomes was “very high”. RBA estimates put it at five times in April 2008, or about 20 per cent above the average ratio since the RBA started targeting inflation in 1993. The worry is Australia’s house price-to-income ratio is dearer again and rising. RBA data has it at 5.1 times in March 2014, a touch below the 5.2 records in 2007 and 2010. After both episodes, prices fell 6 per cent to 8 per cent. My analysis suggests the ratio has crept further since March as national prices continue to outstrip incomes.
LIGHTER SIDE OF CAPITAL RETURNS
With Australian home values in absolute terms and compared to incomes now at, or near, multi-decade peaks, there is a case that we have an emerging bubble. While Stevens has been reluctant to mention the “b-word”, the RBA’s latest research lends weight to the notion valuations are getting stretched.
In a new paper the RBA presents two main estimates of valuations: one based on house price growth rates since 1955 and another using capital gains over the last decade. Both are used as proxies for future gains.
The RBA’s 1955 number, equivalent to annual future price appreciation of about 5 per cent in nominal terms, appears to have been cherry-picked to engineer the politically palatable result that Australian home values were exactly fully priced in April 2014.
The RBA knows we don’t have reliable housing data before 1980 and has often argued the unusually strong gains over the last 30 years were boosted by the big one-off decline in interest rates after inflation stabilised in the mid-1990s. The average variable mortgage rate between 1980 and 1993 was 13.2 per cent, but has averaged 7.6 per cent since. The message is prospective capital returns are likely to be much skinnier than during the 1980s, 1990s and early 2000s.
So when the RBA deploys its alternative assumption – which is the more modest annual house price growth rate since 2004 of about 4 per cent in nominal terms – its model finds that Australian homes are 19 per cent overvalued. This just happens to be the same result you get if you compare the house price-to-income ratio to its average since 1993.
Other credible benchmarks on which to base future house price appreciation – including household income growth, the returns consumers think they will get and the rate at which rents rise – similarly imply that housing is overvalued by between 20 per cent and 30 per cent.
One of my preferred anchors for capital gains is household income growth per capita. Here the RBA paper echoes an observation I have posited before: that housing has historically been a “superior good”.
This means families have been prepared to spend a growing share of their earnings on buying properties even as prices climbed. But this process cannot continue indefinitely and may have run its course.
QUARTER-ACRE DREAM NO LONGER
Housing is becoming more commoditised as cities inevitably densify and, as I argued in 2003, the “great Australian dream” of owning a quarter-acre block fades from the consciousness of younger buyers.
The home ownership aspiration is likely to be increasingly balanced against competing consumer priorities, like being close to work, social hubs and major amenities. When urban dwellers are living in apartments, or densely packed properties, it is harder to tell the difference between owners and renters. The convergence in the social cache imputed to owning and renting will work to accentuate the costs and benefits of investing in these assets.
In concert with record levels of leverage, more objectivity around the decision to buy or rent could elevate price volatility as values adjust more quickly to changing circumstances.
So what is a “bubble”? Simply put, it’s where prices materially exceed fair value. Speculative mania and/or rapid credit growth are only portents, not conditions, precedent to a bubble existing.
RBA officials claim they are not worried about a bubble because credit growth is low. This is muddle-headed for two reasons: first, housing credit growth is outpacing incomes, which is the key criterion; second, credit growth is only meaningful in respect of the light it sheds on changes in the level of household leverage and the probability of borrowers defaulting.
Low leverage combined with strong credit growth is a sign of dangerous conditions ahead. But RBA data shows that historically and internationally lofty leverage has already arrived: Australia’s 150 per cent household debt-to-income ratio is approaching its pre-financial crisis apogee. All we need now is an interest rate, income or unemployment rate shock to crush house prices and send leverage into uncharted territory.
And contrary to RBA rhetoric, house prices are hardly “cooling”. In the first seven months of 2014, prices have inflated at a 9.5 per cent annualised pace (triple wages growth).
Melbourne values are appreciating more rapidly than Sydney, with both realising strong double-digit gains this year. Many pundits were fooled by the winter seasonal slowdown, which has been reversed. With banks promoting the cheapest mortgage rates ever, I suspect Australia’s nascent housing bubble will get bigger.
The Australian Financial Review
BY CHRISTOPHER JOYE
20-07-2014, 09:36 PM
Strangely, RBA's view was that recent data do not show signs of a bubble....
This was in June 2014
******
http://www.rba.gov.au/publications/rdp/2...14-06.html
Abstract:
This paper examines whether it costs more to own a home or to rent. We argue this is a useful criterion for assessing housing overvaluation. We use a new Australian dataset, which includes prices and rents for matched properties, letting us value housing in levels. We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting. If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting. We decompose house prices into contributions from rents, interest rates and expected capital gains, which may help policymakers in the detection of housing bubbles. Recent data do not show signs of a bubble.
This was in June 2014
******
http://www.rba.gov.au/publications/rdp/2...14-06.html
Abstract:
This paper examines whether it costs more to own a home or to rent. We argue this is a useful criterion for assessing housing overvaluation. We use a new Australian dataset, which includes prices and rents for matched properties, letting us value housing in levels. We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting. If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting. We decompose house prices into contributions from rents, interest rates and expected capital gains, which may help policymakers in the detection of housing bubbles. Recent data do not show signs of a bubble.
20-07-2014, 10:29 PM
Greenland Holding Group keen on local projects as China cools
GREG BROWN THE AUSTRALIAN JULY 19, 2014 12:00AM
Zhang Yuliang outlines Greenland’s hopes to expand its Australian assets in Sydney yesterday. Picture: Hollie Adams Source: News Corp Australia
ONE of China’s largest developers, the state-owned Greenland Holding Group, is intent on expanding its Australian portfolio, with the group scouring for more Sydney sites and also aiming to enter the Gold Coast market.
Greenland chairman Zhang Yuliang said the group was developing $1.4 billion worth of local projects and had no cap on future investment here.
“Our (Australian) investment in the near future will be much larger than what we already have,” Mr Zhang told The Weekend Australian yesterday.
“If everything goes well we will have more (purchases) in the next two quarters.”
Greenland yesterday announced a joint tender with Crown Resorts for the multi-billion-dollar Queens Wharf casino and resort site in Brisbane. Mr Zhang also said the group was studying the Gold Coast market and was negotiating on more sites in Sydney.
“We are discussing some new projects in Sydney,” Mr Zhang said.
The group has three Sydney developments, the first the $600 million Greenland Centre apartment and hotel tower in the CBD.
It is also planning projects in North Sydney and in the inner western suburb of Leichhardt.
Greenland Australia managing director Sherwood Luo would not be drawn on the details of the new Sydney projects it was considering. When asked which area of the city the group was looking at, Mr Luo said: “North, south, east and west.”
Mr Zhang is in Australia for the B20 summit and will attend a reception tonight with Tony Abbott.
“I would like to talk to (the Prime Minister) about enlarging our investment in Australia,” Mr Zhang said.
“I believe that the Australian government should be more open on Chinese investors,” he added, saying that he supported a free-trade agreement between the two countries.
“I agree with (Mr Abbott) when he said that there are many problems in this world, but the power of business could be the last resort to solve all these problems.”
Mr Zhang said the slowing Chinese residential market would encourage large development companies to increase their investments in overseas markets.
“The Chinese government is adjusting its economic growth from a high-speed growth to a low-speed growth and the Chinese real estate market is doing the consequent adjustment,” he said. “By contrast the overseas real estate market is growing very strongly ... so large real estate enterprises that have the capacity will go abroad to do investment.”
Greenland is a Global Fortune 500 company, which had a global revenue last year of $55bn.
It has been active in China for 21 years and expanded to the US, Thailand and Europe after the global financial crisis to take advantage of depressed Western markets.
GREG BROWN THE AUSTRALIAN JULY 19, 2014 12:00AM
Zhang Yuliang outlines Greenland’s hopes to expand its Australian assets in Sydney yesterday. Picture: Hollie Adams Source: News Corp Australia
ONE of China’s largest developers, the state-owned Greenland Holding Group, is intent on expanding its Australian portfolio, with the group scouring for more Sydney sites and also aiming to enter the Gold Coast market.
Greenland chairman Zhang Yuliang said the group was developing $1.4 billion worth of local projects and had no cap on future investment here.
“Our (Australian) investment in the near future will be much larger than what we already have,” Mr Zhang told The Weekend Australian yesterday.
“If everything goes well we will have more (purchases) in the next two quarters.”
Greenland yesterday announced a joint tender with Crown Resorts for the multi-billion-dollar Queens Wharf casino and resort site in Brisbane. Mr Zhang also said the group was studying the Gold Coast market and was negotiating on more sites in Sydney.
“We are discussing some new projects in Sydney,” Mr Zhang said.
The group has three Sydney developments, the first the $600 million Greenland Centre apartment and hotel tower in the CBD.
It is also planning projects in North Sydney and in the inner western suburb of Leichhardt.
Greenland Australia managing director Sherwood Luo would not be drawn on the details of the new Sydney projects it was considering. When asked which area of the city the group was looking at, Mr Luo said: “North, south, east and west.”
Mr Zhang is in Australia for the B20 summit and will attend a reception tonight with Tony Abbott.
“I would like to talk to (the Prime Minister) about enlarging our investment in Australia,” Mr Zhang said.
“I believe that the Australian government should be more open on Chinese investors,” he added, saying that he supported a free-trade agreement between the two countries.
“I agree with (Mr Abbott) when he said that there are many problems in this world, but the power of business could be the last resort to solve all these problems.”
Mr Zhang said the slowing Chinese residential market would encourage large development companies to increase their investments in overseas markets.
“The Chinese government is adjusting its economic growth from a high-speed growth to a low-speed growth and the Chinese real estate market is doing the consequent adjustment,” he said. “By contrast the overseas real estate market is growing very strongly ... so large real estate enterprises that have the capacity will go abroad to do investment.”
Greenland is a Global Fortune 500 company, which had a global revenue last year of $55bn.
It has been active in China for 21 years and expanded to the US, Thailand and Europe after the global financial crisis to take advantage of depressed Western markets.
21-07-2014, 10:48 PM
CBD vacancy rates highest in 17 years
THE AUSTRALIAN JULY 22, 2014 12:00AM
Greg Brown
Property Reporter
Sydney
CBD office buildings are at their most vacant since 1997, with Brisbane and Perth reeling from low tenant demand and falling rents as the resources sector continues to contract.
Research by JLL shows the national CBD vacancy rate jumped to 12.2 per cent at the end of the June quarter, from 11.7 per cent at the end of the first quarter of the year.
“The market is tough and we are going through some structural changes,” said Michael Cook, Investa Office head of capital transactions, commercial development and leasing.
“There is a more efficient use of existing work spaces and greater productivity brought about by technology.”
Sydney was the only CBD to show improved vacancy rates over the June quarter, becoming the tightest office market at 9.9 per cent vacancies.
Melbourne and Sydney both showed improved tenant demand, although vacancy rates in Melbourne increased to 11.1 per cent, from 10.4 per cent in March. Tenant demand was especially low in the resource-heavy cities of Perth and Brisbane. Brisbane recorded negative net absorption — the amount of space leased minus vacated — of minus 21,200sq m in the quarter and -57,000sq m in the year to June. Perth CBD recorded an eighth successive quarter of negative net absorption in the June quarter at -13,800sq m. The contraction in net absorption over the financial year totalled -82,900sq m.
Perth vacancies have increased by nearly 2 per cent in the past six months, sitting at 12.7 per cent, while vacancies in Brisbane are the highest on record at 16.5 per cent.
As a result, prime gross effective rents in the year to June fell 20 per cent in Perth and 9.6 per cent in Brisbane, compared to an increase in Sydney (2.3 per cent) and Melbourne (0.8 per cent).
JLL head of research Andrew Ballantyne said 2015 would be a big year of supply for Perth.
“We would expect the vacancy to move higher in that year,” he said, adding a recovery in tenant demand would follow.
Vacancy rates in Canberra hit 13.2 per cent from 11.7 per cent in March. Those in Adelaide increased from 13.9 per cent in March to 14.8 per cent.
JLL head of leasing Tim O’Conner was positive despite the results, expecting an improvement in the next financial year.
“There are already signs of expansion from professional services and technology-related firms. Furthermore, corporate Australia, outside of the mining sector, has underinvested in capital expenditure programs over the past three years.”
THE AUSTRALIAN JULY 22, 2014 12:00AM
Greg Brown
Property Reporter
Sydney
CBD office buildings are at their most vacant since 1997, with Brisbane and Perth reeling from low tenant demand and falling rents as the resources sector continues to contract.
Research by JLL shows the national CBD vacancy rate jumped to 12.2 per cent at the end of the June quarter, from 11.7 per cent at the end of the first quarter of the year.
“The market is tough and we are going through some structural changes,” said Michael Cook, Investa Office head of capital transactions, commercial development and leasing.
“There is a more efficient use of existing work spaces and greater productivity brought about by technology.”
Sydney was the only CBD to show improved vacancy rates over the June quarter, becoming the tightest office market at 9.9 per cent vacancies.
Melbourne and Sydney both showed improved tenant demand, although vacancy rates in Melbourne increased to 11.1 per cent, from 10.4 per cent in March. Tenant demand was especially low in the resource-heavy cities of Perth and Brisbane. Brisbane recorded negative net absorption — the amount of space leased minus vacated — of minus 21,200sq m in the quarter and -57,000sq m in the year to June. Perth CBD recorded an eighth successive quarter of negative net absorption in the June quarter at -13,800sq m. The contraction in net absorption over the financial year totalled -82,900sq m.
Perth vacancies have increased by nearly 2 per cent in the past six months, sitting at 12.7 per cent, while vacancies in Brisbane are the highest on record at 16.5 per cent.
As a result, prime gross effective rents in the year to June fell 20 per cent in Perth and 9.6 per cent in Brisbane, compared to an increase in Sydney (2.3 per cent) and Melbourne (0.8 per cent).
JLL head of research Andrew Ballantyne said 2015 would be a big year of supply for Perth.
“We would expect the vacancy to move higher in that year,” he said, adding a recovery in tenant demand would follow.
Vacancy rates in Canberra hit 13.2 per cent from 11.7 per cent in March. Those in Adelaide increased from 13.9 per cent in March to 14.8 per cent.
JLL head of leasing Tim O’Conner was positive despite the results, expecting an improvement in the next financial year.
“There are already signs of expansion from professional services and technology-related firms. Furthermore, corporate Australia, outside of the mining sector, has underinvested in capital expenditure programs over the past three years.”