Australia has quite scary emerging and submerging property markets: Robert Simeon
Without a shadow of a doubt the most asked question in Sydney real estate circles at the moment is – do you try and buy now or wait for ‘that’ market correction?
The simple answer is ‘that’ market correction may be years off, with some niche markets in all probability not even facing a correction. The key factor is the rate of growth over a twelve month period although I must admit some areas are posting capital growth gains that will almost certainly end in pain and significant losses.
I was looking at some CoreLogic RP Data statistics during the week and I found some niche markets are simply defying logic. In NSW Keiraville is presently sitting on 49.49% growth, Seven Hills 46.84% and Hay on 45.45%. In Victoria Portland is running at 47.54% and Caulfield East 45.57%. In South Australia, Wayville at 47.25%, Clayton Bay 45.40% and Paringa 45.24% – that is scary data that strengthens my argument that we should have postcode cash rates in Australia.
Overall there are two market demographics that are driving the Sydney real estate markets at above the acceptable speed limit. The first are the property investors who thus far have been 100% accurate with their market assessment given they have been driving the market now solidly for over three years. Given the Australian bond rates look to be sitting below 3% for the next decade or two, they have been very shrewd to target property and of course the benefits of negative gearing.
When negative gearing was introduced in July 1985 by the Hawke/Keating government the architects would never have calculated the affects it would have in the market when you have a cash rate at 2.25% and going lower. Only when the Liberal and Labor parties agree that they will support a bipartisan inquiry into negative gearing will we see a slowing down of the property investor tsunami.
Not all real estate markets are being drawn in the current whirlpool of real estate euphoria. When I look at the number of houses for sale in Mosman this week we see 69 homes. Twelve months ago there were 93, twenty four months ago there were 93 and forty eight months ago there were 141. So what we are seeing is reduced stock in many suburbs given vendors are simply not that interested in selling given the preference is to pay down debt which is directly attributed to the Global Financial Crisis.
A dominant player in the market today (and growing) is that of the overseas buyer and let’s be honest the government regulators have completely lost control and have absolutely no idea how strong this buyer demographic is or has been. When the Chairman of the Foreign Investment Review Board (FIRB) Brian Wilson openly admits that “The ATO is better set up for coordinating a big data approach than Treasury, which is a policy body.” We then begin to realise that the FIRB has lost this battle and the white flag has now been well and truly raised.
Naturally these comments were ignored by the Treasurer Joe Hockey and mainstream media which I find simply amazing.
Why, Australia? Grainne Gilmore, head of residential research UK at Knight Frank, told The Real Estate Conversation:
“Over the past decade, Australia was positioned fourth in terms of countries with the greatest foreign inflows of High Net Worth Individuals (HNWI) with a gain of 22,000, which represents 14% of Australia’s total HNWI population.
"In 2014, there were 1,734 Ultra High Net Worth Individuals (UHNWI) living in Australia who had a net worth of over US$30 million.
"Sydney accommodates half of these individuals, with Melbourne (26%), Perth (15%) and Brisbane (14%) taking up the balance."
So no matter what happens to property prices in Sydney there will always be greater demand than supply given there is a fast growing line of buyers from China wanting to buy Australian real estate. Although don’t expect to hear any debate on this topic given it’s deemed ‘politically incorrect’.
Although in this day and age the groundswell is started by outside forces given this really is the only way to make politicians accountable for their inactions.
As for the cash rate there is no point in predicting where it will be at the next meeting rather where it will be in a decade’s time given we now know that Australia Treasury bonds won’t be going anywhere until 2030. Unfortunately the same can’t be said for property prices where in 2035 it’s too scary to even contemplate and I’m not talking down.
