Investor Demand

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<div>There's a theory that hosing down investor demand should have no impact on rents.</div>
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<div>That's because <em>in theory</em> for every property that isn't bought by an investor, an owner-occupier buys instead, and thus  the balance of supply and demand for rental properties remains unchanged. <br><br>In the real world capital city property markets don't work like that. In reality, many are renters either by choice or by circumstance, such as new graduates, transient employees, international or interstate visitors, and other folk who prefer taking a rental close to the city to ownership in the outer suburbs. Many others simply don't have an available deposit saved, so buying is not an option for them. </div>
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<div>As such rental growth is to a large extent determined by the growth in demand for rentals - underpinned over time by population growth - and by the relative activity of investors. For example, rents in Australian capital cities (and especially Sydney) boomed in 1986 and again in 2008 both of which were periods when investor buying had crashed in half.</div>
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<div><a href="/images/2016/04/11/A2.jpg" target="_blank">Click to enlarge</a></div>
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<div>For this reason it will be interesting to see what impact APRA's crackdown has on apartment rents in Sydney.</div>
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<div>I've rented out several properties in Sydney in recent months, all of them for more than last year. However, the properties in question are in high demand areas such as on the Sydney harbourside, and as such are not likely to be very representative of what is happening in construction pockets like, say, Parramatta or Green Square. </div>
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<div>Domain reported last week that as at March 2016 Sydney apartment rents were up by +4.0 per cent of 2016 from one year ago to a record median high of $520/week, with apartment rents now nearly as high as median house rents of $530/week in the harbour city. CoreLogic-RP Data has Sydney apartment rents +3.4 per cent higher than one year ago, and SQM Research records an increase of +5.7 per cent.</div>
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<div>To date this may in part simply be due to newer stock coming online, which typically is advertised for rent at higher prices than the older stock it often replaces. And we shouldn't be expecting runaway growth in rents any time soon, since investor activity is still at a historically high level, even after APRA's dampening of the buy-to-let sector.</div>
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<div>While it's still early days, this trend is certainly one to watch. Markets are quite complex beasts when you drill into the detail, with endless subtle balances and counter-balances, and in an expensive capital city such as Sydney with a growing population rental growth is likely to continue to have an inverse relationship to investor activity. </div>
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<div>Another trend that is worth watching I looked at here, and that is that inner Sydney vacancy rates have tightened while vacancy rates in secondary and outers areas of Sydney are rising.</div>
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<div>A question for today, then: could it be that foreign buyers of apartments are leaving their inner city units vacant?</div>
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<div><strong><span style="text-decoration: underline;">FIRB data curve ball</span></strong></div>
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<div>In the 1980s Japanese buyers famously  bought heavily into Gold Coast property, but then promptly withdrew funds as the economic outlook soured. As I mused in some detail here, the FIRB data shows that through this cycle there has been an unprecedented surge in Chinese investment in Australian real estate, on a scale never before seen.</div>
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<div><a href="/images/2016/04/11/FIRB4.jpg" target="_blank">Click to enlarge</a></div>
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<div>If you've been following some of my pieces over the years, you'll know that I aim to identify new trends well before you read about them in the wider media, which of course sometimes means being wrong. </div>
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<div>On the topic of localised apartment oversupply, such as in Sydney's inner south, for example, I was yapping on about this emerging risk way back in 2013, long before it ever became a standard media topic <em>du jour</em>.</div>
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<div>In that spirit, here's a possible anti-counter-contrarian view for you: maybe the high-rise building approvals boom won't prove to be such a big a deal after all? There are plenty of risk areas around, for sure, including some already alluded to above, but here are some lines of reasoning to consider:</div>
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<div>-<a href="https://petewargent.blogspot.com.au/2016/04/immigration-alley-oop" target="_blank">i</a>mmigration is rising again - and therefore so is population growth - while the construction boom will soon pass its peak</div>
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<div>-in the most populous capital cities at least, annual population growth never really slowed down anyway: it's still tracking at monumentally strong levels in Greater Sydney (+83,300 in FY2015) and Melbourne (+91,600)</div>
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<div>-the numbers of international students forecast to immigrate into the largest cities is vast - I mean, really vast </div>
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<div><a href="/images/2016/04/11/A5.jpg" target="_blank">Click to enlarge</a></div>
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<div>-although the take-up of permanent residency by international students to date has not yet been as strong as had been suggested by earlier forecasts, the cumulative intake over the next five years is expected to be truly enormous.</div>
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<div>-the most timely available indicators of education arrivals suggest an unprecedented boom is well underway, with another new record high hit in the month of February.</div>
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<div><a href="/images/2016/04/11/A2.jpg" target="_blank">Click to enlarge</a></div>
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<div>-with about 58 per cent of new construction approvals accounted for by foreign  buyers, especially driven by buyers from the Chinese mainland, many may choose not to rent their apartments out, and as such, might not add to the new supply of rental stock at all.</div>
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<div><strong><span style="text-decoration: underline;">Absorption?</span></strong></div>
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<div>Mostly these are familiar points. Certainly both Sydney (35,231) and Melbourne (32,614) have approved a historically high number of attached dwellings over the past year.</div>
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<div><a href="/images/2016/04/11/BA3.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/11/BA3.jpg" alt=""></div>
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<div>However, some of these apartments are destined to forever remain in the "approved but not yet commenced" column, approvals are now trending down again, and in the grand scheme of things although there are certainly many cranes on the horizon, these are not outlandish numbers for cities of such a large and expanding population (Greater Sydney will blaze past 5 million in the next few months).</div>
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<div>Moreover, the latest FIRB data show that the Chinese appetite for the purchase of new dwellings through this cycle is statistically unique. What if those Chinese buyers opt to rent out the apartments only on a short-stay basis? Or save them for their soon-to-be international student offspring? Or, most likely, simply never bother to ever bring them to market at all?</div>
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<div>Suddenly Australia's apparent inner city apartment glut, represented by the green line below, could prove to be yet another doomsday scenario that never eventuates.</div>
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<div><a href="/images/2016/04/11/BA1.jpg" target="_blank">Click to enlarge</a></div>
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<div>This is mostly conjecture, and it's not necessarily a base case, or even probable. And there are plenty of risks for the new and high-rise apartment markets in particular, as we have known now for some years.</div>
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<div>Settlement risks are now considerably higher than they were, with increased deposit requirements. And what if there are legislative changes in China which force sales and repatriation of funds? This may not seem rational or realistic, but then again nobody forecast the scale of the Chinese investment boom in the first place, so who really knows what comes next?</div>
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<div>In my opinion, most mainland Chinese investors deliberately invest in Australian and other overseas property markets with no intention of repatriating funds. In many cases, the financial return may not be the only objective, or even the primary objective.</div>
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<div>Keep a close eye on asking rents and vacancy rates. If the inner city markets do begin to tighten contrary to expectations, then this may be an indicator that mainland Chinese buyers are electing not to bring their shiny new apartments to the rental market, at the same time as domestic investor activity is being throttled. </div>
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<div>An interesting week of news ahead, commencing this morning with the Housing Finance data for February.</div>
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<div>January had been a weaker month for housing loan approvals, but then January is never a big month for activity, so the February figures will give us a much clearer picture of likely activity levels of 2016.</div>
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<div>The market consensus forecast is for a moderate rebound in the number of approvals in the month, which broadly fits with what I've been seeing and hearing, that being a steady increase in home loan activity in aggregate. </div>
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<div>On Thursday, the ABS will release the latest March Labour Force figures, which will be the most important data of the week. </div>
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<div>Last month the reported seasonally adjusted unemployment rate declined to 5.8 percent, but there is a fair chance that this volatile monthly reading could revert higher, with analysts expecting a bit of a rebound in both employment and the participation rate (following last month's surprise drop from 65.14 percent to 64.9 percent).</div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Sydney unit rents rise to record high? Pete Wargent

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<p>EXPERT OBSERVER</p>
<p>The latest private sector credit data from the Reserve Bank (RBA) confirms that the sagging demand for credit by investors continued in July 2018. Over the month, total housing credit was recorded at $1.78 trillion and increased by 0.4% to be 5.5% higher over the past year. The $1.78 trillion in outstanding credit for housing was split between $1.183 trillion for owner occupiers, accounting for two thirds of outstanding housing credit, and $593.0 billion to investors which accounted for one third of outstanding housing credit, its lowest share since November 2012.</p>
<p><img src="https://www.corelogic.com.au/sites/default/files/2018-09/20180903_monthly_change_in_housing_credit.jpeg" alt="CoreLogic Monthly Change in Housing Credit" width="2058" height="684"></p>
<p>The 0.4% increase in credit in July 2018 was actually an acceleration from the monthly rate of growth in both May and June. Looking at the split between owner occupiers and investors: owner occupier credit expanded by 0.5% over the month while investor credit grew by 0.1%. The 0.5% monthly increase in owner occupier credit was the slowest rate of growth since June 2015 while the 0.1% monthly increase in investor credit was the strongest growth since March 2018.</p>
<p><img src="https://www.corelogic.com.au/sites/default/files/2018-09/20180903_annual_change_in_housing_credit.jpeg" alt="CoreLogic Annual Change in Housing Credit " width="2100" height="690"></p>
<p>Of course monthly data can be somewhat volatile and the annual data indicates more clearly the emerging trends in growth of housing credit. The 5.5% in housing credit over the past year was the slowest rate of growth since December 2013. Owner occupier housing credit increased by 7.6% over the past year which is its slowest annual rate of growth since August 2017.Investor housing credit has expanded by 1.5% over the past 12 months which is its slowest annual rate of growth on record (based on data available from January 1991).  </p>
<p>While the monthly data shows a bit of an uplift in housing credit growth, due to an increase in credit to investors, the annual data shows that housing credit expansion is continuing to slow which is a trend that is expected to continue over the coming. As credit availability has been tightened, investor demand has felt the brunt of tighter credit which has contributed to the slowing in credit growth. More recently, smaller lenders and Westpac have increased mortgage rates to owner occupiers which is likely to contribute to a further slowing in owner occupier credit growth and subsequently total credit growth given that owner occupiers account for two thirds of outstanding credit.</p>
<p>With an expectation that housing credit expansion will continue to slow this is likely to contribute to further declines in national dwelling values over the coming months.  The prospects for any reversal of fortunes in the national housing market over the short to medium term, at this point, appear fairly slim.</p>
<p><em>Cameron Kusher is a research analyst for CoreLogic</em></p>
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Investor credit rises over the month but trending lower on an annual basis: Cameron Kusher

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<p><img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1"></p>
<p><span>GUEST OBSERVER</span></p>
<p><span>Average house rents in metropolitan Melbourne have increased by 5.3 percent, with apartment rents growing by 2.8 percent, over the last three months.</span></p>
<p><span>A lack of affordable rental properties is a problem in Sydney too. This has fuelled speculation of a housing bubble, particularly in the wake of falling investor demand for new high-priced CBD apartments in these capital cities and others.</span></p>
<p><span>But beyond the headlines lies a difficult policy task for all three levels of government, in conjunction with the private sector and civil society. They need not only to create more affordable housing, but to keep it affordable in the long run.</span></p>
<p><span>Recent discussions with private developers and investors suggest there is growing willingness to collectively tackle the problem. However, some common misapprehensions remain about who needs affordable housing and how those needs might be met.</span></p>
<p><span>Looking beyond the stereotypes</span></p>
<p><span>There continues to be two quite different stereotypes about the people who need affordable housing:</span></p>
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<li><span>First, there is the older single man with mental health and/or addiction issues, who may need therapeutic assistance and housing.</span></li>
<li><span>Second, there is the “key worker” individual or couple – young, working in education, medicine or emergency services – who just simply need “more supply”.</span></li>
</ul>
<p><span>The reality is that there are many different kinds of households requiring affordable housing. Many different mechanisms will need to come into play to meet their needs.</span></p>
<p><span>Penny the pensioner is living in poverty, like one in three older women. She spent many years bringing up two children full-time and did not accumulate retirement savings or assets. As a very-low-income person, she receives Commonwealth Rent Assistance. However, she is among the 35,000 Victorians on the waiting list for public housing.</span></p>
<p><span>Penny can no longer afford to live in or near Port Melbourne, her home for her entire life. This is because there are simply no rental apartments available there for A$165 per week, which is what she could afford.</span></p>
<p><span>Penny wonders if Australia’s largest urban redevelopment project next to Port Melbourne, Fishermans Bend, could have an apartment for her sometime soon. But with no new Commonwealth affordable housing program in place, no inclusionary zoning or financial incentives at the state level, and rate capping at the local government level reducing capacity to invest in affordable housing, at most 1.3% of the total 40,000 projected housing units will be available to middle-income households – let alone low-income people like her.</span></p>
<p><span>Even if new units were developed in Fishermans Bend, a 50m² apartment would cost about $300,000 to build, given land, construction and financing costs. Rates, water, maintenance and management would cost about $9,000 a year per unit to deliver.</span></p>
<p><span>These costs could not be recovered fully through Penny’s rent, even if construction was completely subsidised. There would need to be a combination of lower-cost land, subsidised construction, guaranteed finance, rate relief and ongoing subsidy to make her living unit viable for the private sector to deliver and a community housing provider to own and manage.</span></p>
<p><span>Naresh is a nurse. He would be classified as a moderate-income earner. He lives with his wife Nadira. They recently had a child; Nadira is a full-time parent.</span></p>
<p><span>Because he is a shift worker, Naresh’s public transport options are not reliable. He would prefer to live within walking or cycling distance of his workplace, even in a smaller unit, as he does not own a car.</span></p>
<p><span>Naresh can afford to pay 30% of his $60,000 annual gross income on rent, which works out to $340 per week. This is still below the average rent in Melbourne for a 70m² two-bedroom unit.</span></p>
<p><span>A few two-bedroom apartments are available for that price – about an hour’s public transport ride away from his job. However, he works in a well-serviced but conservative inner suburb, where new apartments aren’t being constructed and existing flats are rented by much-higher-income households.</span></p>
<p><span>Naresh would have to add the cost of buying and maintaining a car to his rental cost and a long commute to an already difficult work-life balance. This is hardly affordable or family-friendly living.</span></p>
<p><span>Even if new apartments were being constructed where they are most needed, it would cost at least $400,000 to build and require about 50% construction subsidy for a community housing provider to be able to rent to Naresh and Nadira. The alternative would be short-term renting in the private market with the likelihood of having to relocate every year or two.</span></p>
<p><span>Signs of progress</span></p>
<p><span>Across Australia, there was a shortage of 122,000 affordable and available dwellings nationwide in 2011. This was a 40 percent increase from 87,000 in 2006. The problem has worsened since the last census in 2011.</span></p>
<p><span>There are some signs of progress across Australia. After a cross-party Senate inquiry into affordable housing in 2015, the Affordable Housing Working Group is looking at “innovative financial models” to scale up production.</span></p>
<p><span>Several states are taking concrete actions. Western Australia was the first cab off the rank and had attained its ten-year targets by 2015. New South Wales has established the Social and Affordable Housing Fund. Queensland’s Affordable Housing Strategy is at the discussion stage.</span></p>
<p><span>In Victoria, the previous Coalition government’s strategic plan for metropolitan Melbourne is being “refreshed”, including a greater emphasis on housing need. In advance of a promised affordable housing strategy, the current Labor government recently announced a $150 million “housing blitz” for women and child survivors of family violence.</span></p>
<p><span>Several local governments in Melbourne have also led the way in donating land to affordable housing, particularly the City of Port Phillip.</span></p>
<p><span>The trick is going to be combining various actions by Commonwealth, state and local government to support private developers and community housing providers in not only developing new housing, but keeping it affordable for hundreds of thousands of Australians.</span></p>
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<p><em style="line-height: 1.3em;"><span class="fn author-name">Carolyn Whitzman is p</span><span style="line-height: 1.3em;">rofessor of Urban Planning, University of Melbourne and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/carolyn-whitzman-9944" target="_blank">here</a>.</span></em></p>
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Where do record rental prices leave low-income earners?

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<p>There has been an influx of investor-purchased residential units flooding the rental market in the northern areas of Sydney, particularly around the Ryde LGA, according to valuation firm Herron Todd White.</p>
<p>The HTW November report goes on to suggest that property managers have advised that prospective tenants have become more discerning in their choices, are negotiating asking rents down and are looking for units with additional features such as views, common property facilities and unit orientation.</p>
<p>"It is anticipated that it will take a longer than normal time for these units to be leased.</p>
<p>"Owners of these units will need to be competitive in their pricing in order to secure tenants.</p>
<p>"This will have a flow on effect to established units in the area with rental levels being adjusted down in the short term.</p>
<p>"Currently the median unit price for Meadowbank is $643,000 with -1% growth in the 12 months as per APM with a median rental of $420 per week as per CoreLogic RP Data.</p>
<p>"This results in a gross yield of 3%."</p>
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