Robert Simeon

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For those predicting housing values to start dropping in the near future you should start rethinking that analysis.
Of course, the newly created investment market is facing severe headwinds and yes, it would be fair to assume that there will be a correction should a large number default on their respective acquisitions.
The mistake many continue to make is that housing affordability is actually about the established markets of households not the investment market.
If you were asked a simple question for those residing in NSW, do you want a second Sydney Airport or high-speed rail connecting Newcastle to Sydney, the Hunter Valley to Sydney and Wollongong/Southern Highlands to Sydney I am pretty sure what the answer would be.
With the second Sydney Airport estimated to cost between $6 and $8 billion it is comical that a second airport is prioritised over high-speed rail networks.
Everybody aside from politicians can see that high-speed rail networks would have an instant effect on housing affordability in NSW.
For those who disagree NSW is facing major problems over the upcoming decade that require immediate attention.
<a href="https://www.propertyobserver.com.au/images/2017/06/02/Screen%20Shot%202017-06-02%20at%2010.59.17%20am.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/06/02/Screen%20Shot%202017-06-02%20at%2010.59.17%20am.jpg" alt="">
As a direct result of what is happening to Sydney rental markets and housing markets we are now starting to see the exodus of NSW residents to the more affordable Victorian markets.
This is happening to such an extent that Melbourne will surpass Sydney in terms of population to seize the title as Australia’s biggest and number one city.
<a href="https://www.propertyobserver.com.au/images/2017/06/02/Screen%20Shot%202017-06-02%20at%2010.59.40%20am.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/06/02/Screen%20Shot%202017-06-02%20at%2010.59.40%20am.jpg" alt="">
It has been well documented that since that Sydney 2000 Olympics there has been next to no forward planning which explains exactly why Sydney is now overcrowded with our transport infrastructure at breaking point.
What makes this even worse is that there are no viable solutions – no drawing boards.
This then leads to the population considering alternate solutions to relocate simply because the financial pressures have become untenable.
NSW has had no succession planning where vision has simply been ignored, and now it is starting to pay the price for that ignorance.
In the established property markets we are now at levels never seen before.
Only last week, a garden apartment that was sold in Cremorne in September 2016 for $1,582,000 sold again less than eight months later for $1,970,000.
At a federal level, we are now witnessing the lowest annual growth rates in terms of government spending since the 1960’s.
Federal government overheads keep increasing so we are now witnessing cutbacks that will seriously damage growth as infrastructure continues to be ignored.
There is no collaboration between the states and territories with Canberra and this is fracturing growth given population growth continues to climb to record highs.
If elected politicians started displaying signs that Sydney was full 17 years ago then what do you think they should be displaying now?
With the federal government tightening the spending belts then the states and territories will start cancelling future projects simply because there is no available funding.
The latest Australian Bureau of Statistics figures reveal that approximately 2.3 million Australians earn the lowest legal rate of pay for what they perform.
Recently the Reserve Bank of Australia commented that “wage growth is low.
Although it seems unlikely that wage growth will slow much further, wage pressures are expected to pick up only gradually.”
There has been next to no political commentary about wage growth where one would think that elected politicians would make this a priority to find out exactly why Australia has such weak wage growth?
With record low wage growth how is it possible that we can have record high property rentals?
The Property Council of Australia recently released a five-point plan to assist the NSW government with housing affordability.
<ul>
<li>Turbocharging housing supply through increased land supply and planning reform.</li>
<li>Reforming state property taxes and reducing fees, charges, and red tape.</li>
<li>Better co-operation between all levels of government.</li>
<li>Bridging the deposit gap and supporting first home buyers better.</li>
<li>Supporting the rental market and fostering innovative, affordable rental product.</li>
<li>Whilst fine in principle – this simply won’t happen.</li>
</ul>
Sydney has a massive problem with no clear solutions in the short-term.
Common sense needs to prevail so put the second Sydney Airport on immediate hold and start building fast-train networks.
I am yet to see a better solution to tackle housing affordability. Have you?
MOSMAN – 2088
Number of houses on the market this time last year – 51
Number of houses on the market last week –56
Number of houses on the market this week –57
Number of apartments on the market this time last year – 41
Number of apartments on the market last week – 40
Number of apartments on the market this week –38
CREMORNE
Number of houses on the market this time last year – 10
Number of houses on the market last week – 6
Number of houses on the market this week – 9
Number of apartments on the market this time last year – 18
Number of apartments on the market last week – 16
Number of apartments on the market this week – 18
NEUTRAL BAY – 2089
Number of houses on the market this time last year – 8
Number of houses on the market last week – 2
Number of houses on the market this week – 3
Number of apartments on the market this time last year –23
Number of apartments on the market last week –21
Number of apartments on the market this week – 19
ROBERT SIMEON is a director of <a href="https://www.rwm.com.au/">Richardson Wrench Mosman and Neutral Bay</a> and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog<a href="https://www.rwm.com.au/"> </a><a href="https://www.rwm.com.au/news/">Virtual Realty News</a> since 2000.
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robertsimeon-hRNTwJyXkQ

Politicians are doing nothing to fix housing affordability: Robert Simeon

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As widely expected the Reserve Bank of Australia (RBA) decided again to leave the cash rate in a holding pattern for the seventh straight meeting although somewhat surprising the rhetoric was considerably different this time around.
Sydney is the elephant in the room with house prices jumping 15.6% in the last year according to RP Data, although I would add that this is a lazy way of explaining and defining the property markets across Sydney given they are all performing differently – some are hot and some are not.
Back to the RBA where in an extraordinary week we heard both Glenn Stevens and treasury secretary Martin Parkinson publicly declaring that Australia needs to be closely looking at and discussing taxes and government spending. Well not before time. We are fast drawing the conclusion that the elected ones in Canberra have absolutely no idea how to run a business – they appear to be the only ones who don’t believe that the rate of GST needs to be increased.
Reading between the lines there was a clear concern about what will be brought down in the May budget with a clear indication together with framed criticism by Glenn Stevens: “Put simply, there are things that we want to do as a society, and have voted for, that are not fully funded by taxes over the medium term, as is starting to become clear in the lead up to the May budget.”
<blockquote>
As strange as it might sound, I’m looking forward to seeing the cash rate increases.
</blockquote>
Personally I think it is fabulous when the likes of Messrs Parkinson and Stevens have the fortitude to publicly speak their minds by firing shots at the government on the eve of the budget. Let’s fill in a few gaps – NDIS and paid parental leave are the main culprits to which they were referring.
A perfect case in hand that should be at the forefront of the Abbott government's mind is that $16.2 billion Building and Education Revolution, the master class of the Rudd and Gillard terms which has now been condemned as an international case study of legislative and bureaucratic failure. Reading between the lines again, it would appear that Messrs Stevens and Parkinson are politely pointing out that the Australian economy can ill afford repeats of policy failures.
When you’ve been selling real estate for nearly 30 years, interest rates scare the living daylights out of you! And, as strange as it might sound, I’m looking forward to seeing the cash rate increases. Many economists are suggesting that this will happen in 2015 although I am of the opinion we will start seeing increases sooner rather than later with small increment increases.
<img src="/images/2014/04/07/simeon-april-7-one.jpg" alt="">
<img src="/images/2014/04/07/simeon-april-7-two.jpg" alt="">
<a href="https://www.smh.com.au/business/the-economy/housing-bubble-fears-property-prices-could-fall-10-to-20-per-cent-20140331-35sg7" target="_blank" title="Housing bubble fears: property prices could fall 10 to 20 per cent">Housing bubble fears: property prices could fall 10 to 20%</a> was an interesting piece by Christopher Joye although it lacks market definition. Yes, certain parts of the Australian real estate market are over inflated, those being the new suburbs crashing through the $1,000,000 mark for the very first time which will, as history has shown, be the hardest and fastest hit. By comparison the traditional markets such as Paddington, Mosman, Pymble and Bondi, for example, are tracking upwards although at nowhere near the pace of the hotspot suburbs.
I can see the cash rate moving from its current rate of 2.50% to 3.50% next year which will in time place a number of households under increasing financial pressure, although we have seen this happen time and time again. Most notably in the early 2000s the cash rate fell from 6.25% in <a href="https://www.rba.gov.au/statistics/cash-rate/cash-rate-1997-2001" target="_blank" title="September 2000 to 4.25 per cent in December 2001">September 2000 to 4.25% in December 2001</a>. We then witnessed dramatic market corrections in south-west Sydney as the cash rate started climbing to <a href="https://www.rba.gov.au/statistics/cash-rate/cash-rate-2008-2014" target="_blank" title="7.25 per cent in March 2008">7.25% in March 2008</a> where it then started being eased to where we find it today at 2.50%.
So what amazes me more is that currently we are seeing record numbers of investors entering the market, which can be best described as panic buying – investors now make up 40% of value of total housing loan approvals in NSW and Victoria. So when and where we do see property market corrections this is when we see the astute investors entering the market – the experienced ones are certainly keeping their powder dry.
What this does clearly identify is that politicians and investors pay very little attention to history where more often than not they become part of history.
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When it comes to interest rates investors should learn a bit from history

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The practice by unethical real estate agents to – ‘quote them low and watch it go’ could very well finally be a thing of the past – well in Queensland anyway (for starters). Governments from all political persuasions have struggled for decades to establish a best practice platform for the real estate industry.
Queensland is close to implementing the new legislation although they are struggling at the last hurdles given they are seeking that agents are not permitted to provide any price guides. The reforms have now been altered to permit agents providing a price guide on the internet.
This just keeps getting dumber and dumber given this whole process could be fixed so easily – all that’s required is for the vendors to publish their reserve price to all parties making inquiries. The prospective purchasers then make up their own minds as to what they believe the property is worth based on the published reserve price – a clean and transparent selling process.
I have always argued (successfully) that the difference between a good real estate agent and an average one is about 10% of the sale price. The difference by not quoting the agents price guide is that this figure is generally skewed to the attraction price as against the selling price which is exactly what should be the case in this day and age.
If a buyer wants to pursue a property at the vendor’s reserve price then all well and good. If on the other hand they construe that the expectations are too high then let the property run a reverse course – which is interesting as this then goes back to the respective agent’s negotiating skills. I’m not exactly sure what parts of this the agents don’t get as reserve price quoting will reward the agents with superior negotiating skills – which is exactly what vendors should be looking for.
There is a great role for public auctions in the real estate industry, just the system requires critiquing because rogue agents will always struggle with the truth. Watch this debate get very heated in coming weeks and months although rest assured there will be major changes across the board to the Australian property auction system.
Another fascinating week that had the “experts” (whatever they are) calling the end of the biggest Sydney property boom in a decade – what a load of rubbish!
To add some weight to these idiotic statements there are approximately 637 (and growing) suburbs that make-up Sydney. Yet in typical lackadaisical reporting fashion we read “dwelling values across Australia’s capital cities have recorded declines” – so they take the weighted averages over 637 suburbs in the case of Sydney to get an accurate positioning? Anyone applying this methodology is simply delusional as this in no way accurately defines real estate market trends – until such time as it is suburb by suburb this collective data is as useful as an ashtray on a motor bike.
<a href="https://www.rwm.com.au/files/2014/05/30-04-2014-1-59-49-PM.jpg"><img class="aligncenter size-full wp-image-8520" src="https://www.rwm.com.au/files/2014/05/30-04-2014-1-59-49-PM.jpg" alt="30-04-2014 1-59-49 PM" width="647" height="342"></a>
Source: Digital Finance Analytics
<a href="https://www.rwm.com.au/files/2014/05/30-04-2014-1-58-58-PM.jpg"><img class="aligncenter size-full wp-image-8521" src="https://www.rwm.com.au/files/2014/05/30-04-2014-1-58-58-PM.jpg" alt="30-04-2014 1-58-58 PM" width="664" height="361"></a>
Source: Digital Finance Analytics
The latest monthly banking statistics from APRA identify consistent lending to the end of March 2014. In February owner-occupied and investment loans were $1.231 billion and in March they came in at $1.236 billion. The ‘Big Four’ increased their market share from 84.3% to 84.4% which will have many suggesting that should there be a correction they will be in all sorts of bother.
What I would like to see is a graph showing where their respective loans were as we should remember during the global financial crisis (GFC) Mosman was tipped as having the highest delinquency rate in Australia where it was later proved it had the lowest.
As they say, be careful about calling yourself an expert. An ex is a has–been and a spurt is a drip under pressure. For some, it’s human nature to predict/promote themselves as some type of modern day Nostradamus who quite remarkably possess this innate ability to read the future.
Recently we read that in America, Dr Marc Faber is predicting that this year we will witness a 1987-type stock market crash although this time it will be much more severe. For those who have no idea what exactly happened here it is <a href="https://www.federalreserve.gov/pubs/feds/2007/200713/200713pap.pdf" target="_blank" title="Black Monday – 1987.">Black Monday – 1987.</a>
Given what transpired recently in the GFC, I would think that the vast majority are erring on the side of caution – which history has conclusively shown to be the smartest path.
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Is the public auction system going – going – gone?

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I, like many property observers, am laughing at those commentators who are speculating that Australian houses could fall by up to 20% – an assumption that I find totally absurd.
It's far easier to question the state of the minds of those making such fanciful attention-seeking ‘listen to me because I’m important’ commentaries. Yes, house prices now equate to 4.3 times annual income and 28 times annual rent – however we are seeing less households selling today, with the mindset moving to long-term holds.
There is little point or relevance for that matter comparing Australian house growth to the other major economies around the world, for the simple reason that Australia has the smallest population – 22.68 million which is then reflective in the number of properties. The smaller the market, the tighter the hold and today there is no better example than Mosman, which has just 4,800 houses approximately.
In 2007 as the global financial crisis (GFC) loomed Mosman was put on notice by many of these so-called experts that prices would be decimated given its high dependence on the banking and financial industries which were spiraling downwards into oblivion. Well as it later showed Mosman had one of the (if not the) lowest delinquency rates in Australia and I am the first to admit that home prices move in wave – like motions.
In 2006 Mosman sold just 366 houses for a median price of $2,050,000; in 2007 there were 373 sales for a median price of $2,400,000.
In 2008 the median went to $2,450,000 with 247 sales (see my point – less sales with a higher median).
In 2009 sales increased to 278 yet that median fell to $2,200,000, then in 2010 we saw 317 sales recorded and the median jumped up to $2,325,000. In 2011 it went to $2,400,000 with 270 sales, then in 2012 the median fell to $2,100,000 with 284 sales and in 2013 it jumped back to $2,345,000 with 379 sales. Only a genius could make sense from that data.
Earlier this year we read speculation that with the Australian dollar falling our unemployment was on track to be higher than America’s, given it appeared our unemployment rate was 6.00% and climbing. This week we were pleasantly surprised to see the unemployment rate tracking at 5.8% which is a far cry from being north of 6.6%. Although of concern would be the International Monetary Fund warning of new challenges to developing economies. The Australian economy is still seen as below growth trend, although they do have our unemployment tracking at around 6.2% so the latest unemployment results are a fabulous achievement.
Two other interesting observations this week with the All Ordinaries hitting 5,503.5, which is the highest intraday level since September 2008. Then a day later the latest Australian Bureau of Statistics data showed property investor participation rates were trending downwards for the first time in 18 months.
<a href="https://www.rwm.com.au/files/2014/04/11-04-2014-9-42-47-AM.jpg"><img class="aligncenter size-full wp-image-8497" src="https://www.rwm.com.au/files/2014/04/11-04-2014-9-42-47-AM.jpg" alt="11-04-2014 9-42-47 AM" width="629" height="386"></a>
Source: Digital Finance Analytics
One can only hope that this time around property investors are not jumping back into the stock market by borrowing against their property portfolios. If so, this would be yet again another recipe for disaster – but then again history does repeat itself given it is well documented the two don’t really mix.
The Australian Property Monitors March Quarter 2014 Report was released last week and revealed the most amazing statistic (a week of amazing statistics) that Sydney maintains the mantle as the most expensive major capital for tenants with the median weekly asking house rent over the March quarter at $500 and units at $490 per week. With house rents flat lining over the last twelve months, units continue to rise simply because of affordability and an obvious lack of supply which again is a problem caused by governments stymieing the development process.
The latest Landsbury Deep Leeds an Occasional Research Paper which was released last week, revealed the number of proposed apartments in Inner Sydney has grown 20% since their last report in September 2013 to now reach over 30,000. The pipeline now includes 156 projects or major stages of projects, up from 130 in their last report, spread widely across 40 suburbs in 11 local government areas. The Sydney CBD has the most apartments proposed with 4,900 in the Inner Sydney region although the fact that construction is years behind demand is causing Sydney major concerns given our younger generations are now moving interstate.
<a href="https://www.rwm.com.au/files/2014/04/11-04-2014-10-05-06-AM.jpg"><img class="aligncenter size-full wp-image-8499" src="https://www.rwm.com.au/files/2014/04/11-04-2014-10-05-06-AM.jpg" alt="11-04-2014 10-05-06 AM" width="578" height="310"></a>
Last week the ABS predicted Melbourne’s population will overtake Sydney’s by 2053. In the last financial year, NSW lost 4,000 people to Victoria, where a majority are well-educated, highly productive workers in their 30s, in search of cheaper housing or a shorter commute. The tell-tale signs of this migration have been floated for years and are a major concern for Sydney given it lay idle for years and Melbourne on the other hand, was building apartment developments at the fastest rate of any capital city in Australia.
Once they leave it’s a very hard task to entice them back as businesses will move with the population and Sydney can ill-afford to see major business relocating to fit their workforces.
Just another reason why some state governments are seen as totally hopeless with absolutely no vision – the reality is that population planning is completely beyond their comprehension.
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Why Sydney has a big problem with the future

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Well it’s that time of the year when Australian taxpayers prepare themselves to get their annual slap across the face with a couple of moist lettuce leaves.
Yes – the 2014/15 federal budget is now less than one day away and just like the budgets before this one the warnings, threats and pugnacious leaks usually amount to next to nothing. The reason why? Politicians have an addiction to being re-elected which is contingent on strong polling performances despite our economy growing slightly below trend.
Historically real estate has been a minor player come budget time with the government of the day preferring to address the industry from more of a macro positioning given that is by far an easier option when compared to a micro-economic analysis. For all intents and purposes if the real estate/housing demographic were that essential, then it would be fair to say there would actually be a designated Housing Minister which is not the case with the Abbott led government.
Although it should be noted that <a href="/expert-insights/finance/31057-governments-take-out-a-lot-more-through-property-tax-then-is-given-back" target="_blank" title="Governments take out a lot more through property tax than is given back ">governments take out a lot more through property tax than is given back </a>– real estate is a cash cow of choice for all three levels of government – including through stamp duty, land tax, capital gains tax, rates and infrastructure charges. It would be reasonable to suggest that one of the compelling reasons as to why the GST has been left out until the next election is because the state governments reneged on their 2000 tax obligations when the GST was introduced. If and when the GST is discussed the states and territories will have to make some significant tax adjustments given the decision will be made by referendum.
Negative gearing will escape greater scrutiny in this year’s budget despite the government having to fund $5 billion each year and growing tax concessions.
Given the ongoing debates attributed to housing affordability it will only be a matter of time before we see a tapering in the annual tax concessions which would also lend significant weight to investors contemplating a move away from traditional bricks and mortar – any such decision would be staggered over a 15 to 20 year period.
<a href="https://www.rwm.com.au/files/2014/05/8-05-2014-1-19-04-PM.jpg"><img class="aligncenter size-full wp-image-8531" src="https://www.rwm.com.au/files/2014/05/8-05-2014-1-19-04-PM.jpg" alt="8-05-2014 1-19-04 PM" width="646" height="395"></a>
Source: OECD
 
As with every budget the Real Estate Institute of Australia (REIA) had their say into negative gearing and pointed out that Australian Taxation Office (ATO) data shows fewer than 80% of total individual taxpayers that are claiming a tax deduction from property earn less than $80,000 per annum.
The OECD eloquently summed up Australia’s economic position this week when it released their economic outlook for May:
“Output is projected to increase by 2 ½% in 2014 and by nearly 3% in 2015, with a general pick – up in demand offsetting declining investment in the resources sector.
"Some economic slack will remain and the unemployment rate will not begin to edge down until the second half of 2015. As a result there will be little inflation pressure, although rapid growth in house prices and mortgage lending requires continued attention.
"Given near – term uncertainties in the re – balancing of the economy away from investment in the natural resources sector, heavy front loading of fiscal consolidation should be avoided.
"Against the backdrop of the projected recovery, monetary stimulus should start to be withdrawn in the first half of 2015.”
It will be fascinating to see how much of this the federal government adopts with next week’s budget.
<a href="https://www.rwm.com.au/files/2014/05/26-04-2014-10-07-22-AM.jpg"><img class="aligncenter size-full wp-image-8533" src="https://www.rwm.com.au/files/2014/05/26-04-2014-10-07-22-AM.jpg" alt="26-04-2014 10-07-22 AM" width="660" height="364"></a>
Source: Australian Property Monitors
With regard to the OECD’s concerns regarding house prices and mortgage lending it should be noted that the house prices showing the greatest gains are in the lower price ranges and not the top-end markets.
From the above graph I would suggest that the vast majority of Sydney suburbs would be showing their yearly price increases of between 5.00 and 10.00% – which is not a concern. We will only see property stress once the RBA starts moving up the cash rate.
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Budget week is all about huff and puff

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The first Coalition budget was always to going to be a fiasco – should the Coalition significantly reduce the budget deficit this would put the ALP in the untenable position of being seen as incapable of managing the nation’s finances given their past track record.
So when it goes to the Senate it will be rejected given the Coalition simply don’t have the numbers to get it through. In the meantime let’s have a look at what I perceive as a major housing affordability issue – actually it’s horrendous.
In a nutshell, the budget forecasts economic growth to be 2.5% in 2014-15 and moving to 3.5% in 2017-18. Unemployment to sit at 6.25% in 2014-15 then falling to 5.75% in 2017-18 and inflation sitting around 2.25% in 2014-15 rising to 2.5% in 2017-18. The big mover is debt which will reduce from $667 billion to $389 billion over the next 10 years.
All very good, but what are the Reserve Bank of Australia’s (RBA) cash rate projections as this is the sleeping elephant in the china shop.
Cue the Australian Bureau of Statistics (ABS) who released this week what many are saying is the real debt crisis in Australia and we should be very afraid about these statistics. Australian household debt at the end of 2013 came in at approximately $1.84 trillion which then calculates out at approximately 180% of disposable household income. Little wonder we are now starting to see household debt slowing – this should come as a major concern. Government debt is currently sitting at around 30% of GDP – Australian household debt today is sitting at around 120% of GDP.
Household debt is today at the highest level for 25 years and when you deduct 25 from 2014 you come up with 1989. Whilst the vast majority may not remember what happened in 1989, I clearly do as I <a href="https://www.urban.com.au/expert-insights/30662-australian-property-bubble-credibility-robert-simeon&amp;sa=U&amp;ei=5ZB6U_3MHYzdkgWLr4D4Aw&amp;ved=0CAYQFjAA&amp;client=internal-uds-cse&amp;usg=AFQjCNE8csjFZ1MY6g7SByFKgcVwblBspQ" target="_blank">recently wrote about it</a>.
Now to put these statistics into greater context it needs to be remembered that back in 1989 the cash rate was sitting between 17.5% and 19% as against 2.5% today. The cash rate is crucial to the Australian housing industry given once the RBA starts to raise it there will be collateral damage along the way as “some” households will not be able to meet their repayments given our high cost of living. The areas that have been over heated in recent times are a natural example where previously they witnessed dramatic property value corrections.
<a href="https://www.rwm.com.au/files/2014/05/14-05-2014-10-15-49-AM.jpg"><img class="aligncenter size-full wp-image-8543" src="https://www.rwm.com.au/files/2014/05/14-05-2014-10-15-49-AM.jpg" alt="14-05-2014 10-15-49 AM" width="614" height="401"></a>
Source: Digital Finance Analytics
<a href="https://www.rwm.com.au/files/2014/05/14-05-2014-10-18-14-AM.jpg"><img class="aligncenter size-full wp-image-8544" src="https://www.rwm.com.au/files/2014/05/14-05-2014-10-18-14-AM.jpg" alt="14-05-2014 10-18-14 AM" width="689" height="387"></a>
Source: Digital Finance Analytics
So the ABS has released in its March 2014 data that Australia’s total housing stock is estimated currently at $5.1 trillion which equated to a rise of $105,348.0 million over that quarter – with the total number of residences calculated at 9.33 million.
The June housing numbers will make for compelling viewing given so many Australians see their homes as an appreciating ATM that can easily be borrowed against – which is fine so long as homes are in capital appreciation mode. In recent times we have seen areas posting annual capital appreciation of around 30% plus which signals dangerous debt loading.
<blockquote>
Until household debt starts showing signs of improvement the RBA could well be forced to lower the cash rate further to say 2.00%.
</blockquote>
Historically what we see next is the banks tightening their loan ratios which many would agree is long overdue given their recent ‘lend at all costs’ mandate to increase their respective market shares. We would all remember that as we entered the global financial crisis the first thing expected of the government is to guarantee bank deposits – to stop a run on the banks.
What is assured is that until household debt starts showing signs of improvement the RBA could well be forced to lower the cash rate further to say 2.00%.
When one takes a moment to seriously consider the economic ramifications we are presently observing in the housing industry, it makes a mockery of all the political bickering of what is currently being argued in Canberra.
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Household debt is the sleeping elephant in the china shop

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I was asked this week if I could remember the last time we saw such a hostile response to a federal budget. I responded ‘no’ – as it would have been well before we had access to the internet.
When the world moved into the online space, the internet always appeared with a capital I, which has been replaced with a lower case 'i'. So what happened to the capital “I” one might ask? Well the “I” became you – the consumer, where through this very process (for better or worse) this online revolution has changed how we do business in the modern age.
When one looks at the problems facing the budget, it’s quite clear that Australia has a massive productivity problem. Wages have flat lined which has seen living standards rise just 2.6% over the last five years. The modern day terminology is “on hold”, which is exactly what the Reserve Bank of Australia is doing with the cash rate given our labour market is, best case scenario, neutral and employment growth won’t exceed population growth.
When you’re paying (an estimated) $1 billion just in interest each month, it’s time for any responsible government to say ‘enough is enough’. Just like our neighbours across the ditch did in recent years when they too had to re-calibrate their economy and today, are predicting a $370.5 million surplus with 4% growth.
Unfortunately in Australia’s modern day political arena, there is no room for compromise given the central influence is to play populist politics, not policy. We see differing opinions on how Australia will create a sustainable budget that successfully negotiates a path into the future. If Australia was to continue on the current path without significant change, the present budget would be seen as a soft – touch.
<img src="/images/2014/05/27/simeon%20may%2027%20one.png" alt="">
Source: <a href="https://www.treasury.gov.au/PublicationsAndMedia/Speeches/2014/Fiscal_sustainability" target="_blank">Department of the Treasury</a>
For arguments sake, this is the <a href="https://www.businessspectator.com.au/article/2014/5/22/politics/budget-graph-brought-stunned-silence-coalition" target="_blank" title="budget graph that brought a ‘stunned silence’ to the Coalition">budget graph that brought a ‘stunned silence’ to the Coalition</a> where Secretary of Treasury described it as “the most alarming single piece of information” he had seen about Australia’s future economic prospects, adding that it created a “stunned silence” when he presented it to both the state treasurers and cabinet. Again the significant point to be drawn from this graph is that with our declining terms of trade and an ageing population, our productivity needs a complete ‘about–turn’.
I wouldn’t hold your breath on that because, when one looks at <a href="https://www.ami.org.au/imis15/News_2013_May/Default/Australia_s_Top_100_Brands_2013__/News_2013_May/Australias_Top_100_Brands_2013.aspx?hkey=7621e19d-3bb4-4c3a-b08c-af2b0a18073d" target="_blank" title="Australia’s Top 20 Brands">Australia’s top 20 brands</a> not one is directly involved in technology. On the other hand when one looks at <a href="https://www.brandz100.com/site/reports/global/2014/report/download-report.pdf" target="_blank" title="2014 BrandZ Top 100">2014 BrandZ Top 100 </a>(this is a PDF file so takes a little while to download but well worth the read) we get a pretty good idea of how bad we are performing on a global stage.
Following three years at the top, Google has bumped Apple from the number one position when, in 2014, Google’s brand shot up 40% in a year to US$158.84 billion (A$171.86 billion). All up The BrandZ Top 100 Most Valuable Global Brands 2014 added $310 billion to reach $2.9 trillion in brand value. Prior to the BrandZ Global 2014 results, the Top 100 had increased an average of about 6%, $125 billion annually, since the global financial crisis of 2008 and 2009. This year, led by apparel, with a 29% overall increase, all categories rose in brand value. And 10 of 14 categories experienced double-digit growth, indicating that brands across the economy have moved beyond recovery into a period of new growth. In the meantime, Australia sits in a mental void trying to work out what to do following the mining downturn.
<blockquote>
The rise of China as a superpower could see it control as much as half the world’s financial assets by 2030.
</blockquote>
For those who recently raised concerns about China’s attraction to Australian property, Secretary of Treasury, Martin Parkinson, told a forum this week in Hong Kong that China’s foreign exchange reserves now approach $4 trillion. Today, China now accounts for around 11% of both world trade and global GDP but only accounts for 3% of gross holdings of overseas assets and liabilities. He went on to say that this figure, which includes foreign exchange reserves, could triple to $16 trillion. The rise of China as a superpower could see it control as much as half the world’s financial assets by 2030.
Puts the Australian budget into a different perspective, especially when you read how China is preparing for its ageing population – <a href="https://www.economist.com/news/china/21600160-pensions-crisis-looms-china-looks-raising-retirement-age-paying-grey" target="_blank" title="Paying for the grey.">paying for the grey.</a> Although Australia is a long way off telling families they have a limit of just one child.
For the second time in 2014 Mosman houses for sale managed to stay above the 100 mark which either tells us more people are selling or houses are not selling as fast. It will be interesting to see in coming weeks, what the correct reason is, although we should note that clearance rates have dropped significantly. Sceptics no doubt, will attribute that to the federal budget!
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Australia has one almighty brand problem

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So what do property bubbles and the Loch Ness Monster have in common you might ask?
Just like Nessie they are rarely sighted (if at all), and even then they are just suggested as possibly looking like one. In Australia we have had just the occasional sighting which generally fails the credibility test when the facts are more closely examined.
The truth is that very few people in Australia have actually ever seen a property bubble given most can’t even define what exactly one is or does. I was sitting down this week with my business colleague Steve Patrick and had a deep debate about what actually a property bubble is? Given that we have both been selling real estate for around 30 years we are more than qualified to offer an explanation.
Have we seen one? Yes – in 1988 and nothing since then has come even close to resembling that property colossus and there is a very strong possibility we may never see one again in Australia. Collectively, it is our opinion that a property bubble is where property prices double over a two-year period. What makes 1988 all the more confronting is that the official cash rate back then was at the all-time high of 17.5%.
We also need to bear in mind that there were a number of events that led to this historic event.
Back on October 19, 1987 stock markets around the world crashed. It started in Hong Kong and spread west to Europe, decimating the United States where the Dow Jones Industrial Average dropped 508 points to 1738.74 which was (22.61%). This was later to be known worldwide as Black Monday. Most noticeable was the movement of monies directly into the real estate markets – this was to become the greatest financial disaster Australia had ever experienced given I would argue these combined losses were far greater than those suffered during the global financial crisis (GFC).
For this to happen it is most clear that property prices back then were significantly undervalued (which they aren’t today). In those days everything in Sydney went to public auction and for weeks and months at mid-week auction days it was common to see as many as 250 to 300 properties auctioned on the one day. Yes – they would start at 10am and the hammer was still dropping at 10pm that night. Forget Super Saturday’s that’s about 3,000 auctions each week in Sydney alone and this went on for months.
As it turned out, 1988 was also Australia’s bicentenary which marked 200 years since the arrival of the first fleet of British convict ships at Sydney in 1788. Back then the only bubbles we encountered were those of champagne bottles popping as the nation celebrated – any excuse for a party.
Like most big parties they are usually followed by that traditional hangover, which was in Australia’s case the “recession we had to have”. The major change was the ownership on the certificate of title changing to banks becoming the new owners. Property prices then fell by approximately 30 to 50% depending on the price demographic.
It is interesting to note that over the GFC the largest property losses were at or about the 30% level, although it should also be noted that property prices had been on a steady incline as against a boom that was experienced in the late – 1980s.
Yes we had experienced mini-booms (better known as high transaction levels) in 2000, 2004 and 2007 although nothing compared to what we saw in 1988. So one can’t blame those commentators who believe they have seen a property boom simply because they were not born or can’t remember the mammoth boom of the late 1980’s.
Given where we are today and what we now know, there is a very strong possibility we may never again see a property boom to equal that of the late 1980s as today we don’t see or construe property values as being undervalued.
So for all those who are claiming we are entering a property bubble there are others who believe that there is a much stronger chance of sighting the Loch Ness monster.
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Why property bubbles are like the Loch Ness monster

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I am fast coming to the conclusion that despite having a total value of $5.02 trillion, real estate in Australia is one of the least understood industries.
During the global financial crisis (GFC) where property prices dropped on average by approximately 30% despite some market choruses calling for 50% plus price corrections. When we had clear evidence that the markets had bottomed we were then accused of falsely talking the markets up even though there was anecdotal evidence that this was in fact the case. So based on these observations with the markets now buoyant we constantly hear of the markets now being over – inflated and on the precipice of an almighty implosion.
To balance the argument I would make a few insider observations:
<ul>
<li>Historically real estate markets have always been valued from the top end down, so when the GFC arrived this actually skewed the valuation process as the top end markets experienced the greatest valuation decreases. The demise of the merchant bankers and their annual bonuses further stymied price growth as this once dominant market aggressor dissipated at a rate never seen before.</li>
<li>Post GFC we saw the markets bounce back from the bottom – end as against the previous top – end in the shape of investors. The Bureau of Statistics housing finance figures for December show investors now account for 39.8% of the value of home loans issued in December. That is the highest proportion of loans going to investors since October 2003, during the height of Australia’s largest recent housing boom.</li>
<li>What we are clearly seeing here is investors moving funds from the stock market back into bricks and mortar given the added attraction of negative gearing and self-managed superannuation funds is far too alluring to pass-up. Hedge funds and stock market manipulations have played a major role in this investor decision.</li>
<li>
Australia does not have, yet urgently needs, a housing strategy that would enable local, state and federal governments to work together on this blueprint over pork-barreling strategies every time an election comes around. Infrastructure Australia should be handed this responsibility especially in light of <a href="/expert-insights/buying/29622-significant-dwelling-supply-problems-across-country-udia-report" target="_blank" title="significant dwelling supply problems across country: UDIA report." style="line-height: 1.3em;">significant dwelling supply problems across country.</a>
</li>
<li>
MP Kelly O’Dwyer is heading up the inquiry into Australia’s foreign investment policy in the context of residential real estate. Ms O’Dwyer wrote a vague insight the Australian Financial Review this week – <a href="https://www.afr.com/p/opinion/foreigners_and_real_estate_XzWUwJcAuIKXv0TRV7QdUP" target="_blank" title="Foreigners and real estate" style="line-height: 1.3em;">Foreigners and real estate</a> - where the focus is clearly on Foreign Investment Review Board (FIRB) data – which is about as useful as an ashtray on a motor bike. Real estate agents (the ones actually at the coal face) keep discussing the unprecedented explosion of online inquiries by Asian families from within Australia, I might add. So what percentage of acquisitions by overseas purchasers do not get processed, when they should, by the FIRB?
</li>
</ul>
<a href="https://www.rwm.com.au/files/2014/03/13-03-2014-12-00-27-PM.jpg"><img class="aligncenter size-full wp-image-8482" src="https://www.rwm.com.au/files/2014/03/13-03-2014-12-00-27-PM.jpg" alt="13-03-2014 12-00-27 PM" width="682" height="369"></a>
Source: Digital Finance Analytics
<ul>
<li>Temporary residents in Australia are permitted to purchase an established dwelling although they are legally required to sell this property when they depart Australia. As if they are going to sell – it is much easier to simply transfer the name on the deed into another name so technically the property has been sold. What is the data from the relevant Stamp Duty offices on property transfers?</li>
<li>The latest figures from the Foreign Investment Review Board (FIRB) reveal overseas buyers purchased a record 5,091 established homes worth $5.4 billion last financial year, compared with 647 properties to a value of $810 million in 2009-10. Next year’s figures will in all probability be much higher again as there is a clear movement of new residents to Australia because they want to get their fortunes out of China.</li>
<li>Another great Litmus test will be this week’s Mosman trophy listing with price expectations around $40 million plus which would smash the previous record set at $22.500 million by double – <a href="https://smh.domain.com.au/real-estate-news/mosmans-top-price-to-shift-next-door-20140327-35jf5" target="_blank" title="Hopetoun Avenue">Hopetoun Avenue</a>.</li>
</ul>
<a href="https://www.rwm.com.au/files/2014/03/13-03-2014-11-58-11-AM1.jpg"><img class="aligncenter size-full wp-image-8483" src="https://www.rwm.com.au/files/2014/03/13-03-2014-11-58-11-AM1.jpg" alt="13-03-2014 11-58-11 AM" width="711" height="361"></a>
Source: Digital Finance Analytics
So I expect the Inquiry into Australia’s foreign investment policy which will not be released until later in 2014 to unveil nothing sinister simply because the terms of reference are not specifically examined to explore the current loopholes that can be easily manipulated without our federal government even knowing.
The state governments like it as they are receiving a double whammy in stamp duty, but I guess we are not supposed to be saying that as the evidence is inconclusive given there are no terms of reference to explore such ridiculous assertions.
Which brings me to where I started, why is Australian real estate one of the least understood industries despite having a conservative total value of $5.02 trillion? There are a lot of question that could be asked to better understand its make-up and composure; it's just that nobody in the government is really concerned about providing those answers at the moment.
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Robert Simeon

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