Supply And Demand

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EXPERT OBSERVER
I think there were 2 pronounced developments during Q4 2019i, the first being there was a broad acceptance that an improvement in the market is here to stay in terms of price growth.
In terms of economic indicators, we’ve seen an improvement in the labour market over the past month or 2 which is a real positive compared to mid2019 when unemployment was trending higher.
The challenge is will there be enough job creation over the next few months given the headwinds around the bushfires and Coronavirus.
ANZ Research is anticipating the economy will not create enough additional jobs to drive unemployment lower and wages higher, which is expected to result in 2 more interest rate cuts towards the middle of the year.
The RBA has emphasised its belief that rate cuts are having the desired impact, but that it does take time.
The implications for the economy and property markets will continue to be felt through 2020.
In terms of property indicators, we’ve seen some tentatively positive numbers coming through in building approvals. This is important given they were at very low levels throughout 2019 for both apartments and detached houses.
Of course apartments were hit harder which reflected concerns over build quality and cladding issues which were more prominent in Sydney but still had an impact in Melbourne.
That said, it’s worth highlighting the large lead and lag times before getting product onto the market. Even if building approvals start to pick up today, there will still be a housing shortage in the short term.
What are your predictions for 2020?
Broadly it will be a good year from a housing standpoint. Anticipated rate cuts will further entrench growth in prices for existing and new dwellings across both detached housing and apartments. Prices are already above the previous peak for units and apartments in Melbourne.
We’ll continue to see a pretty solid presence of first home buyers in the market. But it gets complicated because price growth doesn’t help affordability which is already challenging. While the new home loan deposit scheme will help 10,000 first home buyers a year, it won’t affect a material change.
The demand and supply dynamic will put upward pressure on prices initially, but building approvals and construction should start to accelerate in the second half of the year. That’s the key challenge; supply can take 12-18 months to come through, and the delay could put further pressure on both housing prices and rents.
Vacancy rates are already low and if we’re not building enough for the remainder of the year it’s likely the vacancy rate will continue to fall and result in continued rent increases.
Auction results have been strong and there are greater levels of stock on the market and rising transactions.
It’s not just a short term sugar hit which people might have been expecting, and the realisation that a stronger market is here to stay is why we’re seeing more people in the market keen to purchase.
Secondly, the supply-demand imbalance continues. Over the final quarter last year we finally started to see some positive signs regarding the construction pipeline, which has been a long time coming. We’re not talking about a sharp rebound, rather some green shoots emerging by way of building approvals starting to stabilise rather than continuing to fall.
Building approvals fell more than 25% from the peak, and have now recovered just 3%. Housing finance also picked up for construction of new dwellings for both owner occupiers and investors, which is usually a good indicator of where building approvals will go. So we have reason to be more optimistic about the construction cycle than we were 3 months ago.
What are the key economic and property indicators telling us?
It’s a little mixed.
On the economic front, the recent bushfires and Coronavirus present some challenges. For people directly by the bushfires it’s catastrophic, but the impact on the broader economy is likely to be temporary.
There will be some rebuilding stimulus which the federal government has already announced that will go directly to these communities. Coronavirus will have a larger impact.
A recent ANZ Research note forecast the bushfires to take 0.2% off GDP, while Coronavirus will shave off 0.5% due to the impact on tourism and foreign students. And, unlike the bushfires, there won’t be any stimulus measures.
If you compare it to the SARS outbreak in 2002-2003 when Chinese tourist arrivals fell by more than 80%, the share of Chinese tourism is now 5-times larger.
But it’s not just about the number of visitors; they also spend the most per person, which significantly magnifies the impact.
DANIEL GRADWELL is the <a href="https://bluenotes.anz.com/authors/a-e/Daniel-Gradwell" target="_blank">Associate Director of Property at ANZ</a>
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Property market strong but supply demand imbalance continues: ANZ's Daniel Gradwell 

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South Launceston experienced the biggest stock decrease in Tasmania over the past year according to Investar.
Investar suggests stock for sale has decreased by 66 percent, from 59 houses this time last year to its current 20 offerings. 
One three bedroom house currently on the market is an Eastbourne Street offering which is priced at $339,000.
The <a href="https://www.realestate.com.au/property-house-tas-south+launceston-122514694" target="_blank">2A Eastbourne Street</a> house came with three bedrooms and a living room with full-length sliding glass doors.
 It is within close proximity of local shops and conveniences, and a short drive from the LGH and CBD.
Another offering is a two bedroom house at<a href="https://www.realestate.com.au/property/263-wellington-st-south-launceston-tas-7249" target="_blank"> 263 Wellington St</a>, priced at $260,000 to $280,000 (pictured below).
<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/2018/2/20/launceston.jpg" alt="">
This cottage came with double car garage. 
LGH, Dr Surgeries, Charles St restaurant strip and the CBD are within short walking distance. 
Another three bedroom house has been recently sold for $385,000. It was sold by David Parry and David Burgess from Parry Property. 
<a href="https://www.realestate.com.au/sold/property-house-tas-south+launceston-127178918" target="_blank">The 2/3-7 Chungon Crescent </a>house came with three bedrooms, two bathrooms and undercover carport. It is also within minutes walk of the LGH, Charles Street cafe precinct and the CBD.
Investar puts it the suburb median rental at $300. 
The median house price sits on $279,500, according to CoreLogic. 
 
 
 
 
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South Launceston faces big stock decrease in homes for sale

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Continued growth in the Sydney market is being felt across the entire market however buyers are now becoming picky.
Conversion rates on Sydney property have increased from one in five visitors to a display centre to one in seven or eight according to CBRE managing director, residential projects, David Milton.
Presenting at a recent CBRE Sydney Market Outlook breakfast which reviewed the outlook for the office, retail, industrial and residential sectors for Australia and the broader Asia Pacific, Mr Milton said sales hadn’t slowed overall, with total sales 11% higher in the first half of 2015 relative to the corresponding period in 2014.  
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"Buyer enquiry rates were 29% higher in the first half of 2015, underpinned by a pick-up in offshore buying, with 19% of sales in the first half requiring FIRB approval as opposed to 13% in 2014," Mr Milton said.
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The presentation also highlighed:
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19% of sales from Jan to June 2015 were from FIRB purchasers, as compared to 13% in 2014 
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Enquiries from Jan to June 2015 were 65k - an increase of 29% on the same period in 2014 
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In 2015 owner occupiers have accounted for 50% of purchasers, up from 40% in 2014 
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<li>Sales numbers from Jan to June 2015 were up 11% on the same period in 2014 </li>
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Is Sydney is attracting new business as an investment destination?
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OFFICE RENTAL MARKET
Adapting to a change in the marketplace was key to attracting iss the key for landlords given that “change is the new business as usual”, according to CBRE’s national director of transaction management Emil Joubert. 
Mr Joubert said tenants were increasingly examining their lease expiries well ahead of time – with some tenants whose leases expired in 2020/21 already examining if now was the right time to consider a move given the current vacancy forecasts.
CBRE senior director of office services, Jenine Cranston, said landlords need to consider flexibility to accommodate growth from tenants.
“In 20 Martin Place, the major tenants we’re speaking to all want growth rights,” Ms Cranston said. 
“It’s been a long time since we’ve seen that. For seven years, the discussions have mostly been around contraction, so this is a nice challenge for the market to have.”
Incubator IT companies needing short term space for six month growth was different to the usual tenant growth expectations of  18 months to two years.
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Office yields are set to move higher in 2017
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CBRE’s head of research Australia, Stephen McNabb said that while most Australian office markets still favored tenants, a tighter vacancy outlook in Sydney was driving an improvement in face rents, with incentives having stabilised.
Mr McNabb noted that CBRE’s forecast for the Sydney CBD was for a below average 7% vacancy rate over the next 3-5 years, supported by a number of factors, including the withdrawal of office stock for residential redevelopment.
“We have seen rent growth in Sydney in the first half, which we haven’t observed for a long time,” Mr McNabb said.
This was one of the factors that meant Sydney was better place to withstand the office yield compression anticipated in some other Asia Pacific markets.
 
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"In the rental market, Australia was benefiting from a continued influx of foreign entrants, with 40 new store openings last year by new or expanding retailers and a further 12 openings in the first half of 2015.
"This was helping to drive CBD rental growth, with Sydney CBD rents having increased by 20% in the past 12 months and rental growth having also been recorded in the shopping centre sector."
 
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CBRE NSW state director, industrial and logistics services, Mike O'Neill, said Sydney leasing activity was up by 61% this year, relative to the corresponding period in 2014.
"Low supply would help drive Sydney rental growth with the new wave of speculative development not expected until next year," Mr McNeill said
"Another driver would be residential encroachments, in addition to factors such as the recent hailstorms, which had displaced a range of tenants and soaked up a considerable amount of vacant stock."
 
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