There are few property developers nationally that can boast a workbook like the ASX-listed developer Cedar Woods. With eight apartment buildings under construction across four states, Cedar Woods is well positioned to take advantage of what Managing Director Nathan Blackburne says is a “national shortage of apartments.”

Cedar Woods purposefully has a diversified portfolio of apartments, townhouses, commercial, and residential communities across the country, enabling the business to remain resilient through market cycles and respond to shifting buyer demand.

Blackburne says there is a great shortfall of housing of all typologies, none more so for apartments. He says that is the case particularly in Perth, where the lack of new apartment projects has been particularly acute.

“Perth has been more affected than Melbourne,” Blackburne explains, noting that over the past five years, “very few new apartment projects” have been launched in either city. Historically, apartments made up around 20 per cent of new housing nationally. Cedar Woods estimates that figure has fallen to around 10 per cent today, a gap they believe must close.

<h2>Apartment appeal rebounding as supply shrinks</h2>

There are signs the tide is turning however. Blackburne says buyer apartment sentiment really picked up in mid 2025. “In October we saw our strongest sales month for apartments in Perth.” The buyer demand has driven their Subiaco apartment development, Incontro, to nearly 70 per cent sold. The increased buyer sentiment has strengthened Cedar Woods’ confidence in bringing forward the next apartment project in Western Australia, a three tower development planned for the prime site on Upham Street in Subiaco, adjacent to Incontro.

Demand is being driven by several factors; the lack of new apartments coming to the market, the increased demand with migration far outstripping the aforementioned supply, and the appetite to live closer to the city.

“Over the past three years, Perth’s population has grown by around 250,000 people, while only around 50,000 dwellings have been delivered,” Blackburne says, adding that more than twice that number would be needed just to keep up.&nbsp;

He said that many buyers are being forced to the urban fringe because of the greater supply of land product, but that, Blackburne argues, is pushing the fringe further out and motivating a re-evaluation of the value of inner- and middle-suburb apartments.

Demographic shifts are helping drive this rethink. Cedar Woods is seeing more boomers downsizing, young professionals entering the market, and a rising number of single-person households. There’s also a growing trend of parents buying apartments for teenage children, motivated by fears that housing prices will become out of reach. “It’s not only a strong investment now, but it can serve as a first home when their children move out.”

<h2>National diversification strategy</h2>

Cedar Woods’ strategy is not limited to Perth. Blackburne outlines their aim to diversify by price point, product type, and geography, which “gives us a broad customer base and smoother earnings profile.” Throughout their markets, they’re combining apartments, townhouses, and masterplanned communities, allowing flexibility to pivot toward undersupplied segments as demand evolves.

In Victoria, Cedar Woods is pressing ahead with a major site in Fairfield, just northeast of Melbourne’s CBD, a site which Blackburne says the company has had its sights on for many years. They are planning to deliver three towers with over 300 apartments, with the plans likely to be submitted in early 2026.

Blackburne also expresses optimism about broader inner-Melbourne supply dynamics. 
 
“While Melbourne’s apartment market is better supplied than Perth’s, and population growth remains strong, Cedar Woods believes the current stock will be absorbed quickly,” Blackburne says, however he warns that policy disincentives remain. “In Victoria … there are quite a lot of obstacles for apartment buyers,” he says, adding that the industry is working with the state government to “remove those barriers” and avert prolonged undersupply.

Cedar Woods has plans on the desks of the VIC Government to develop a 20-storey tower in Southbank, in the heart of Melbourne’s arts precinct. Designed by Rothelowman, the proposed tower will deliver 180 apartments, ranging from studios to three-bedrooms, along with creative amenity space devoted to arts and digital industries, a food and drink tenancy at street level, and a 700sqm recreation deck with indoor lounge space will provide a resident amenity hub.

Blackburne frames the project as a response to Melbourne’s growing undersupply of signature inner-city living. “We saw a thematic: a looming undersupply in inner-Melbourne, particularly in high-quality apartments, and wanted to capitalise on that,” he says. The site’s proximity to the Melbourne Arts Precinct, key tram lines, and Southbank’s cultural fabric makes it especially appealing, Blackburne says.

<h2>Charting the course forward</h2>

On top of the apartment developments underway and planned in Perth and Melbourne, Cedar Woods has a multi-stage apartment development in Brisbane’s Woolloowin, and several years remaining on their masterplanned communities in Williams Landing in Melbourne and Glenside in Adelaide, both of which offer a mix of apartments and townhouses.

Blackburne says the developer has been able to mitigate some of the macro risks currently at play in the new development space, particularly in the construction sector.

“Cedar Woods has been able to make many apartment projects work because of good buying of the raw land in the first place, as well as its strong pipeline of apartment projects, enabling the company to attract builders to build deep, multi-year relationships.”&nbsp;

For Cedar Woods, 2026 is set to be significant, with anticipated approvals and submissions laying the groundwork for fresh apartment supply and multiple launches in 2027.

&nbsp;

Joel Robinson

Cedar Woods ramps up apartment development amid Australia’s deepening housing shortfall

Rockdale has long been characterized as a suburb on the cusp. Well-located, well-connected, but historically underserved by modern apartment offerings.

It has everything going for it: outstanding connectivity to the Sydney CBD, just four train stops to Central Station, strong local amenity anchored by Roc​kdale Plaza and a growing main-street dining scene, and enviable proximity to Brighton-Le-Sands. The six-kilometre beachfront is lined with bayside restaurants, cafés, and walking paths, giving residents a lifestyle typically associated with much more expensive coastal suburbs.

What Rock​dale has lacked is high-quality contemporary apartments. Most existing developments date back several decades, with floorplans that no longer support modern living needs, and buildings constructed long before today’s standards in engineering, efficiency, and sustainability.

Lender, fund manager and apartment developer Princeton identified the gap early. Seeing all the right ingredients in Rockd​ale, transport, lifestyle, retail, and affordability, they set out to deliver what the suburb was missing. Their answer is <a href="https://www.apartments.com.au/new-apartments/marque-rockdale-602-608-princes-highway-rockdale-nsw-2216">Marque Rockdale</a>, a collection of 58 one-, two-, and three-bedroom apartments now nearing completion just a short walk from Ro​ckdale Plaza, home to over 50 specialist retailers and anchored by&nbsp;Woolworths, Big W and Aldi.

[smartcode_project:default project_id=136442 project_image_fid=355216]

Understanding they would be resetting the benchmark for the area, Princeton focused on ensuring buyers received best-in-class quality, longevity, and protection.

A major step was securing the sought-after Latent Defects Insurance policy from Resilience Insurance. This policy protects apartment buyers from structural or waterproofing defects for the first 10 years of the building’s lifecycle. Crucially, it is first-response insurance, meaning that if an issue arises, the insurer pays immediately for remediation—rather than waiting for lengthy investigations to determine fault before work can begin. For purchasers, it offers an unprecedented layer of security rarely seen in Sydney apartment projects.

During construction, independent building inspection firm SDSS has been providing Technical Inspection Services, bringing highly specialised construction experts on-site at key stages to ensure workmanship meets the highest standards. The project is being built by Coplex, an iCIRT-rated construction company, and throughout the build SDSS has frequently referred to <a href="https://www.apartments.com.au/new-apartments/marque-rockdale-602-608-princes-highway-rockdale-nsw-2216">Marque Rockdale</a> as one of the best projects currently on their books.

Princeton also doubled down on comfort, acoustics, and livability.&nbsp;As well as being the only building along Princes Highway with a landscaped buffer between the building and the road, Princeton has purposefully included double-glazed windows in all apartments to reduce noise.

Apartments feature double-glazed, noise-reducing windows and ducted air conditioning in every residence.&nbsp;In addition to the project’s transport convenience, Princeton has partnered with GoGet Car Share to provide a dedicated GoGet vehicle housed permanently within the building. Residents will receive a free annual GoGet membership, paying only usage fees, offering a flexible alternative to owning a second car and enhancing the project’s sustainability credentials.

[smartcode_project:default project_id=136442 project_image_fid=277075]

Residents will enjoy an exclusive rooftop oasis, purpose-designed as an extension of their living space. The communal rooftop includes BBQ facilities and outdoor entertaining areas, a&nbsp;pergola-shaded dining zone, a dedicated children’s play space, and a landscaped herb garden.

Princeton and Coplex is approaching completion of <a href="https://www.apartments.com.au/new-apartments/marque-rockdale-602-608-princes-highway-rockdale-nsw-2216">Marque Rockdale</a>, and are expecting residents to move in early in the new year. The mix of apartment configurations and price points have been a hit with young professionals, those who need to commute to the CBD, and families who appreciate doorstep amenity.

“Marque is a place where residents will be proud to call it home," Princeton Head of Development George Young says.

"We’ve worked really hard with Coplex and our design team to deliver an incredible building for the future home owners to make their own. The homes are all designed to allow the residents to make it their own, a place to belong and live a stylish urban life."

[smartcode_project_cta:default project_id=136442]

Marque Rockdale sets a new standard of apartment living in Sydney's south

Plans to revitalize the&nbsp;long-established Benowa Gardens Shopping Centre into a mixed-use community combining living, shopping, dining, health and wellbeing facilities, have been proposed to the Gold Coast City Council.

The Benowa Gardens Urban Village proposal by Benowa Gardens Holdings seeks to transform the 17,660 sqm site at <a href="https://www.apartments.com.au/new-apartments/203-ashmore-road-benowa-qld-4217">203 Ashmore Road</a> into a contemporary, sustainable destination that reflects global trends in modern community design while retaining the familiar local character residents value.

The site is bordered by Ashmore and Benowa Roads and Carrara, with ready access to Pindara private hospital, four schools, TAFE, sports fields and the nearby Botanic Gardens.

Benowa Gardens Holdings is seeking a preliminary Council approval only for its proposed masterplan and variations to the site’s Neighbourhood Centre zoning.&nbsp; 
Formal Public Exhibition commenced Friday and also marks the start of comprehensive community consultation with surroundings residents, schools, P&amp;Cs, existing retailers, nearby sporting clubs, arts groups and Botanic Gardens volunteers.

Designed by Neylan Architecture, the masterplan envisions around 413 new apartments, complemented by upgraded retail, dining, and wellness amenities as part of 10,000 sqm of retail, and 9,630 sqm of office space/medical suites.

The development will feature green open spaces, shaded promenades, landscaped terraces, pedestrian walkways, and expanded healthcare and lifestyle services in synergy with the neighbouring Pindara Private Hospital and local schools.

<img alt="Benowa" data-entity-type="file" data-entity-uuid="244f4d54-2e67-4141-92b8-78d5735f47c2" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-11-26%20at%2012.47.34%E2%80%AFPM.png?VersionId=FmF5lzhpwVZc7POsdB770TJ_Bf2c0od8" />

“This concept embraces the way people increasingly want to live - safely, conveniently, and within strong local communities,” said Patrick Lu, Director of Benowa Gardens Holding.

“Benowa Gardens will set a new benchmark for integrated living on the Gold Coast. It’s a thoughtful, community-minded evolution that brings global best practice in urban design to one of the city’s most established areas.”

Lu said this isn’t just a redevelopment, it’s a renewal with purpose.

“Benowa Gardens has served the community for decades. Our goal is to ensure it continues to do so for generations to come, as a lively, connected Urban Village where people can truly live, work and thrive. We’re already talking to school leaders and the community to seek their feedback on our proposal, and have taken on board their ideas to improve student safety with additional “traffic calming” measures on Carrara Street. We’re conducting meaningful and sincere consultations and want to play our role in preserving and enhancing the local community."

The proposed redevelopment aims to deliver tangible benefits across the Benowa and wider Gold Coast community, including:

<ul>
	<li>Improvement of retail amenity, to capture the under-served local market demand and keep the local business at their local shopping centre.</li>
	<li>Housing diversity; offering a range of apartment types for key workers, downsizers, and local families who wish to remain in the area.</li>
	<li>Enhanced shopping and dining; revitalised retail spaces designed to support local businesses and attract more visitors.</li>
	<li>Health and wellbeing access; additional medical and wellness amenities to complement existing local facilities.</li>
	<li>Improved traffic flow and access; two new access points, upgraded intersections, upgrade pedestrian pathway’s signal and proposed upgrade of pedestrian and cycle connections/space to improve safety and convenience, especially for school children.</li>
	<li>Environmental sustainability; energy-efficient design, green rooftops, and water-sensitive landscaping to reduce emissions and enhance comfort.</li>
	<li>Local jobs and investment; supporting hundreds of construction and long-term roles while stimulating local economic growth.</li>
</ul>

The group behind the project boasts extensive experience in the property development industry, both in Australia and international markets. Over the past 23 years, the group has been involved in the development and management of a diverse portfolio of assets including residential dwellings, shopping centres, bulky-goods stores, community and medical facilities, childcare centres, offices, hotels, and taverns, across Brisbane, Ipswich, and the Gold Coast.

Benowa Gardens to become new mixed-use urban village

Demand for townhouses in Melbourne’s inner west has surged as buyers seek the elusive combination of space, affordability, and location.&nbsp;

With family-first apartments increasingly rare and standalone homes often out of reach, townhouses have emerged as the new sweet spot, delivering generous living areas with lower maintenance needs within close proximity to the Melbourne CBD.&nbsp;

<a href="https://www.apartments.com.au/new-townhouses/kings-lane-south-kingsville-50-58-new-street-south-kingsville-vic-3015">Kings Lane</a>, the new under-construction townhouse development by the family-owned developer&nbsp;<a href="https://www.apartments.com.au/developers/blue-run">Blue Run</a>&nbsp;in South Kingsville, responds directly to this trend. Comprising just 25 residences designed by <a href="https://www.apartments.com.au/architects/rothelowman">Rothelowman</a>, the project offers a compelling alternative to both apartment downsizers and family upsizers. With three-bedroom homes priced under $1 million, it presents one of the area’s rare attainable pathways to townhouse living less than eight kilometres from the CBD.

[smartcode_project:default project_id=145042 project_image_fid=355147]

<a href="https://www.apartments.com.au/developments/south-kingsville-vic-3015">South Kingsville</a> itself is quietly becoming one of Melbourne’s most dynamic pockets of urban renewal. Flanked by the established appeal of Yarraville, Newport and Williamstown, the suburb balances quiet, village-like streetscapes with major infrastructure upgrades and a growing slate of retail, dining and lifestyle amenity.&nbsp;

Kings Lane occupies a well-connected site at 50–58 New Street, just off Blackshaws Road and within walking distance of the emerging Union Quarter precinct, a major retail destination anchored by Woolworths, specialty food outlets and wellness services.

A 400-metre stroll brings residents to the Vernon Street shops, a local favourite known for its mix of independent grocers, cafes and family-run eateries. For broader shopping options, Altona Gate Shopping Centre and Yarraville Square are both within a short drive. Spotswood IGA and the Williamstown retail strip further broaden the convenience of daily essentials.

[smartcode_project:default project_id=145042 project_image_fid=355139]

Dining options in the area lean toward eclectic and community-driven, with standouts like Rocco’s Deli, Dad and Dave’s, and Pizza d’ASPORTO offering a range of casual and elevated menus. Cafés such as Hudson Road Wine &amp; Beer and Blacksheep Coffee add to the lively yet local feel of the neighbourhood.

Green space is another hallmark of life at Kings Lane. Edwards Reserve is close enough for morning walks or casual sport, while larger parks like Newport Lakes, Yarraville Gardens, and Cruickshank Park are all a few minutes’ drive away. More than half of the nine-hectares of new green space or parkland being created as part of the West Gate tunnel works is located just at the end of New Street, the same street as Kings Lane.

&nbsp;

For those with school-age children, South Kingsville is home to a range of quality childcare centres and schools, including Kingsville Primary, Spotswood Primary, and Williamstown North Primary. Community Children’s childcare and South Kingsville Preschool are nearby, making the suburb particularly attractive to young families.

Transport links continue to improve, with Spotswood Station and the West Gate Freeway both within a five-minute radius. Future upgrades, including the proposed sky rail for Newport and Spotswood, and the delivery of the West Gate Tunnel project, promise even better access to the CBD and Melbourne Airport in the years to come.

Kings Lane's 25 all-electric townhouses are currently under construction, and will complete in late 2026.

[smartcode_project_cta:default project_id=145042]

Staff Writer

Kings Lane townhouses offers rare value in Melbourne's thriving inner west

Developer-builder <a href="https://www.apartments.com.au/developers/billbergia">Billbergia</a> has set a new apartment price record for <a href="https://www.apartments.com.au/developments/rhodes-nsw-2138">Rhodes</a>, a suburb the company has been instrumental in transforming over the past two decades.

The milestone follows the delivery of thousands of apartments across the harbourside peninsula, culminating in the $4.5 million sale of a 220 sqm penthouse in the <a href="https://www.apartments.com.au/buildings/rhodes-central-oasis-39-marquet-street-rhodes-nsw-2138">Rhodes Central Oasis</a> building, which Billbergia completed earlier this year. It is the first apartment in Rhodes to surpass not only the $4 million mark for settled sales, but also the $3 million mark, eclipsing the previous $2.75 million record set in 2021.

The purchaser had originally secured several apartments in the 40-storey tower off the plan as investments. During settlement, she spent more time in the Rhodes area and was so impressed with the building that she decided to downsize from her Northbridge home into the four-bedroom plus MPR penthouse.

The sale underscores the long-term work Billbergia has undertaken in Rhodes since the early 2000s. The company, rated 4.5 Gold Stars under the NSW iCIRT system, identifying it as one of the state’s most trustworthy and financially secure developers, was a pioneer of the area’s urban renewal. What was once a heavily industrial waterfront has become one of Sydney’s most successful examples of transit-oriented development.

<img alt="Billbergia" data-entity-type="file" data-entity-uuid="56093d7f-db18-42f4-bf9b-115bdf76f5f3" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-11-26%20at%2011.10.06%E2%80%AFAM.png?VersionId=pca77Mr.H83nwXbJexmaLUAqBewtQ7d9" />

Billbergia is now driving the peninsula’s next major evolution: the most ambitious project in its nearly four-decade history. They are planning the Rhodes Bay Masterplan, an eight-tower, mixed-use precinct on Leeds Street. Currently with the NSW Government’s Housing Delivery Authority which is now championing large-scale projects across the state, the Rhodes Bay Masterplan lays the groundwork for a generational reshaping of this important pocket of Sydney’s Inner West.

The masterplan spans more than 31,000 sqm of amalgamated industrial land along the foreshore, land that has been privately held and inaccessible to the community for more than a century. According to Billbergia’s Development Director, Saul Moran, reclaiming this land for public use is central to the company’s vision. 
 
“What’s so exciting is that we have over 300 metres of privately-held industrialised waterfront, land that’s been locked away for more than 100 years, which we’re bringing back to the community,” he says. “It’s taken many years to assemble sites like these, and the goal now is to transform them into meaningful public space where new homes can be built in an integrated, amenity-rich setting.”

At full completion, the Rhodes Bay Masterplan is expected to deliver over 2000 apartments, with the first 1000 to be completed by 2029. Billbergia’s design focused on nine slender towers, so they could give back more to the ground plane. There will be more than 16,000sq m of new parkland and recreation space, including sports fields, a foreshore play area and waterfront green links. Around 14,600 sqm of retail is also proposed, extending the precinct’s role as a true mixed-use hub.

<img alt="Rhodes Bay" data-entity-type="file" data-entity-uuid="240ffc41-4f26-421a-9606-5c56f6fc2d93" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-11-26%20at%2011.05.48%E2%80%AFAM.png?VersionId=BkBxZr7S8CAt1vgNa8AF3zjdc3YuVh0L" />

“Density only works when it’s paired with amenity, transport and open space, and that’s what’s made Rhodes such an amazing success story,” Moran says, adding that the demographic shift Billbergia has seen over the last two decades has informed their future development pipeline in the suburb.

“Rhodes has moved from being largely an investor market to a strong owner-occupier community,” Moran says. “There’s real demand for three-bedroom homes, flexible intergenerational layouts, and apartments people can grow into.”

&nbsp;“We’re designing taller, more slender towers to free up the ground level for sport, recreation and green space. High-density communities thrive when people have the best backyards in Australia, and that’s what we want to create here.”

Demand remains robust, evidenced by Billbergia’s recent results. “We achieved a record sale across the entirety of Rhodes Central just last week,” Moran says. “It shows the depth of confidence buyers have in what’s being built here.”

Billbergia’s vertically integrated model allows them to overcome the recent cost escalation and challenges in the build environment. “Having an in-house construction team lets us control feasibility, value management and quality from day one,” Moran says. “It’s critical in the current market, where construction escalation is at the forefront of every project’s viability.”

The company is also leveraging the NSW Government’s new Housing Delivery Authority process, which Moran describes as a more efficient pathway without compromising design standards. 
 
“We’re really applauding the NSW Government for its efforts to increase housing supply. There’s been a remarkable improvement in how they’re helping deliver more homes, more quickly.”

Billbergia has already commenced construction of Stage One of the Rhodes Bay masterplan. They will be lodging the State Significant Development Application before Christmas.

“We’re moving quickly, but with due care,” Moran says. “This is a generational precinct, and it needs to be done right.”

Billbergia smashes suburb record as Rhodes transformation continues

Arek Drozda

<html><body>
Market outlook: neutral (upgraded to reflect positive turnaround in several indicators).
<ul>
<li>Renting and buying are now equally balanced options (as at March 2015).</li>
<li>Purchase affordability has improved again (as at March 2015).</li>
<li>Confidence in the economy is low but potentially at a turnaround point (as at March 2015).</li>
<li>Housing Credit Impulse points again to a stronger demand for real estate (as at March 2015).</li>
<li>Prices are elevated in relation to mortgage credit flow but can be sustained without problems if flow of funds into the market continues (as at January 2014).</li>
</ul>
National Real Estate Price Forecast
The year has started with a renewed optimism about the Australian residential property market after a period of noticeable slowdown in the second part of 2014.
January property finance figures were very strong, and that was even before the interest rate cut.
In February, RBA reset the overall market conditions by reducing interest rates to a historically low 2.25%.
In an environment where growth in prices was slowing and where incomes were progressing at a steady, albeit moderate, pace it resulted in a significant improvement in purchase affordability.
The reset in purchasing costs increased the attractiveness of buying, when compared to the second half of 2014.
In addition, there are signs that negative expectations about the economy are ready for a reversal (the raw measure turned up in November 2014 and is rising).
All in all, the March quarter estimates point to a very buoyant market. If current enthusiasm can be sustained and continues into the autumn selling season, 2015 can be expected to deliver another year of solid growth in property prices.
We will have to wait until the next set of figures are released to confirm whether this positive turnaround is just a temporary aberration or a more lasting trend.
Detailed Analysis
#1 optimal accommodation choice: renting and buying are equally balanced options
<img src="/images/2015/03/13/BRI_March2015.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
The latest estimate implies a substantial fall in BRI value, indicating that buying costs are now changing at a comparable pace to rental costs.
BRI is constructed based on the simple concept that renting and buying are substitute accommodation options; hence the optimal choice depends on which accommodation cost is rising in relation to the other.
The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The reversal of the direction of the indicator is the result of the recent slowdown in growth of the national property prices as well as a reduction in mortgage rates. Both those factors contributed to the reduction in growth of purchasing costs which are now changing at the same pace as rental costs.
Cut in mortgage rates so late in the cycle, that is, after two years of rising property prices, is somehow unusual but it is not totally unprecedented.
The reset caused by RBA’s decision gave prospective buyers another opportunity to jump on the property ownership bandwagon.
Although this is not the most optimal time for buying (the optimal timing was at the bottom of the cycle in early 2012), nevertheless if interest rates are cut further and there is only a moderate growth in prices, the cost of buying will be rising slower than cost of renting, making purchasing a more attractive accommodation option. This scenario can be compared to the situation experienced in March 1999.
Only a very substantial rise in prices and/or interest rates can make buying unattractive again, as it happened in 2000.
#2 purchase affordability: at a historically high level and improving again
<img src="/images/2015/03/13/PAI_March2015.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income; therefore, it identifies how purchase affordability has changed over time.
The March 2015 PAI estimate points to a reversal in the direction of the indicator, and hence, to improvement in purchase affordability.
This indicator explains that, in historical terms and relative to incomes of Australians working full time, property prices are still very affordable.
And thanks to RBA’s February decision on interest rates and continued, modest but steady, growth in incomes, the recent downward trend has been halted and purchase affordability is increasing again.
It may be hard to believe that after two years of price rises it can be the case but recent auction clearance rates leave no doubt how buyers feel about current prices.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
#3 perceptions about economy: still negative but no longer deteriorating
<img src="/images/2015/03/13/EWI_Maach2015.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI has been falling since June 2013 but the trend is now levelling out. The raw measure recorded a small fall in March 2015 but it has been rising for the last few months.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
The perceptions about the Australian economy, although still negative, are no longer deteriorating. And there are signs they are about to start reversing. However, the overall negative outlook for the economy is keeping the lid on the rate of growth of property prices. Without that restraint, chances are, we would be experiencing a rerun of early 2000’s. We all remember what happened then…
#4 demand: strong and expanding again
<img src="/images/2015/03/13/PHCI_March2015.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The March 2015 PHCI estimate reversed from falling to rising again, resuming the upward trend. PHCI is as its highest level since 2005, implying the highest rate of acceleration in housing credit in a decade.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
The March 2015 PHCI estimated value indicates a substantial rise in the underlying demand for the residential property in Australia. Hence, property prices have potentially much further to run in this cycle as the Australian public embraces the abundance of cheap credit. Perhaps, the scenario of a return of early 2000’s is not totally out of the question...
#5 property price expectation: growth very likely to continue at moderate pace
<img src="/images/2015/03/13/PPG_March2015.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG increased in January 2015 but the indicator continues to lag behind HPI.
The fourth in a row rise in the value of the PPG confirms the resumption of an upward trend of the indicator after several months of relatively flat results (that is, between March and September of 2014).
This gives the confidence that prices are reasonable and are well supported at current levels.
However, the gap between PPG and HPI is still large, and therefore, further price growth is expected to be kept in check (that is, at current growth levels or lower rate).
Arek Drozda is an independent property market analyst.
# Caveat - The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
# Background information - For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>.
</body></html>

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Very buoyant market to deliver strong growth: Arek Drozda's March state of the market analysis

<html><body>
GUEST OBSERVATION
Market outlook: unchanged - neutral with negative bias
<ul>
<li>Attractiveness of renting as a preferred accommodation option continues (as at December 2014). </li>
<li>Purchase affordability is still very high but declining (as at December 2014). </li>
<li>Confidence in the economy is low but conditions are not deteriorating (as at November 2014). </li>
<li>Housing Credit Impulse points again to a strong demand for real estate (as at September 2014). </li>
<li>Prices are vulnerable at current levels, but can be sustained if flow of funds into the market continues (as at September 2014).</li>
</ul>
<h3>National Real Estate Price Forecast</h3>
The latest set of statistics paints a more positive picture than initial estimates and preliminary results indicated just a month ago.
In particular, we can see a small improvement in perception about the economy (but this is not yet reflected in the main indicator, only by a row measure), the actual demand for properties turned out to be much stronger than originally anticipated and there was a small but important lift in Property Price Gauge, indicating a notable increase in the flow of funds into the market.
The rebound in several indicators and the fact that prices are still very affordable, signal that the market remains relatively strong.
However, we will have to wait a few more months for confirmation if the rebound in the indicators is a sign of a return to fast paced growth in prices or just a late sprout of activity that will soon subside.
Without this confirmation, the overall outlook for the Australian property market remains at a neutral level and unchanged from previous month.
<h3>Detailed Analysis</h3>
#1 optimal accommodation choice: renting still the more favourable option
<img src="/images/2014/11/28/BRI_November2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
The September 2014 BRI final value is higher than in previous quarter, confirming that buying costs are growing faster than rental costs. However, the first estimate of BRI for December 2014 quarter points to a likely reversal of this trend.
BRI is constructed based on the simple concept that renting and buying are substitute accommodation options; hence the optimal choice depends on which accommodation cost is rising in relation to the other.
The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The BRI shows that renting is currently still a more attractive option than buying. The reversal of the direction of the indicator is a result of the recent slowdown in the growth of national property prices and hence, the slowdown in the growth of purchasing costs. At the same time, the rental costs continue to increase at a steady pace.
In a market where purchasing costs are rising primarily due to price increases, the optimal point for selling a property is when the indicator peaks and then starts to decline.
Based on the previous behaviour of this indicator, the peak of the current cycle is anticipated to happen before the end of 2016.
If the currently observed change in trend is confirmed in the next few months, it would indicate that the fast price growth phase of the cycle has ended. The December 2014 quarter will therefore mark the end of the “seller market” and the beginning of “buyer market” conditions.
#2 purchase affordability: at a historically high level but falling
<img src="/images/2014/11/28/PAI_November2014.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income; therefore, it identifies how purchase affordability has changed over time.
The December 2014 PAI estimate points to a continued, gradual decline of the indicator.
This indicator explains that, relative to incomes of Australians working full time, property prices are still very affordable.
Since the cost of buying a median priced property relative to average income is significantly lower than in the late 1980s, there is still a lot of room for prices to move before Australian real estate can be considered overvalued. 
Article continues on the next page. Please click below. 
<hr class="system-pagebreak">
#3 perceptions about economy: still negative
<img src="/images/2014/11/28/EWI_November2014.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013. The November 2014 preliminary value is in negative territory and continues trending downwards. The raw measure recorded a small rise for the second consecutive month.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
The reversal of the raw measure in October and a small uptick in November 2014 are positive signs, giving hope that perception about the Australian economy has started to improve, or at least, that it is not deteriorating any further.
However, the overall outlook for the economy is still fairly negative and property prices cannot be expected to advance strongly in such an environment.
#4 demand: much stronger than indicated by original estimates
<img src="/images/2014/11/28/PHCI_November2014.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The September 2014 PHCI preliminary reading is much stronger than the last month’s estimate and this latest update did not confirm the previously reported reversal in the direction of the indicator. That is, the PHCI value has actually increased, not declined. However, the increase is very small.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
Housing credit data for September 2014 was very strong which impacted on the overall result for the quarter.
It implies that, after an initial slowdown in July and August, buyers have returned in force in the last month of the quarter. Therefore, the underlying demand for residential property is actually much stronger than initial estimates suggested.
Nevertheless, the increase in PHCI is only marginal which does not give confidence that this high level of demand can continue unabated beyond the December quarter.
#5 property price expectation: further growth possible but at risk
<img src="/images/2014/11/28/PPG_November2014.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG increased slightly in September 2014, more than in the previous several months, but the indicator continues to lag well below HPI.
A noticeable increase in the value of the PPG points to a possible resumption of an upward trend after several months of relatively flat results. While it is a positive sign, there would need to be a much stronger upward movement in the indicator in the coming months to confirm that the flow of money into the market is substantial enough to support further growth in prices.
Otherwise, the previously experienced rate of price growth is not sustainable and prices will be vulnerable to a sudden halt at the current level.
Caveat - The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
Background information - For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>.
Arek Drozda is an independent property market analyst.
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Market set to tip in favour of buyers: November state of the market analysis

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GUEST OBSERVATION
Saul Eslake, chief economist at Bank of America’s Merrill Lynch financial services division, released a chart last week that confirms the median house price in Australia is below implied price based on income growth and interest rates.
<img src="/images/2014/11/18/estlake-housing.png" alt="">
<a href="https://www.businessinsider.com.au/merrill-lynch-housing-price-growth-will-weaken-in-2015-2014-11" target="_blank">In Chris Pash’ article </a>published in Business Insider last week, Eslake is quoted as saying that “house prices will converge with ‘fair value’ estimates based on household income growth and mortgage rates” after an anticipated 3.5-4% increase in 2015, if there is no change in interest rates.
Eslake sees possible deceleration in growth of nominal prices, or even a decline in real prices, in 2016 as the Reserve Bank of Australia starts to raise interest rates.
Eslake’s finding that property prices are below fair value confirms conclusions from my own research I have been sharing with Property Observer readers since last year:
<ul>
<li><a href="https://www.propertyobserver.com.au/finance/australian-property-prices-explained-independent-analyst/2014011367181/Page-1" style="line-height: 1.3em;">Australian property prices explained: Independent analyst</a></li>
<li><a href="https://www.propertyobserver.com.au/residential/australian-property-prices-in-2014-and-beyond-a-peek-into-the-future/2014013167457" target="_blank" style="line-height: 1.3em;">Australian property prices in 2014 and beyond - a peek into the future</a></li>
<li>
<a href="/expert-insights/investing/crisis-of-confidence-or-crisis-of-affordability">Crisis of confidence or crisis of affordability?</a> 
</li>
</ul>
Saul Eslake is better known to the property industry observers as an avid critic of negative gearing on property and a frequent commentator on housing affordability issues.
Therefore I have nothing but praise for Saul that he was prepared to publish a piece of research that contradicts his previous, very strong stance, on these issues.
As John Maynard Keynes said: “When my information changes, I alter my conclusions. What do you do, sir?”
Since I have not seen this chart before, I can only assume it is just the latest revelation from the research that Eslake and his team at Merrill Lynch undertook recently.
I can only hope that Merrill Lynch will be prepared to fund further investigations into specific nuances of the Australian property market - for the benefit of their clients but also, as a by-product of their PR, to keep the Australian public informed with key findings.
I have no doubt that this research will only confirm that property prices in Australia are primarily driven by changes in incomes and interest rates, that affordability is not an issue for working Australians (i.e. as in most developed countries, is only an issue for specific underprivileged groups), that there is no bubble in the property market and that prices are well within expected range. And, of course, that negative gearing plays only a minor role, if at all, in the whole scheme of things.
In essence, all these are already proven by the above chart, but additional research would broaden the evidence.
Oh, and one more comment to finish off – it demonstrates that price-to-income measures, favourite with many economists, property commentators and some publications that purport to be a serious economic research, are grossly out of touch with the reality. But this fact is already well known to Property Observer readers from my previous articles.
I am looking forward to more research revelations from Saul Eslake and Merrill Lynch team. Thanks a lot for this first little gem!
It is a most welcome development and I sincerely hope that propagation of this and similar information in the public domain will bring balance to the debate on the state of the property market in Australia.
Arek Drozda is an independent property market analyst.
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The chart that proves property prices are undervalued

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GUEST OBSERVATION
Market Outlook: unchanged - neutral with negative bias
<ul>
<li>Attractiveness of renting as a preferred accommodation option continues (as at September 2014).</li>
<li>Purchase affordability is still very high but declining (as at September 2014).</li>
<li>Confidence in the economy is low but conditions are no longer deteriorating so rapidly (as at October 2014).</li>
<li>Housing Credit Impulse has turned down, indicating change in the underlying demand for residential real estate (as at September 2014).</li>
<li>Actual prices are above what could be expected based on changes in housing credit, making them sensitive to adverse changes in economic conditions (as at August 2014). </li>
</ul>
National Real Estate Price Forecast 
Limited new data was released over the last month hence, the October 2014 report represents only a minor revision of previously released charts.
New data points were added only to the Economic Wellbeing Index and Property Price Gauge; however, both measures register almost no change on the previous month values.
In general, indicators continue to point to softer market conditions. Significant pessimism about the economy, elevated purchase costs, declining affordability and falling demand are well evident in the data.
These conditions do not indicate a crash but without a major turnaround in the indicators, prices are very unlikely to increase for much longer.
In the absence of evidence that demonstrates prices have reached their peak in the current cycle, the outlook for the property market in Australia remains neutral.
Detailed Analysis
#1 optimal accommodation choice: attraction of renting over buying is increasing
 <img src="/images/2014/10/29/BRI_October2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
BRI bottomed in June 2012 (indicating the lowest point in the current cycle) and it has been rising consistently since then. The indicator crossed the equilibrium line in March 2014. The September 2014 estimate points to a continuation of an upward trend for this indicator.
BRI is constructed based on the simple concept that renting and buying are substitute accommodation options, hence the optimal choice depends on which accommodation cost is rising in relation to the other.
The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The crossing of the indicator from the buy to rent zone gives a signal that buying costs are starting to rise faster than rental costs. So, currently, renting appears a more advantageous accommodation option than buying. 
In a market where purchasing costs are rising mainly due to price increases, the optimal point for selling the property will be when the indicator peaks, which should coincide with an interim peak in property prices. That point can be anticipated any time now, within the next 12-24 months.
 #2 purchase affordability: at a historically high level but falling
 <img src="/images/2014/10/29/PAI_October2014.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income, therefore it identifies how purchase affordability has changed over time.
PAI is still at a historically high level despite the September 2014 estimate falling in value. 
This indicator explains that, relative to incomes of Australians working full time, property prices are still very affordable. There has been no significant change in the estimate since last month. 
The cost of buying a median priced property relative to average income is still lower than in late 1980s.  So, given the expectations of long-term low interest rates, there is still a lot of room for prices to move before Australian property can be considered overvalued.
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
#3 perceptions about economy: negative
 <img src="/images/2014/10/29/EWI_October2014.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013. The October 2014 estimate is in negative territory and continues trending downwards. The raw measure estimate recorded a tiny increase in October 2014.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
The reversal of the raw measure in October, and the fact that it did not fall in the previous month significantly below June 2014 low, rise expectations that the outlook for the Australian economy may be stabilising and that perceptions will not deteriorate much further. 
Nevertheless, gloomy perspective on the future still prevails and property prices cannot be expected to advance strongly in such an environment.
 #4 demand: weakening as trend has changed
<img src="/images/2014/10/29/PHCI_October2014.png" alt=""> 
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The updated September 2014 PHCI estimate is positive but the turn downwards is now almost certain (final reading of this indicator will be confirmed next month). This is a very strong negative signal indicating change in the underlying demand for properties.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
A positive but declining value of PHCI indicates that credit uptake is slowing down and therefore, that the underlying demand for residential property is softening.
#5 property price expectation: growth to slow further
<img src="/images/2014/10/29/PPG_October2014.png" alt=""> 
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG did not increase in August 2014 and continue to record value well below HPI.
The PPG is almost flat since June 2014 and changed very little since March 2014, implying that the previously experienced price growth is not sustainable and that prices are vulnerable to sudden halt at current level, or even a small reversal.
Historically, when PPG diverged from HPI over a longer term, this pattern preceded a period of increased turbulence in the Australian property market (as was the case in 2003 and 2007). The likelihood of the same scenario playing out in coming months is high if PPG does not move higher soon (for example, as in 2006 or 2013). 
# Caveat:
The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
# Background information:
For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>. 
Arek Drozda is an independent property market analyst.
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Growth to slow further: October state of the market analysis

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GUEST OBSERVATION
I don’t usually get many comments in response to my articles, so it was a real thrill to receive a full length dissection of key points from my latest story titled '<a href="/expert-insights/buying/lies-damned-lies-and-housing-statistics">Lies, damned lies and housing statistics</a>'.
I always welcome constructive criticism since variety of well argued opinions promote better understanding of facts. Ultimately, this is what we are all after – an informed community with well balanced opinions and not prone to fall under the spell of any particular ideology. 
In the interest of promoting that better understanding of property market in Australia, I would like to revisit a few points from <a href="/expert-insights/buying/subjectivity-damned-subjectivity-and-housing-statistics">Joseph's (aka Bullion Barron) commentary</a> to reinforce the original point made in my article – data does not lie, only people interpret it incorrectly or deliberately omit inconvenient truths to advance their own agendas.
My intention is to highlight that if one is prepared to dig deeper, there is much more to official data than often realised and that too narrow an interpretation of facts can lead to completely incorrect conclusions. 
In my previous article I presented a chart showing that, in relative terms, Brisbane, Melbourne and Perth housing prices grew much stronger in the last 28 years than Sydney prices. It concluded that the recent jump in Sydney prices may be just a long overdue catch up – the recent strong growth is nothing out of ordinary.
Further evidence was that Sydney prices grew only a tad over and above the weighted average of eight capital cities and that purchase affordability is still very good, in historical terms.
My objective was to demonstrate that if Sydney property prices were indeed out of control, we would have seen the evidence no matter what statistic was used. This was clearly not the case.
To counter my arguments Joseph (Bullion Barron) referred to information published on the internet by him and other property market commentators. Let’s examine a couple of pieces of information in detail to determine if indeed this information can decisively undermine my earlier conclusion. 
Case One:  Low rental yields as a proof of high level of speculation and overvaluation
The following chart was presented as the evidence (sourced from RESIDEX August 2014 report, indicating median values and rental yields for houses).
<img src="/images/2014/10/27/arek%20oct%2027%20one.jpg" alt="">
Source: RESIDEX
In order to determine if this data really proves speculation and overvaluation we would need to know if Sydney and Melbourne yields are indeed out of ordinary. That is, we would need to find out at least “how low is low” - by comparing current yields to those from the past, as well as to other risk free options. So, let’s put this information into a broader context.
Firstly, as any avid follower of the property market will know:
<ul>
<li>Rental yields are always higher in smaller capital cities and in the country than in larger cities. This pattern is clearly visible in the provided data but we cannot determine whether the gap between Sydney and other cities is reasonable or not;</li>
<li>Yields always fall when prices grow strongly (simply because rental contracts are usually a year in duration; as well, in many states rents cannot be adjusted more than once a year and more than by a certain percentage, so it takes time for rents to adjust to rising prices) – the table does not contain historical information for comparison so we cannot determine whether rental yields were always like this or whether they are declining or rising.</li>
</ul>
Please note, the author omitted yields for apartments which are in mid to high 4% for Sydney and Melbourne and do not show such a dramatic difference in comparison to other states and capital cities.
Examining rental yields from a historical perspective reveals that the current numbers are not the exception. For example, data published by SQM Research indicates that Sydney had similar yields in July 2010 (unfortunately, the data series does not go any further than that and I don’t have access to historical information from RESIDEX).
<img src="/images/2014/10/27/SQM_gross_rental_yield_Sydney.png" alt="">
Yields for apartments are currently at the lowest point since July 2009 but they are still well above 4%.
SQM Research charts for capital cities confirm the pattern that rental yield for houses are generally higher in smaller cities. However, the difference between the cities appears to be smaller than RESIDEX data implies (different methodologies may explain that discrepancy).
An interesting point to note is that Perth used to have yields in the low 3% in 2010, which is much lower than Sydney and Melbourne now. This is another indication that things may not be that extreme as yet.
And comparing alternatives, Sydney and Melbourne rental yields still look pretty reasonable. For example, the Reserve Bank of Australia (RBA) publishes cash deposit rates for financial institutions which in September 2014 were ranging from 1.25% per annum for a one month term deposit to 3.75% per annum for retail deposit and investment rates on savings accounts (for banks' bonus savings accounts with balances of $10,000 plus). So, even Melbourne’s 3.58% yield is not as bad in comparison as it can appear at the first glance.
I know what many are going to say: “But rental yields are gross yields, there are costs that need to be taken out; it makes more sense to keep the money in the bank…”
True, there are costs to be accounted for but commentators tend to forget that in case of property, total return consists of rental income and capital appreciation.
Keeping money in the bank returns only interest income. Property, even if not leveraged, can therefore deliver substantially more than cash in the bank.
That is why investors can accept lower yields, especially in the current low interest rate environment and when the stock market delivers so little in comparison.
Considering Sydney and Melbourne are our largest cities (so rental yields are expected to be lower than for the rest of the country), and that alternative investments appear too risky in comparison (i.e. the share market is not delivering), it would be hard to conclude that current rental yields are the undisputed proof that property market is out of control. Rather, it looks more like just a normal stage of the property cycle where prices jumped ahead and rents have not yet caught up to these higher prices. 
<address>Article continues on the next page. Please click below.</address>
<hr class="system-pagebreak">
Case Two: Value of investor loans for Australian states (12 months rolling basis) as a proof of out of control speculation by investors 
The following chart was presented as the evidence (sourced from Pete Wargent - a regular commentator on Property Observer):
<img src="/images/2014/10/27/arek%20oct%2027%20three.jpg" alt="">
Source: Pete Wargent
This chart is full of interesting twists. There is nothing wrong with charting raw data but special care needs to be taken with interpretation of such charts, and especially with comparisons between presented data series. Otherwise it is easy to draw totally incorrect conclusions. Let’s examine this chart a bit closer.
You will notice that it compares total value (i.e. 12 months running total) of property investment loans for states which have:
<ul>
<li>Widely varying population sizes,</li>
<li>Varying rates of population change, and</li>
<li>
Big differences in property prices. 
</li>
</ul>
Furthermore, the information is represented as nominal values (i.e. is not adjusted for the effect of inflation over time –a billion dollars nowadays is not equal to a billion 30 years ago). Not to mention there were differences in lending rules now and then…
In other words, a lot of the difference between the presented data series and the steepness of the rise in individual lines can be explained by the above listed factors. That is, in order to make a meaningful comparison between states, as well as relative change over time, we would firstly need to adjust the data to eliminate the effect of all these factors on the original data series. 
So, yet again “the proof” ends up raising more questions than providing answers.
I will leave the exercise of recalculating the data for another occasion since this is quite a time consuming task. Then and only then we will be in a position to confirm whether what is happening in Sydney with respect to property investing by individuals is indeed out of ordinary or only proportional to changes in the Australian economy and demographics.
There is one more interesting point to be noted about this chart. That is, it starts with values close to 0. Does it indicate then that in the 1980s there was hardly any investment in residential property by individuals?
Yet, as another set of data from ABS demonstrates, the proportion of rental properties in Australia remains relatively stable over time, ranging between 27-32% for many decades…
You will have to wait until another opportunity for the explanation of this apparent inconsistency. For now, I will just point out that “the rise of individual property investor” phenomenon dramatically exaggerates what is really happening in the rental end of the property market.
I have no doubt that Joseph’s (Bullion Barron) intentions are noble and that he and other commentators proclaiming that Sydney property market is out of control strongly believe this is the reality. However, as you can see, the data does not decisively support such a conclusion.
There are more inconsistencies and erroneous conclusions I could address in Joseph’s article but I think I have already made my point. I sincerely hope that you have enough insight and wisdom now to not accept any claims about the Australian property market without a dose of realism. 
Arek Drozda is an independent property market analyst.
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A dose of reality: Populist opinions v the property stats

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GUEST OBSERVATION
Market Outlook: unchanged - neutral with negative bias
<ul>
<li>Attractiveness of renting as a preferred accommodation option has further increased (as at September 2014).</li>
<li>Purchase affordability is still very high but declining - it provides support for prices at the current level (as at June 2014).</li>
<li>Confidence in the economy continues to deteriorate with no signs of improvement (as at September 2014).</li>
<li>Housing Credit Impulse has turned down, indicating change in the underlying demand for residential real estate (as at September 2014).</li>
<li>Actual prices are above what could be expected based on changes in housing credit, making them sensitive to adverse changes in economic conditions (as at July 2014). </li>
</ul>
National Real Estate Price Forecast
The latest indicators provide further evidence of weakening market conditions.  
The pessimism about the economy and the rising purchase costs that detract potential buyers from the market have started to impact on overall demand.
Purchase affordability is deteriorating but it still remains high, providing support for the current price level. Nevertheless, prices are quite vulnerable at present and the prospect of further strong growth is rather limited - and conditional on the return of optimism.
In the absence of evidence that demonstrates prices have reached their peak in the current cycle, the outlook for the property market in Australia remains neutral. The scenario of subdued market conditions, leading to no or small growth in prices, remains the most probable outcome for September and December quarters. 
#1 optimal accommodation choice: attraction of renting is increasing
<img src="/images/2014/09/17/BRI_September2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
BRI bottomed in June 2012 (indicating the lowest point in the current cycle) and it has been rising consistently since then. The indicator crossed the equilibrium line in March 2014. The September 2014 estimate points to a continuation of an upward trend for this indicator.
BRI is constructed based on the simple concept that renting and buying are substitute accommodation options, hence the optimal choice depends on which accommodation cost is rising in relation to the other. The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The crossing of the indicator from buy to rent zone gives a signal that buying costs are starting to rise faster than rental costs.
In a market where purchasing costs are rising mainly due to price increases, the optimal point for selling the property will be when the indicator peaks, which should coincide with an interim peak in property prices.
As outlined in the last report, we are already two years into the current cycle.  The longest uptrend in the last 30 years was 3.5 years in duration, hence current cycle peak in property prices can be expected before the end on 2015.
Unless, of course, this cycle turns into an exceptionally long one - for example, due to historically high purchase affordability, if confidence in the economy improves.
All in all, fast moving prices from this point onwards can lead to a quite dramatic reduction in the demand for properties and, in effect, shorten the overall cycle.
Stagnating or slowly growing prices, which seems to be the more likely scenario, can potentially limit the negative impact on demand as growth in buying costs will be offset to a large degree by rising rental costs. This can delay the peak and extend the duration of the overall cycle.
 #2 purchase affordability: at a historically high level but falling 
<img src="/images/2014/09/17/PAI_September2014.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income, therefore it identifies how purchase affordability has changed over time.
PAI is still at a historically high level despite the September 2014 estimate falling in value. 
This indicator explains that, relative to incomes of Australians working full time, property prices are still very affordable.
The cost of buying a median priced property relative to average income is now 26.1% lower than it was in 1986. So, given the expectations of long term low interest rates, there is still a lot of room for prices to move before Australian property can be considered overvalued.
Article continues on the next paqe. Please click below.
<hr class="system-pagebreak">
#3 perceptions about economy: negative and deteriorating
<img src="/images/2014/09/17/EWI_September2014.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013. The September 2014 estimate is in the negative territory and continues trending downwards.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
Actual prices cannot be expected to advance strongly in an environment where a gloomy outlook on the future prevails.
If there is no substantial change in perceptions about the economy, market conditions will be rather soft for the reminder of the spring selling season.
A scenario of subdued market conditions, flagged in earlier reports, has already started to play out in real time - RP Data’s daily price index for five capital cities shows that prices have fallen in mid September from the peak reached at the end of August.
#4 demand: weakening as trend has changed
<img src="/images/2014/09/17/PHCI_September2014.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The September 2014 PHCI estimate is positive but the indicator has just turned south. This is a very strong negative signal indicating change in the underlying demand for properties. The September value of PHCI is subject to final revision.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
A positive but declining value of PHCI indicates that credit uptake is slowing down and therefore, that the underlying demand for residential property is softening.
#5 property price expectation: growth to slow or flatten 
<img src="/images/2014/09/17/PPG_September2014.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG recorded a small increase in July 2014 but remains well below HPI.
The PPG is rising but not very strongly. Hence, the support for the current price level is weakening and, as outlined in the last report, this situation can make prices quite vulnerable.
In other words, the fact that PPG cannot move closer to the current HPI level can only imply an underlying weakness in the market and hence, greater uncertainty about the future direction of property prices.
We can already see some tangible evidence of that weakness. In particular, last weekend RP Data reported a reduction in auction clearance rates and their daily index of 5 capital city prices recorded a small decline.
Arek Drozda is an independent property market analyst.
Caveat: The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
Background information: For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>. 
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Market conditions continue to weaken: September state of the market analysis

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Market Outlook: unchanged - neutral with negative bias
<ul>
<li>Attractiveness of renting as a preferred accommodation option has further increased (as at June 2014).</li>
<li>Purchase affordability is still very high, although slowly declining - this provides strong support for prices at the current level (as at June 2014).</li>
<li>Confidence in the economy continues to deteriorate with no signs of improvement (as at August 2014).</li>
<li>Housing Credit Impulse continues to grow, indicating there is still plenty of demand for residential real estate (as at June 2014).</li>
<li>Actual prices are above what could be expected based on changes in housing credit - although the margin is reasonable it makes prices very sensitive to adverse changes in economic conditions (as at June 2014). </li>
</ul>
National Real Estate Price Forecast
With purchase affordability at a decade high, the underlying demand for residential real estate in Australia remains strong and property prices continue on the upward trajectory, albeit at a slowing pace.
The current price level remains slightly elevated in relation to the underlying mortgage credit flowing into the market, indicating that prices are vulnerable and may suffer an unexpected stall or even reversal at this level (slowing price growth is a manifestation of this vulnerability).
Since buyers are now at disadvantage to renters due to faster rising costs of buying, return to wide spread optimism about the economy is a prerequisite for the continuation of strong price growth.
However, pessimism about the state of the economy is not improving, and hence, it poses a serious threat of derailing what is otherwise quite a robust market.
A sudden return of optimism could reinvigorate buyers and lead to a very substantial jump in prices in the coming months (since buying costs compared to average incomes are still at historical lows).
However, the more likely scenarios at present are either no improvement in perceptions about the state of economy, or a further rise in pessimism. Although this will not crash the market in the short-term, nevertheless, it can potentially put the lid on further price growth in September and December quarters.
Detailed analysis starts on the next page. Please click below.
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Detailed Analysis
<ul>
<li>optimal accommodation choice: attraction of renting is increasing</li>
</ul>
 <img src="/images/2014/08/26/BRI_August2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
BRI bottomed in June 2012 (indicating the lowest point in the current cycle) and it has been rising consistently since then. The indicator crossed the equilibrium line in March 2014 and continues on an upward trajectory.
This indicator is constructed based on the simple concept that renting and buying are substitute accommodation options, hence the optimal choice depends on which accommodation cost is rising in relation to the other. The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The crossing of the indicator from buy to rent zone gives a signal that buying costs are starting to rise faster than rental costs.
In a market where property prices are rising, this marks the point in time when opportunities to purchase a property at attractive prices are limited.
For those intending to sell in the current cycle, it marks a time to start preparing for the sale - the optimal point for selling the property will be when the indicator peaks, which should coincide with an interim peak in property prices.
We are already two years into the current cycle and the next peak should be anticipated sooner rather than later.
Trough-to-peak of two years in duration was not uncommon in the last 30 years but there were also a few cycles with an uptrend as short a 16 months and the longest recorded was just over 3.5 years in duration. 
Further strong increases in property prices and/or a rise in interest rates will increase the cost of buying relative to the cost of renting, making purchasing a much harder option to choose than it is at present. Therefore, fast moving prices can lead to a quite dramatic reduction in the demand for properties and, in effect, shorten the overall cycle.
Stagnating or slowly growing prices can potentially limit the negative impact on demand as growth in buying costs will be offset to a large degree by rising rental costs. This can delay the peak and extend the duration of the overall cycle.
Indicators show that this cycle is a slow moving one and therefore the next peak may be still some way off (i.e. up to two years based on historical evidence). However, it all depends how fast prices and/or interest rates move up from here onwards.
<ul>
<li>purchase affordability: at a historically high level and falling, but only just</li>
</ul>
 <img src="/images/2014/08/26/PAI_August2014.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income, therefore it identifies how purchase affordability has changed over time.
PAI is at historically high level and the revised June 2014 value has recorded only a small fall in relation to the previous month reading.
This indicator explains that, relative to incomes of Australians working full time, property prices are still very affordable.
In fact, the cost of buying a median priced property relative to average income is now 27.4% lower than it was in 1986. So, given the expectations of long term low interest rates, there is still a lot of room for prices to move before Australian property can be considered overvalued.
Since purchase affordability is declining very slowly at the moment, the support for current prices appears to be strong. It means that the property market should be very resilient if Australia were to experience a case a mild economic turbulence in the near future.
Article continues on the next page. Please click below.
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<ul>
<li>perceptions about economy: negative and deteriorating</li>
</ul>
 <img src="/images/2014/08/26/EWI_August2014.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013. August 2014 estimate is in the negative territory and continues to fall. A more volatile raw measure is also down and the signs of recovery highlighted last month were short lived.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
Actual prices cannot be expected to advance strongly for much longer if there is no substantial change in perceptions about the economy.
If such a change comes soon, we should experience a very vibrant spring selling season, where prices continue to rise strongly.
However, if pessimism prevails, which as this stage seems to be the more likely scenario, it will most likely put a dampener on the pace of further price growth due to reduction in demand for properties.
Nevertheless, there is no reason to panic just yet as the likelihood of prices falling is still very minimal. However, a flat-lining market is not totally out of the question. 
<ul>
<li>demand: still strong and trend is not yet changing</li>
</ul>
 <img src="/images/2014/08/26/PHCI_August2014.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The June 2014 PHCI estimate is positive and the value of the indicator is at its highest since December 2011.
The June value of PHCI is subject to final revision but it is very unlikely the indicator will change from its current direction.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
A positive and rising value of the indicator reflects continued strong demand for residential property. When the indicator turns down, it will signal a change in the underlying demand.
Investors stepping aside, as reported recently in the media, may prove to be the catalyst for change if they are not replaced by home-upgraders and first home buyers. However, so far, the demand holds quite strongly despite rising pessimism about the economy. 
<ul>
<li>property price expectation: growth to slow or flatten</li>
</ul>
 <img src="/images/2014/08/26/PPG_August2014.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG recorded a small jump in June 2014. However, actual prices (June 2014 House Price Index) also increased by a similar margin and remain above what could be expected based on housing credit growth. 
The rebound in PPG provided evidence of a relatively strong support for the current prices.
However, the 12 month rate of growth in prices has now started to slow, reflecting softer market conditions in the last few months, as indicated by a flattening PPG.
Despite the rate of growth in prices moderating and PPG recording some gains in June, the gap between the two is not narrowing. It implies that property prices are vulnerable at this level and can unexpectedly stall or maybe even record a small fall.
If the rebound in PPG continues in coming months it will indicate a strong probability of further rises in property prices in the September quarter and beyond. However, any divergence from this uptrend will imply an underlying weakness in the market and hence greater uncertainty about the direction of property prices.
Arek Drozda is an independent property market analyst.
Caveat: The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>.
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Pessimistic market outlook likely to put a lid on price growth: August state of the market analysis

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GUEST OBSERVATION
Market outlook: neutral with negative bias.
<ul>
<li>Renting is the more attractive accommodation option over buying (as at June 2014).</li>
<li>Purchase affordability is at a historically high level and steady (as at June 2014).</li>
<li>Confidence in the economy continues to deteriorate (as at July 2014).</li>
<li>Housing credit impulse is still growing, indicating continued demand for residential real estate (as at June 2014).</li>
<li>Actual prices are above what could be expected based on housing credit growth, although only marginally but the gap is not narrowing (as at May 2014).</li>
</ul>
National Real Estate Price Forecast
Pessimism about the state of the economy is threatening further price growth, despite purchase affordability remaining at a historically high level. Subdued growth in the Property Price Gauge in the last few months is the first tangible sign of market weakness.
If this situation prolongs, it has the potential to start impacting on demand and actual prices. We can therefore expect a period of slow growth, or even stabilisation, in property prices in the September 2014 quarter.
The current price level is well supported and there is still no indication that the prices have peaked in the current cycle.
Detailed Analysis
#1 optimal accommodation choice: renting more attractive than buying
 <img src="/images/2014/07/29/BRI_July2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
BRI bottomed in June 2012 (indicating the lowest point in the current cycle) and it has been rising consistently since then. The indicator crossed the equilibrium line in March 2014 and continues on an upward trajectory.
This indicator is constructed based on the simple concept that renting and buying are substitute accommodation options, hence the optimal choice depends on which accommodation cost is rising in relation to the other. The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The crossing of the indicator from buy to rent zone gives a signal that buying costs are starting to rise faster than rental costs.
In a market where property prices are rising, this marks the point in time when opportunities to purchase a property at attractive prices are limited.
For those intending to sell in the current cycle, it marks a time to start preparing for the sale - the optimal point for selling the property will be when the indicator peaks, which should coincide with a peak in property prices.
If prices continue to advance, buying costs will rise further in relation to rental costs and the value of the indicator will keep growing. However, stagnant or declining prices may flatten that growth.
#2 purchase affordability: at a historically high level, unchanged from last month 
<img src="/images/2014/07/29/PAI_July2014.png" alt=""> 
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income, therefore it identifies how purchase affordability has changed over time.
PAI is at historically high level and June 2014 estimated value has not change in relation to the previous month reading.
Relative to incomes of Australians working full time, property prices are still very affordable. Since purchase affordability is not declining at the moment, the overall support for the current price level appears to be strong. If Australia were to experience a case a mild economic turbulence, property prices would be unlikely to fall by far, if at all.
Prices have still a lot of room to move before they can be considered unaffordable despite some prominent commentators declaring that Australian property market is in a bubble.
#3 perceptions about economy: negative
 <img src="/images/2014/07/29/EWI_July2014.png" alt="">
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013. June 2014 estimate is in the negative territory and continues to fall. A more volatile raw measure is up for the second month in the row but by a very small margin.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
Actual prices are not expected to advance strongly if there is no substantial rebound in the indicator.
If this situation continues, it is also possible that growing pessimism, as implied by this indicator, may soon start to affect demand and prices of Australian properties.
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
#4 demand: still strong and well underpinned with housing credit growth
<img src="/images/2014/07/29/PHCI_July2014.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The June 2014 PHCI estimate is positive and the value of the indicator is at its highest since December 2011.
The June value of PHCI is subject to revision. Although the current value is revised down from previous month estimate it would take a significant decline in growth of housing credit to reverse the current trend.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
A positive and rising value of the indicator reflects continued strong demand for residential property. Consequently, market weakness observed on RP Data daily property price index in May and early June was only short lived and prices rebounded strongly in recent weeks. This was the most probable medium term outcome as outlined in the last month’s report.
#5 property price expectation: growth to slow or possibly even flatten 
<img src="/images/2014/07/29/PPG_July2014.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG recorded almost no change in May 2014. Actual prices (March 2014 House Price Index) remain above of what could be expected based on housing credit growth and the gap between PPG and HPI is not narrowing.
Although the current price level appears to be well supported, a flattening PPG points to softer property prices in the coming months. In other words, unless there is a rebound in PPG growth in June and July, actual prices, as measured by the ABS’s House Price Index, are expected to record only minimal growth in June quarter and remain flat in September quarter.
Caveat
The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
Background information
For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>. 
Arek Drozda is an independent property market analyst.
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Pessimism threatening further price growth: July state of the market analysis

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GUEST OBSERVATION
If NSW and Sydney are representative of the market dynamics on the national scale then there is a straightforward answer to question “Where to buy?”
Centrally located properties in the capital city offer the best return long-term for passive property investors, whether owner occupiers or those buying to let.
A Common Dilemma
Property buyers face a choice between more affordable properties which offer attractive rental yields but are further away from the city centre or in regional locations, or more expensive properties in central locations but with possibly much lower rental yields.
Many property advisors would recommend the first option, as it offers better cash flow from day one with reduced capital commitment, all things being equal.
However, for passive investors the second option is a much more sensible choice. This also holds true for those who buy and hold properties over a long period and are not into more adventurous activities like buying to renovate or redevelop, looking for a quick flip, or to access an exceptionally high yield over a short period of time.
Let’s examine historical information that leads to this conclusion.
The Evidence
Housing NSW <a href="https://www.housing.nsw.gov.au/About+Us/Reports+Plans+and+Papers/Rent+and+Sales+Reports/" target="_blank">publishes quarterly sales statistics</a> for Local Government Areas (LGA) and the records date back to 1991 for many locations, totalling just over 22 years of data.
The information is grouped into inner, middle and outer rings for Sydney, as well as into regional centres (i.e. “Rest of Greater Metropolitan Region”) and the rest of NSW.
Simple analysis of changes in median prices over the past 22 years (from July 1991 to December 2013) reveals quite an interesting picture, as summarised in the table below:
<img src="/images/2014/07/15/Table1_change_in_median_prices_NSW.png" alt="">
The increase in median prices in LGAs located in the inner ring outstrips the rate of growth in any other region in NSW.
This is particularly the case with non-strata dwellings which increased over five times in the last 22 years (that is, December 2013 median price is now six times 1991 median price), comparing to 2.4 times rise for the “Rest of NSW”. The difference over the 10 year period is not as dramatic, with the exception of strata dwellings, but still the pattern is obvious.
The following map presents a 20-year perspective on median sale price growth of non-strata dwellings to highlight the key point [click image to launch interactive map]:
<a href="https://www.propertyobserver.com.au/https://mapdeck.com/256" target="_blank"><img src="/images/2014/07/15/SydneyGMR_20yr_price_change_by_region_.png" alt=""></a>
Let’s chart the relative change in median prices over time for additional insights.
<img src="/images/2014/07/15/Chart1_change_in_median_prices_NSW.png" alt="">
The picture is quite clear – over the long term, median prices grew faster in the metropolitan area than in the rest of NSW.
<img src="/images/2014/07/15/Chart2_Inner_Sydney_median_prices_Dec13.png" alt="">
 <img src="/images/2014/07/15/Chart3_Inner_Sydney_change_in_median_prices_Dec13.png" alt="">
Again, over the long-term median prices in the inner ring LGAs grew faster than for the rest of Sydney (with exception of a short period between 2000 and 2003).
Article continues on next page. Please click below. 
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What It All Means
There are important clues in the above charts for property buyers. In particular:
<ul>
<li>The inner ring properties show higher volatility in median price movements at the time of economic uncertainty – which means, timing of purchase decisions is crucial and there are bargains to be found for those with contrarian views (or well informed!).</li>
</ul>
For example, median price for the inner ring increased from $515,000 in March 2009 to $822,000 in December 2013 – a jump of over $300,000 or 60% in just four and a half years, comparing to a $98,000 or 28% increase for the regional part of GMR. The bargain buys can deliver even more substantial returns than indicated by changes in median prices.
<ul>
<li>Between 2003 and the end of 2007, which is generally perceived as a period of no price growth in Sydney, the inner ring still recorded material gains in median prices.</li>
</ul>
This illustrates that attractive and desirable locations tend to maintain the momentum when the rest of the market stagnates.
<ul>
<li>Unless you buy two properties in the outer areas for the price of one in the Inner Ring, the math favours buying in the more expensive area.</li>
</ul>
That is, if you opt for a cheaper property instead of buying in the Inner Ring, even if that location experiences comparative price growth to the inner ring, the higher priced location would have delivered better overall profit.
For example, based on the above chart, a $100,000 property purchased in 1991 in regional part of Greater Metropolitan Region would quadruple in value to $400,000 by December 2013 (i.e. $300,000 rise). Not bad. However, a property purchased for a median price in the inner ring, which also quadrupled in value, would increase from $200,000 to over $800,000, delivering $600,000- a whopping $300,000 more- in capital gains.
“But the yield!” you may say. Well, in this case 1% or even 2% better rental yield on the cheaper property would not make up the difference.
<ul>
<li>Outer regions can outpace price growth of the inner ring properties over a short period and price growth in those regions generally lag the metropolitan region – which presents an opportunity for late comers who missed out on the “city boom”, including first home buyers.</li>
</ul>
However, since timing of the purchase plays a crucial role in catching the maximum price movement, investment in regional properties should be viewed as rather opportunistic (not to say speculative) and therefore as suitable for only more adventurous investors or buyers who are prepared to stick to their decision for a long time.
Zooming In For More Details
We know now that the inner ring offers the best opportunity for price growth but it has to be acknowledged that not all locations within the region perform equally well over time.
The following table summarises change in median prices in the last 10 and 20 years for LGAs located in the inner ring.
 <img src="/images/2014/07/15/Table2_change_in_median_prices_Inner_Sydney.png" alt="" style="line-height: 1.3em;">
Some locations are better for non-strata dwellings – <a href="/news">Marrickville</a> for example did quite well with median price increase of almost 4.5 times over 20 years, while other are more favourable for strata properties, like <a href="/news">Waverley </a>which increased by a similar proportion.
The map below highlights where the largest change in median prices was for strata dwellings over 20 year period [Click image to launch interactive map]:
<a href="https://www.propertyobserver.com.au/https://mapdeck.com/250" target="_blank"><img src="/images/2014/07/15/Sydney_LGA_20yr_price_change_strata.png" alt=""></a>
View all maps, <a href="https://mapdeck.com/?deck_id=22" target="_blank">click here</a>.
This illustrates that choice of location and compatible property type are very important considerations in making purchase decisions.
Another observation worth mentioning is that even the worst performing locations in the inner ring did better for strata and non-strata dwellings than the worst regional locations. This should give confidence to the first time buyers or novice investors that buying in the inner ring can compensate to some degree for less than optimal choice of specific location.
End Note
As a prospective buyer – whether investor, upgrader or first home buyer – you are facing three fundamental questions: What to buy?  Where to buy?  When to buy?
Each of these questions can have quite a complex answer, which I will continue to explore on Property Observer with detailed analysis as well as via regular features, like my monthly <a href="/expert-insights/buying/growth-slowing-but-no-sign-that-cycle-has-peaked-june-state-of-the-market-analysis">State of the Market reports</a>.
However, in the end, it all boils down to a simple, frankly quite boring but well proven formula – location, location, location! One cannot go wrong following this simple advice.
Arek Drozda is an independent property market analyst.
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Inner ring the best bet in Sydney and here's why

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GUEST OBSERVATION
Summary
Market outlook: unchanged - positive with negative bias
<ul>
<li>Buying and renting costs are changing at the same pace giving no preference to either option (as at March 2014).</li>
<li>Purchase affordability is at a historically high level but the downward trend is now apparent (as at March 2014).</li>
<li>Confidence in the economy has deteriorated further and is close to crossing into negative territory (as at May 2014).</li>
<li>Housing credit is growing strongly, indicating healthy demand (as at March 2014).</li>
<li>Actual prices are above of what could be expected based on housing credit growth but margin is reasonable (as at March 2014).</li>
</ul>
National Real Estate Price Forecast
Unchanged: conditions are supportive of further growth in prices in June 2014 quarter and beyond, however declining optimism about the economy indicates a possible slowdown in the pace of that growth.
#1 optimal accommodation choice: buying and renting costs are balanced
 <img src="/images/2014/05/20/BRI_May2014.png" alt="">
The Buy-Rent Indicator (BRI) identifies how cost of buying is changing in relation to cost of renting.
BRI bottomed in June ’12 (indicating the lowest point in the current cycle) and it has been rising consistently since then. The indicator has now reached the equilibrium line.
This indicator is constructed based on a simple concept that renting and buying are substitute accommodation options, hence the optimal choice depends on which cost is rising in relation to the other. The practical use of this indicator is for identifying market cycles and for timing purchase and sale decisions.
The crossing of the indicator from buy to rent zone gives a signal that buying costs are starting to rise faster than rental costs.
In the market where property prices are rising, this marks the point in time when opportunities to purchase a property at attractive prices may be all but exhausted in the current cycle. Prices are expected to continue on the upward trajectory from this point onwards which will cause buying costs to rise further.
#2 purchase affordability: at historically high level but declining 
 <img src="/images/2014/05/20/PAI_May2014.png" alt="">
The Purchase Affordability Indicator (PAI) compares changes in the annual cost of buying to changes in average full time adult income, therefore it identifies how purchase affordability has changed over time.
PAI is at historically high level, comparable to that reached in 2009 or 1994, but is steadily declining from a peak reached in September 2013.
This indicator explains that, relative to incomes of Australians working full time, property prices are still very affordable. In the past 30 years purchase affordability was only better between September 1996 and December 2002.
Prices have still a lot of room to move before they can be considered unaffordable.
Article continues on next page. Please click below.
<hr class="system-pagebreak">
#3 perceptions about economy: conditions are deteriorating
<img src="/images/2014/05/20/EWI_May2014.png" alt=""> 
The Economic Wellbeing Index (EWI) is designed to reflect general perceptions of Australians about the current economic conditions.
The EWI is falling since June 2013 and has almost reached a crossover line.
The key premise behind this indicator is that people are generally less inclined to make big purchases when they are worried about the state of the economy.
EWI fallings towards neutral line indicates that perceptions of Australians about the state of economy are deteriorating but have not yet turned negative. Increased uncertainty about the economy can result in more sluggish demand for residential properties.
#4 demand: housing credit continue to grow
 <img src="/images/2014/05/20/PHCI_May2014.png" alt="">
The Private Housing Credit Impulse (PHCI) provides an indication of the level of buyer activity in the residential property market in Australia, hence it reflects underlying demand for properties.
The preliminary March 2014 PHCI is positive and reached its highest value since December 2011. Consequently, property prices continue to record higher values.
The practical use of this indicator is to provide early warning about impending changes in housing credit uptake, and hence, changes in the underlying demand for residential property.
Positive and rising value of the indicator reflects continued strong demand for residential property.
#5 property price expectation: values are rising and are close to the level of actual prices
<img src="/images/2014/05/20/PPG_May2014.png" alt="">
The Property Prices Gauge (PPG) is a proxy of a property price index. It becomes a leading indicator when combined with House Price Index (HPI).
PPG continues on the upward trajectory after a temporary slowdown between March and July 2013. The value of the indicator is close to the value of establish house price index.
Actual prices are above of what could be expected based on housing credit growth but not too far ahead. Therefore, current price level is well supported. 
For more extended description of individual measures and how to apply this information please refer to the first report in this series: <a href="/expert-insights/buying/buying-more-advantageous-than-renting-yet-change-imminent-april-2014-state-of-the-market-analysis">State of the Property Market, April 2014</a>. 
Caveat: The information is provided in good faith and does not constitute financial advice. Use with caution and at own risk.
AREK DROZDA is an independent analyst who has worked in the public and private sectors for over 20 years in business development, data analysis and in building geographic information systems. 
You can read more of Arek Drozda's pieces here.
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Arek Drozda

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