&nbsp;

Developer GURNER™ Group has revealed $1.65 billion in residential sales nationally across the 12 months to December 2025, driven largely by the continued momentum of its Docklands wellness-focused precinct, Elysium Fields.

The sales result was generated across seven projects in Victoria and New South Wales, headlined by Elysium Fields, GURNER™’s $2.75 billion mixed-use precinct planned for Harbour Esplanade in Docklands.

The project has recorded more than $500 million in sales across the first three towers, equating to around 580 apartments sold.

The first tower, Helios, has now sold out of its 240 private residences, with GURNER™ preparing to release a premium penthouse collection comprising 15 three-bedroom penthouses in coming weeks.

[smartcode_project:default project_id=144441 project_image_fid=370975]

Elysium Fields is being developed on the long-held 20,000 sqm Docklands site at 208-226 Harbour Esplanade, which had remained undeveloped for more than two decades prior to GURNER™ taking over the project around four years ago.

Construction has now commenced across four towers ranging between 18 and 30 storeys, with Hamilton Marino and Maxcon appointed as builders.

Once complete, the precinct is expected to comprise around 1,100 residences, alongside retail, hospitality and public realm uses integrated throughout the site.

[smartcode_project:default project_id=144441 project_image_fid=370981]

Designed by Fraser &amp; Partners in collaboration with GURNER™ Design House, the project has been positioned around the developer’s broader focus on wellness-led residential living.

“We don’t sell apartments. We create a true luxury lifestyle that simply doesn’t exist elsewhere in the market today,” Founder and Executive Chairman Tim Gurner said.

“To deliver that requires an extraordinary level of detail, coordination and discipline across multiple verticals, from design and hospitality through to wellness and service.”

“We’ve always believed that living extends far beyond the physical residence. It’s about how you feel the moment you arrive, how you live day-to-day, and the ecosystem that supports that.” 
[smartcode_project:default project_id=144441 project_image_fid=370977]

The project’s design places a heavy focus on landscaping, wellness amenities and biophilic design principles.

Plans include around 3,700 sqm of landscaped gardens and open space throughout the precinct, alongside a retail and dining offering spanning approximately 5,000 sqm.

The broader public realm strategy centres around what GURNER™ describes as the “Path of Life”, an urban forest and landscaped pedestrian environment intended to connect the various buildings and wellness spaces across the precinct.

The apartments themselves will incorporate a range of wellness-focused inclusions, including purified air and water systems, circadian lighting, antimicrobial surfaces, and optional in-home wellness upgrades.

[smartcode_project:default project_id=144441 project_image_fid=370980]

Gurner said the company’s experience through its Saint Haven wellness clubs had directly informed the residential offering now being incorporated into Elysium Fields.

“We’re seeing a clear global shift toward longevity, performance and proactive health,” Gurner said.

“Our role is to deliver that in a way that feels seamless, highly private and beautifully resolved within the environments we create.”

A large component of the wellness offering is planned through the resident amenity and health facilities proposed within the precinct.

That includes plans for bathing and recovery facilities spread throughout the towers, incorporating mineral pools, saunas, steam rooms, flotation therapy, red light therapy and wellness lounges.

The developer is also seeking approvals for what it describes as a “reverse ageing medical clinic” within the precinct.

[smartcode_project:default project_id=144441 project_image_fid=370978]

According to project information released by the group, the proposed facility would include cryotherapy, IV infusion therapy, infrared and dry saunas, PEMF beds, MRIs, DEXA scans, brain scans and blood analysis services.

Within the first tower, Helios, residents will also have access to a dedicated amenity offering known as the Sky Private Club.

The upper 15 levels of the building will include private lounges, dining spaces, rooftop amenities and optional private wellness studios integrated within residences.

The Helios tower itself comprises 260 apartments ranging between 60 sqm and 300 sqm, including a collection of penthouses.

That includes a planned two-storey penthouse spanning around 600 sqm with uninterrupted bay views.

The Elysium Fields precinct is being delivered in partnership with Digital Harbour Holdings, a consortium that includes the Liberman family, which controls the development rights across the Docklands site.

[smartcode_project:default project_id=144441 project_image_fid=370979]

The sales result comes as GURNER™ continues expanding its national development pipeline beyond Victoria.

“We have a strong pipeline across Australia and are now focused on scaling into key markets including New South Wales and Queensland, while continuing to build on our Melbourne base,” Gurner said.

“We currently have more than $3 billion in the market, growing to over $5 billion by October, and expect to materially outperform last year in the 2026 calendar year.”

The result also reflects the continued strength of the upper-end apartment market in Melbourne, particularly for owner-occupier-focused product with large-scale amenity and lifestyle offerings.

[smartcode_project_cta:default project_id=144441]

Record result anchored by the Group’s “utopian” Elysium Fields precinct – defying market headwinds in Docklands.

Joel Robinson

Elysium Fields drive Gurner to $1.65 billion in apartment sales over 2025

National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more internation and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

<section data-scroll-anchor="false" data-testid="conversation-turn-5" data-turn="user" data-turn-id="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" data-turn-id-container="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" dir="auto">Time &amp; Place’s plans to transform the former David Jones factory building in Surry Hills into a mixed-use residential precinct have gone on exhibition through the NSW Government’s In-fill Affordable Housing pathway.</section>

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" data-turn-id-container="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" dir="auto">
The Marlborough House proposal, lodged for the <a href="https://www.apartments.com.au/new-apartments/marlborough-house-47-97-marlborough-street-surry-hills-nsw-2010">47-97 Marlborough Street</a> site, would see the adaptive reuse of the heritage-listed warehouse building alongside the construction of new residential additions and a separate apartment building on the northern portion of the site.

The proposal seeks approval for 172 apartments across three buildings, including 15 per cent affordable housing managed by a community housing provider for at least 15 years from occupation.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="5d1d3c2a-bf13-47d6-a335-7c01102cdee1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.36%E2%80%AFAM.png?VersionId=cjMYrbR.BLUlWH4dar0RVDDo0bG.u2YT" />

Interior view from the Northern Building Penthouse overlooking the park

&nbsp;

The redevelopment is planned for the prominent 3,413 sqm site bounded by Marlborough Street, Goodlet Street and Lansdowne Street, directly opposite Eddie Ward Park and around 200 metres from the Surry Hills light rail stop.

Time &amp; Place acquired the former David Jones building in 2024, marking the first time the property had changed hands in around 50 years.

Designed by Wardle, the proposal centres around the adaptive reuse of the former David Jones factory, originally constructed between 1913 and 1935 in the Inter-War Chicagoesque architectural style.

Wardle noted in its Architectural Design Report that the building “occupies a significant place in the industrial and cultural history of Surry Hills” and at its peak was “the largest department store manufacturing facility in Australia, employing over 800 people and fuelling the growth of Sydney’s fashion and retail industries.”

The practice said the project positions itself “not as an isolated intervention, but as a contributor to the civic, social, and architectural grain of the precinct.”

The proposal would deliver 75 apartments within the retained southern heritage building, 59 apartments within the central addition, and a further 38 apartments within the new northern building fronting Lansdowne Street.

Planning documents show the scheme would comprise a mix of heritage apartments, new-build apartments, townhouses and penthouses.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="57758518-40a3-4b83-958c-d06e96a2cffa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.42%E2%80%AFAM.png?VersionId=VerlX9ST5xgBi8.1_YRsqdWTJeT6ygjs" />Interior View of the Heritage Building Apartment

The development would also include a ground-floor retail tenancy on the corner of Marlborough and Lansdowne streets, rooftop communal open space, a landscaped pedestrian link along the western edge of the site, and basement parking accessed from Lansdowne Street via a car stacker system.

&nbsp;

The scheme emerged from a competitive design process run by Urbis, with Wardle ultimately selected as the winning architect ahead of FJC Studio, TZG, Architectus and Wilkinson Eyre.

The Design Integrity Panel later described several aspects of the Wardle scheme as fundamental to the project, including “the stepped character of the new addition to the north of the site”, the landscaped western pedestrian link, and the “garden arrival” experience separating the original Marlborough House from the heritage addition.

Wardle’s design heavily references the site’s industrial and heritage history, while also responding to the surrounding Surry Hills streetscape.

The Architectural Design Report describes Surry Hills as “a finely grained neighbourhood with beautiful and expressive brickworks throughout the suburb,” with the proposal introducing a material palette intended to sit comfortably alongside the existing warehouse fabric and neighbouring terraces.

The report also outlines the project’s relationship with Eddie Ward Park and the broader landscape context of the area.

“Marlborough House occupies a site of deep cultural memory and the neighbouring Eddie Ward Park is of local ecological significance, where natural systems, topography, and stories have long shaped human experience,” Wardle noted in the report.

The architects said the proposal sought to “rebind built form to Country” through landscape, materiality and the adaptive reuse of the heritage structure.

<img alt="Marlborough House" data-entity-type="file" data-entity-uuid="9ae3f2f9-c85f-477a-a6f8-b43f6cb97c41" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.53%E2%80%AFAM.png?VersionId=B.qUCLqRvJOR.n9CvYcTpaknIX9LuqKZ" />

The project is also being progressed under the NSW Government’s in-fill affordable housing provisions, allowing developments that include affordable housing to access additional height and floor space incentives.

Under the plans, 2,593 sqm of the project’s floor space would be dedicated to affordable housing, slightly exceeding the required 15 per cent threshold.

In its Design Excellence Strategy, Urbis said the project aimed to “sensitively adapt and enhance the heritage-listed building on site through alterations and additions that preserve its historical significance” while delivering “high-quality market and infill affordable housing development in Surry Hills.”

Time &amp; Place has been one of the most active developers nationally in the last 12 to 24 months. Late last year they completed&nbsp;The Queensbridge in&nbsp;<a href="https://www.apartments.com.au/developments/southbank-vic-3006">Southbank</a>, a mixed-use tower with 353 apartments and a hotel. They are currently selling Park Modern, 246 apartments near the famous Botanic Gardens in&nbsp;<a href="https://www.apartments.com.au/developments/south-melbourne-vic-3205">South Melbourne</a>, and have future projects, <a href="https://www.apartments.com.au/new-apartments/the-wilmot-173-burke-road-28-hope-street-glen-iris-vic-3146">The Wilmot</a>&nbsp;in&nbsp;<a href="https://www.apartments.com.au/new-apartments/glen-iris-vic-3146">Glen Iris</a>, the redevelopment of the Northcote Plaza, and another tower in South Melbourne.

The developer broke into Sydney just a few years ago with Two Tides in Manly. They have another project nearby, which is at the ultra-luxury end of the market on&nbsp;<a href="https://www.apartments.com.au/buildings/shoreline-manly-beach-89-90-north-steyne-manly">North Steyne</a>, fronting the beach.

It is also continuing to work through the <a href="https://www.apartments.com.au/news/nsw/first-look-time-place-settles-on-design-for-the-chimes-potts-point-redevelopment">redevelopment of The Chimes building</a> on Macleay Street in&nbsp;<a href="https://www.apartments.com.au/developments/potts-point-nsw-2011">Potts Point</a>, as well as a project on <a href="https://www.apartments.com.au/news/nsw/time-place-to-take-on-mosman-apartment-market">Mosman's Redan Street</a>.
</section>

First look: Time & Place unveils Marlborough House redevelopment designs for former David Jones warehouse in Surry Hills

The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Cameron Kusher

<html><body>
The Australian Bureau of Statistics (ABS) published housing finance data for September earlier this week. The data showed that the proportion of lending to investors hit a record high in September. 
t the same time the data indicates that demand from owner occupiers is starting to slow.
<img class="aligncenter size-full wp-image-3959" src="https://blog.rpdata.com/wp-content/uploads/2014/11/Chart-1.jpg" alt="Chart 1" width="500" height="181">
Over recent years the data on the value of housing finance commitment has, to my mind, become much more important to focus on.  The main reason being that this is the only data from the ABS that tracks the level of investment lending. 
The above chart uses raw (not seasonally adjusted) data and uses a 12 month average to smooth the volatility of the data.  Nevertheless you can see the ongoing decline in demand from owner occupier first home buyers and more recently a dip in commitments by owner occupiers that already own a home. 
Across the four borrower types listed you can see that investors now account for the greatest proportion of borrowings from Australian Authorised Deposit-taking Institutions (ADIs).
<img class="aligncenter size-full wp-image-3960" src="https://blog.rpdata.com/wp-content/uploads/2014/11/Chart-2.jpg" alt="Chart 2" width="500" height="183">
Seasonally adjusted data for September 2014 showed that the value of owner occupier refinance commitments was 0.6%, owner occupier commitments (excluding refinances) rose 1.8% and investor commitments were 3.7% higher. 
Year on year, owner occupier refinance commitments are 13.7% higher, owner occupier commitments (excluding refinances) are 3.4% higher and investor finance commitments are 25.4% higher. 
The above chart highlights a couple of important things.  Firstly, while owner occupier refinances and new loans (those excluding refinances) have flattened over recent months it seems as if there has been a resurgence in investor demand.  Secondly, this is the first time ever that the value of monthly investment loans ($11.9 billion) has been greater than the value of owner occupier new loans ($11.8 billion).
<img class="aligncenter size-full wp-image-3961" src="https://blog.rpdata.com/wp-content/uploads/2014/11/Chart-3.jpg" alt="Chart 3" width="500" height="182">
The seasonally-adjusted data for September showed that investor finance commitments accounted for an all-time high proportion of lending by Australian ADIs. 
Comparing lending to investors against owner occupier refinances and owner occupier new loans investors accounted for 41.4% of lending, owner occupier new loans were 40.8% and owner occupier refinances were 17.9%. 
The proportion of lending to investors is at a record high while the proportion of lending for owner occupier new loans is at a record low. 
Of course, there is only a certain amount that can be borrowed each month but it is clear demand is strongest from the investment segment.  In fact, if you exclude refinances, a record high 50.2% of new loans written are to investors.
<img class="aligncenter size-full wp-image-3962" src="https://blog.rpdata.com/wp-content/uploads/2014/11/Chart-4.jpg" alt="Chart 4" width="500" height="182">
The headline result that gets reported on each month is the number of owner occupier loans.  Although it is a very valuable statistic, it should be read with caution because it is missing a significant proportion of the market, those represented by investors. 
Over the month, there were 51,465 owner occupier housing finance commitments, the lowest number since January 2014. 
Month on month the number of loans for refinancing of established dwellings was -2.9% lower while non-refinances increased by 0.5%.  Like the value growth chart presented earlier, the above chart indicates that the number of loans to owner occupiers has flattened over recent months.
<img class="aligncenter size-full wp-image-3963" src="https://blog.rpdata.com/wp-content/uploads/2014/11/Chart-5.jpg" alt="Chart 5" width="500" height="180">
Article continues on the next page. Please click below.
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As investor activity has risen, there has been a sharp drop-off in the number of loans to first home buyers. 
Although there is no data to support it there are plenty of anecdotal suggestions that many first home buyers are choosing to purchase investment properties rather than homes for owner occupation. 
Unfortunately, the ABS data only captures those homes purchased by first home buyers for owner occupation.  Owner occupier first home buyer numbers continue to languish at near record low levels. 
In September, first home buyers accounted for 12% of all owner occupier finance commitments however the number of loans actually rose by 4.7%. 
As mentioned earlier, the value of investment loans is at a record high, the previous peak was October 2003 and at that time investors accounted for a slightly higher 13.6% of all owner occupier housing finance commitments. 
What is more alarming is the drop off in volumes over recent years with that 13.6% actually being 8,481 finance commitments.
The Reserve Bank (RBA) has already highlighted a number of times that they have some concerns with the heightened level of investment activity, particularly in Sydney and Melbourne.  With the proportion of loans to investors hitting a new record high in September it will further re-iterate those concerns.
The RBA has already flagged that themselves along with other regulators are already looking at ways to curb the level of investment however, they flagged in early September that any announcement would likely come by December. 
In the meantime, it looks like investor finance commitments have got another leg up and over the coming months we may see a further flurry of activity as investors look to enter the market prior to the implementation of any macroprudential curbs.
With investor focus t -date very much on Sydney and Melbourne, it will be interesting to see if this remains the case when the lending finance data for September is released on Wednesday.  If so, you do have to ask yourself what some of these investors are thinking. 
The housing markets in Sydney and Melbourne have been recording value growth since June 2012 and over that time value have increased by 29.8% and 20.7% respectively.  Gross rental yields have fallen from 4.5% to 3.7% in Sydney and from 3.8% to 3.3% in Melbourne.  
I understand that investors need a return and aren’t getting that from keeping their cash in the bank but after almost two and a half years of value growth and a significant compression of rental yields you wonder how much value growth is left in these markets. 
Furthermore, with yields so low if there is little or no growth investors will be left with an asset that provides very little rental return.
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ckusher-ujnxiKuFQs

Proportion of investment lending hits record high in September

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Balancing an economy is undoubtedly a tough ask.
Our inflation targeting Reserve Bank looks to maintain inflation within a range of 2% to 3% on an annual basis over the cycle.  Too much inflation is not ideal, nor is deflation, so the RBA tries to tweak monetary policy to stimulate the economy in order to see some inflation but not too much. 
If inflation runs too high consumption slows down as consumers simply can’t afford to purchase goods and services because they don’t have enough buying power.  If deflation occurs consumers are also likely to stop spending because the value of any debt they have increases (as opposed to reduces when there is inflation).
Consumer buying power may increase during times of deflation; however the weak economic conditions that have caused prices to deflate are likely to also result in higher unemployment, a contraction in the number of jobs and a pessimistic consumer mindset.
With the currently high levels of inflation in housing prices, it stands to reason that the purchasing power of many consumers has diminished.  When you think about the Australian housing market as a whole I don’t think anyone could argue that shelter in Australia is particularly affordable. 
In fact over the last two decades home values have increased at a rate much higher than inflation meaning that some in the community don’t have enough buying power to purchase shelter.  As a result, many of these people are likely to rent.
I am constantly surprised about articles and comments which seem to believe that a significant decline in Australian home values would be the preferred cure to housing affordability and a good outcome for the economy. If we look purely at the inflation and deflation argument some people would say we have had too much inflation of home values however, the solution to that problem is not to aim for deflating current home values.
The Australian Bureau of Statistics (ABS) estimated that as at June 2014, the total value of Australia’s dwelling stock was $5.2 trillion and there were an estimated 9,366,800 dwellings across the country (note that RP Data we estimate the total value of residential dwellings to be somewhat higher at $5.5 trillion as at June 2014). 
To put this $5.2 trillion in dwellings into perspective, over the 12 months to June 2014, GDP, or the total output of the national economy, was recorded at $1.57 trillion.  What this means is that the value of residential dwellings was more than three times greater than the annual output of the economy.
According to data released by the Australian Prudential Regulation Authority (APRA), Australian authorised deposit-taking institutions (ADIs) held $1.225 trillion in loans against these dwellings across 5,079,800 mortgages. 
So what do these figures tell us?
54.2% of dwellings across Australia have a mortgage to an Australian ADI and 23.6% of the total value of Australian dwellings is outstanding to Australian ADIs. 
The ratio of debt held against the total value of the housing asset class is very low however, this ratio includes all dwellings (not just those where a mortgage is held).  In the event of a downturn those with high leverage are likely to be much more significantly impacted. 
It also probably reflects that quite a lot of dwellings have no mortgage (the 2011 Census indicated that roughly one third of Australia dwellings were owned outright) while a proportion will also have mortgages sourced from non ADI lenders or offshore banks.
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Australians choose to hold a large proportion of their wealth in residential property; this is highlighted by the $5.2 trillion total value of residential dwellings. 
Data published quarterly by the Reserve Bank shows that while the typical household’s ratio of housing debt to disposable income in 137.1%, the typical household’s ratio of housing assets to disposable income is a much larger 433.6% making up 54% of the typical households assets.
Over the past couple of decades Australian ADIs have shown a preference for lending to housing as opposed to lending for personal loans or to business.
Of course, the ADIs have had good reason to preference housing lending; it has generally performed well with low mortgage arrears, the return on equity is strong, earnings from mortgages are consistent, higher risk loans are generally insured via lender’s mortgage insurance (LMI), home values have generally trended higher and Australian’s tend to prioritise repayments of their mortgage. 
But this does not mean that home owners and the economy could withstand a significant deflation in home values.  Nor does it mean that a significant deflation in housing values would be a tonic for those that can’t afford to own a house to finally achieve home ownership. 
Why would deflation in an asset which is more than three times larger than the annual output of the economy play out any better than deflation in an economic sense? 
In fact, were home values to deflate it could be argued that the whole economy would suffer as consumers stopped consuming.  As consumers stop spending unemployment would likely rise, ADIs would stop lending and there is a high likelihood the Australian economy would enter a recession.
Remember, it isn’t only those with a mortgage which would face the prospect of unemployment, so too would all those people who are yet to purchase a home waiting for the collapse to enter into the market at rock bottom prices.
A more desirable solution to improve housing affordability in my opinion is to look for a more moderate level of growth in home values while improving both the supply and demand side of the equations.  A sustained period in which home values grow at a rate below inflation would be an ideal way in which to improve affordability rather than a large-scale bust. 
Interestingly, as <a href="/expert-insights/buying/inflation-adjusted-home-values-put-housing-markets-into-context">we showed last week</a>, a number of cities have recorded value growth below the rate of inflation over a number of years now (although this hasn’t been the case in Sydney and Melbourne).
Housing booms make it harder for prospective home owners to enter into home ownership, however I would argue that busts are much worse. 
Furthermore the level of exposure to the housing market by ADIs and residents would mean a housing bust has much more far reaching repercussions for the economy.  Although stress tests indicate that most ADIs could cope with a significant decline in home values the impact on households and the Australian economy as a whole would likely send Australian into a recession. 
This is why rapid deflation in home values is just as, if not more undesirable than rapid inflation and why the goal should be moderate growth in home values with a growth rate that broadly trends in line with household income growth over the cycle. 
If we want to reduce the cost of housing from its current level with minimal overall economic damage, home value appreciation below the rate of inflation for a number of years is what I see as an ideal solution. 
Of course achieving this means that governments need to address the factors that drive a high level of housing demand and those which constrain the overall supply of housing and drive the cost of this new supply higher.
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Deflating house prices is not the solution to affordability

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Capital city rental performance data shows that across Australia’s combined capital cities rents are rising at a pace slower than inflation and recorded an annual growth rate of 1.8%.
With rental yields at such low levels it seems investors are firmly focussed on capital growth.
RP Data’s monthly combined capital city rental market analysis for the past 12 months, confirmed that this result was the slowest annual rate of rental growth since August 2003.  
The rate of rental growth is easing on the back of a large rise in capital city home values and a strong rise in the supply of new homes being built. Added to this is the impact of record level investor buying which ultimately affects overall rental market supply. Slow rental growth rates have a knock on effect for rental yields.
Around the capital cities:
<ul>
<li>Sydney rental rates increased by 3.5% over the past year while home values are up 13.1%.  Subsequently yields are recorded at 3.7% the lowest reading since August 2005; </li>
<li>Melbourne home values are 8.9% higher over the year while rents have increased by a much lower 2.5%.  Gross rental yields are recorded at 3.3% which is the lowest gross yield across the capitals and equivalent to the lowest yield on record; </li>
<li>With a gross rental yield of 4.5%, yields in Brisbane are at their lowest level since September 2011.  Brisbane rents have increased by just 1.3% over the past year compared to home value growth of 5.6%; </li>
<li>Adelaide home values have increased by 4.3% over the past year while rental rates have increased by 1.5%. Rental yields currently sit at 4.2%, their lowest level since September 2012; </li>
<li>Rental rates in Perth have fallen by -3.1% over the past year while home value have increased by 3.4%. As a result, rental yields are recorded at 4.1% their lowest level since January 2012; </li>
<li>Hobart rental yields currently sit at 5.4% their highest level since November 2013.  Over the past year Hobart rents have increased by 2.4% and home values are 4.4% higher; </li>
<li>Darwin home values increased by 5.0% over the past year while rents fell by -0.1%.  As a result, yields have been relatively steady at 5.9% over recent months; </li>
<li>Canberra rental rates have fallen by -4.9% over the past year while home values have increased by 0.9%.  Gross rental yields in Canberra increased over the month to 4.2%.</li>
</ul>
<img src="/images/2014/11/06/kusher-nov-6-one.jpg" alt="">
<img src="/images/2014/11/06/kusher-nov-6-two.jpg" alt="">
Looking at all dwelling results at a combined capital city level, gross rental yields were recorded at 3.8% in October 2014 which is the lowest reading since January 2011.  
With the rate of capital gains outpacing rental growth we are seeing rental returns reduce across all capital cities. In fact, over the past year gross rental yields have fallen across each capital city.
RP Data research suggests that a surge in building approvals over the past 18 months is a likely contributor to slower rental growth rates.
<blockquote>
With rental yields at such low levels it seems investors are firmly focussed on capital growth.
</blockquote>
With the number of home sales rising as a result of new supply, more investor-owned properties and population growth slowing, renters now have comparatively more choice when it comes to housing options and as result the owners of investment properties have less scope to increase weekly rents given the large supply of alternate accommodation options.
With a larger supply of new housing and low interest rates likely to drive further growth in home values we anticipate that rental growth will remain subdued over the coming year.  In fact we may see the rate of rental growth slow further as renters see more and more accommodation options being built.  
With such tepid growth in rents and such a high level of investment activity it is clear that most investors are buying residential property with a view to capital growth rather than rental returns.
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Capital city rental rate growth the slowest in over a decade

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As at the week ended 26 October 2014, there were, 51,081 unique new properties advertised for sale and 195,655 unique re-listed properties across the country while the number of new listings were at their highest level since the four weeks ending 23 March 2014. 
Meanwhile, the number of re-listed properties was at its highest level since the four weeks ended 24 August 2014.
We are seeing a ramp-up in new listings at a national level while spring progresses while total listings have risen a little, they are much lower than over recent years.
<img src="/images/2014/10/30/kush-oct-30-three.jpg" alt="">
Across the combined capital cities, the trends are quite similar. Over the four weeks to 26 October 2014, there were 32,706 unique new properties listed for sale and 73,189 unique re-listed properties. Capital city new listings account for 64% of total new listings nationally while capital city re-listings account for just 37% of all re-listings nationally.  
This highlights that capital city stock is being absorbed much quicker than stock in non-capital city regions. As a result the number of re-listed properties is much higher across the regional areas of the country.
Excluding Darwin, new listings increased over recent weeks in all capital cities. The total number of properties advertised for sale also increased over this period in all cities and highlighted an increase in the amount of residential property available for sale.
On a city-by-city basis, RP Data’s latest listings results show that there are many variations and differing trends emerging.  
An ongoing rise in home values in Sydney is being partially fuelled by low stock levels and low mortgage rates. 
Around the remainder of the country:
<ul>
<li>•Melbourne stock levels are quite high. This potentially suggests that the rise in values is perhaps more driven by speculation than a shortage of effective supply levels;  </li>
<li>•Brisbane stock levels are trending lower and in line with a moderate rise in sales and values;</li>
<li>•Adelaide stock levels have reduced, however, the results show a sharp rise over recent weeks;  </li>
<li>•Perth stock levels have been relatively stable now for a number of years;  </li>
<li>•Stock in Hobart is falling as sales volumes rise.  </li>
<li>•Darwin is experiencing a trend towards higher levels of stock available for sale;</li>
<li>•Canberra stock levels are also now rising as the market slows.</li>
</ul>
The number of properties available for sale is likely to broadly continue to rise over the coming weeks, before we see the inevitable slowdown late in December and throughout January as vendors pause their listing activity.  
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Property listings continue to rise as spring progresses

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Earlier this month the Australian Bureau of Statistics (ABS) released its quarterly Consumer Price Index (CPI) or inflation figures.  
The data showed that over the September 2014 quarter, inflation was recorded at 0.5% and over the 12 months to September 2014 it was recorded at 2.3%.  The Reserve Bank has a target range for annual inflation of 2% to 3% and inflation is currently at the lower end of this range. 
It is important to note that inflation appears to be slowing, recorded at an annualised rate of just 1.8% over the past six months.
<img class="aligncenter size-full wp-image-3916" src="https://blog.rpdata.com/wp-content/uploads/2014/10/Chart-11.jpg" alt="Chart 1" width="500" height="180">
With the release of CPI data we can also get a picture of what is happening with home values when adjusted for the effects of inflation. 
Over the 12 months to September 2014, combined capital city home values have increased by 9.3% in nominal terms according to the RP Data CoreLogic Home Value Index, in ‘real’ terms home values have risen by 6.8% over the past 12 months. 
The impact of inflation is important to consider, as you will note from the above chart.  For example in nominal terms home values recorded no annualised falls from September 1998 until December 2008. 
In real terms, values were falling from December 2004 to December 2005.  Of course when you adjust for inflation, real growth in home values is more moderate than in nominal terms.
<img class="aligncenter size-full wp-image-3917" src="https://blog.rpdata.com/wp-content/uploads/2014/10/Chart-21.jpg" alt="Chart 2" width="500" height="180">
Across the combined capital cities, home values have increased by 9.3% over the past year, 3.8% per annum over the past five years, 4.7% per annum over the past decade and 7.4% per annum over the past 15 years in nominal terms. 
Adjusting for inflation shows that real gains have been significantly lower.  Over the past year real capital city home values are 6.8% higher, over the past five years they are 1.2% per annum, over the decade they have risen by 1.9% per annum and over the past 15 years they are up 4.3% per annum. 
Home values rose at a rate well above inflation between 1999 and 2004 and again over the past 12 months however over the past five and 10 years overall home value growth has been less than 2% greater than the rate of inflation.
<img class="aligncenter size-full wp-image-3918" src="https://blog.rpdata.com/wp-content/uploads/2014/10/Chart-31.jpg" alt="Chart 3" width="500" height="181">
Sydney and Melbourne have been the strongest capital cities for value growth over the past year and consistently over recent years. In nominal terms, values have increased by 14.3% and 8.1% respectively over the past year. 
As the above chart shows, when you adjust the growth in values for the effects of inflation, the level of growth is lower. Note that real home values have still increased in each capital city except for Canberra over the past year.  Although, outside of Sydney, Melbourne and Darwin the rate of growth has been 4.0% or less in all cities.
<img class="aligncenter size-full wp-image-3919" src="https://blog.rpdata.com/wp-content/uploads/2014/10/Chart-41.jpg" alt="Chart 4" width="500" height="184">
As we have already highlighted, real home value falls are much more frequent than falls in nominal terms. 
This is also the case across the individual capital city markets.  As you can note from the chart below, outside of Sydney and Melbourne, real increases in home values over the past two years have been minor.
<img class="aligncenter size-full wp-image-3920" src="https://blog.rpdata.com/wp-content/uploads/2014/10/Chart-51.jpg" alt="Chart 5" width="500" height="180">
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Combined capital city home values began to recover from the financial crisis at the beginning of 2009 after reaching a low point in December 2008. 
Since that time, nominal home values have increased by 34.0% across the combined capitals, largely driven by increases of 51.2% in Sydney and 44.9% in Melbourne.  Notably, Brisbane (6.0%), Adelaide (10.9%), Perth (14.5%) and Hobart (-1.6%) have all recorded nominal gains of less than 15% since December 2008. 
In real terms, between December 2008 and September 2014, combined capital city home values have increased by a much lower 16.5%. Across the individual capital cities, real changes in home values between December 2008 and September 2014 have been recorded at: 31.6% in Sydney, 26.1% in Melbourne, -8.0% in Brisbane, -3.7% in Adelaide, -0.6% in Perth, -14.7% in Hobart, 11.0% in Canberra and 5.1% in Darwin.
The next time you hear someone talk of the booming national housing market remember these statistics.  
Yes combined capital city home values are rising and this is due to the influence of the Sydney and Melbourne housing markets where values are rising.  Real home values in Brisbane, Adelaide, Perth and Hobart are still lower than they were before the financial crisis and have seen no real growth in more than six years.
The data also seemingly indicates that low interest rates are not necessarily the driving factor behind the current growth in the housing market.  If this was the case we would more than likely be seeing a more broad-based rise in home values.  The growth in home values has been contained to Sydney and Melbourne and to a lesser degree Darwin and Canberra. 
No wonder the Reserve Bank has flagged that monetary policy has largely done all it can and now fiscal policy has to do some of the heavy lifting.
Lower interest rates have encouraged rises in values in Sydney and Melbourne accompanied by a substantial lift in activity by investors.  However, outside of Sydney and Melbourne the housing market response, in terms of value growth, has been quite muted. 
Supply is responding across most cities which is certainly a desirable outcome. Yet despite real value falls over a number of years in Brisbane, Adelaide, Perth and Hobart, low mortgage rates and increasing new supply has not yet resulted in an ongoing rise in home values.  Of course this is not necessarily a bad thing but is somewhat surprising given the experience in Sydney and Melbourne.
I think what we are seeing is a case whereby our largest capital cities are further separating themselves from the rest of the pack. 
Sydney has pretty much always been the most expensive capital city market and this remains the case but we are now also seeing Melbourne separate itself from the remaining cities. 
Another factor driving the rising demand are potentially a greater number of overseas buyers investing in our two largest cities (unfortunately data capture is such that we don’t really know for sure). Furthermore both New South Wales and Victoria are experiencing a much lower outflow of residents to other states than they have in the past. 
Finally, the economies of Sydney and Melbourne are much more diversified economies than those of the other capital cities which tend to be much more narrowly focussed.  This is likely to be a key driver of higher housing demand and stronger value growth in these cities compared to the other capitals with a greater variety of job options available in these cities.
As home values continue to rise in Sydney and Melbourne lower income families and first home buyers may find it more difficult to enter the market.  This may result in some buyers looking to other capital cities in which to purchase homes. 
Of course, if the purchase is for owner occupation, the narrower economies may make it more difficult for these home owners to find appropriate employment in their new cities.
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Inflation adjusted home values put housing markets into context

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When it comes to tracking market performance, context is everything.
RP Data senior research analyst Cameron Kusher tweeted out a graph showing the difference between September home price values in the capital cities and their previous peaks.
<a href="https://www.propertyobserver.com.au/https://twitter.com/cmkusher/status/526505823447441409" target="_blank"><img src="/images/2014/10/27/tweet-oct-27-one.jpg" alt=""></a>
While much has been made of recent home value growth, particularly in Melbourne and Sydney, Kusher shows the importance of taking inflation into account.
His graph shows that Melbourne home values, which in September were up 6% from their previous peak in nominal terms, actually fell below their recorded high point when adjusted for inflation.
In Sydney, prices appear 21% higher than ever recorded before, but in real terms are 8.1% above their previous peak.
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jrichardson-uRX5hFdKfN

Adjusting price movements for inflation: Tweet of the day

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According to the RP Data CoreLogic Home Value Index, combined capital city home values have increased by 10.9% over the 12 months and by 18.7% over the current growth phase. 
With many economic indicators heading in the wrong direction, it seems counter-intuitive that home values would continue to rise as strongly as they are.  The answer to why home values continue to rise can partly be explained by the level of equity sitting in our homes.
The Australian Bureau of Statistics (ABS) estimated that as at June 2014 there were 9,366,800 residential dwellings across the country.  Over the 12 months to June 2014, RP Data estimated that there were 484,000 dwellings sold across the nation.  Based on these figures, just 5.2% of total dwelling stock sold over the past year. 
Equity is difficult to truly calculate as there are no regular statistics available on home equity levels, as you’d imagine the banks hold this data quite tight.  So whilst we can’t determine the reduction in the initial borrowings over time, we can determine how much home values have increased over time which is a key component of how much wealth has been accumulated in a property.
<img class="aligncenter size-full wp-image-3725" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-12.jpg" alt="Chart 1" width="500" height="180">
Over the past two decades, the level of value growth across Australia’s capital cities has been strong.  As deregulation of financial markets has taken place lending for residential housing has ramped up significantly.  Subsequently, the cost of housing has risen and those who own a home or have a mortgage have seen a large rise in their equity.
Since national home values reached a low point in December 2008 after a cumulative -6.1% fall from March to December of 2008, there has been a significant divergence in the level of capital growth across individual capital cities.
<img class="aligncenter size-full wp-image-3726" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-22.jpg" alt="Chart 2" width="500" height="184">
From the end of 2008 to August 2014, total home value increases have been much greater in Sydney and Melbourne than across the other capital cities.  This is by virtue of value rises of 27.2% and 19.5% over the current growth cycle as well as quite strong value rises throughout the 2009 and 2010 growth cycle. 
The impact of this growth in home values means that even those who have only recently purchased in Sydney and Melbourne, say in 2009 or 2010, have already seen a large increase in the value of their home.  As a result, some are using this equity to purchase investment properties, others will use the equity to upgrade into more suitable housing for their needs and of course others will have different or no strategies for the equity.
<img class="aligncenter size-full wp-image-3727" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-32.jpg" alt="Chart 3" width="500" height="185">
Housing finance data from the Australian Bureau of Statistics (ABS) shows that investment lending for new loans (this excludes refinances) has recently hit record levels while first home buyer demand is at an all-time low. 
The two driving segments of the housing market are investors and subsequent buyers (those upgrading or downgrading their principal place of residence). 
But why are they choosing property, why now and why Sydney and Melbourne?
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Standard variable mortgage rates are currently recorded at 5.95%.
Outside of an eight month period between February 2009 and September 2009, standard variable mortgage rates haven’t been lower than they currently are since the early 1970s. Over recent years, discounted variable mortgage rates have become much more prevalent in the mortgage market. 
Currently, discounted variable mortgage rates are 85 basis points lower (5.1%) than standard mortgage rates.  With the banks competing heavily for mortgage business currently a large proportion of borrowers are able to get that discounted rate or even lower on their home loan.
The low interest rates also have an impact on investment decisions by making certain other asset classes less attractive.  With official interest rates sitting at 2.5% the amount of interest for cash sitting in the bank is very little.  According to data from the Reserve Bank (RBA) in August, a three-year term deposit with $10,000 or more receives just 3.65% interest per annum.  When you consider that inflation is at 3.0%, the real returns from a term deposit are miserly.
The relatively low cost of servicing a mortgage currently and the low returns on risk-free investment is attracting increasing investor activity to the housing market.  The historical performance of an asset should not be used as guidance to the future returns.  Although this is the case and a disclaimer many use when providing investment advice, the historic returns from residential housing have been impressive and difficult to argue with.  
bviously many people believe that these returns will continue into the future.  It is important to note that housing market returns have generally been much more moderate following the financial crisis than they were prior to the crisis. In fact on an annual basis home values have fallen over three of the past seven calendar years (2008, 2011 and 2012).
With returns so low amongst risk-free investments, investors have clearly shifted their focus to slightly riskier asset-classes such as residential housing.  In particular the focus has been centred on our two largest cities, Sydney and Melbourne.
Although housing has proven to be a low-risk investment class over recent times it is not a one-way bet.  Values are rising on the back of increased competition for stock however, with values rising at some point a proportion of the market will no longer be able to afford the homes available for sale.  At some point in the future (who knows when) growth in values will slow and interest rates will increase.
We are also seeing a very strong supply-side response with a record high number of dwelling approvals over the past 12 months.  Additional supply should ease some of the upwards pressure on values.  It has already resulted in a moderation of rental growth, with rental pressures subsiding we may also see more potential buyers choosing to remain in the rental market rather than purchase their own owner-occupied property.
When value growth slows or starts to fall we may see investors shift from housing to other more liquid asset classes.  As interest rates rise, servicing the mortgage becomes more expensive. 
Housing has generally provided solid capital gains over the past two decades and growth conditions across Sydney and Melbourne are currently spectacular. However, the market moves in cycles and the growth being seen in Sydney and Melbourne will eventually transition to less expensive markets that show stronger fundamentals for capital gains.
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Why are home values still rising?

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Based on current house and unit sales estimates, over the 2013/14 financial year 348,670 houses and 135,330 units were sold; house sales increased by 10.4% while unit sales increased by 8.6%. 
House sales were at their highest level since the 2007/08 financial year and unit sales were at their highest since the 2009/10 financial year.
Tasmania and Queensland recorded the greatest increase in sales over the reporting period. While a rise in sales was recorded in other states; Western Australian and the Northern Territory lucked out and recorded a drop in sales for the period.
Sales by individual states:
<ul>
<li>Tasmania – sales up by 21.3% </li>
<li>Queensland -  sales up by 14.8% </li>
<li>New South Wales – sales up by 12.9% </li>
<li>Victoria – sales up by 7.5% </li>
<li>South Australia – sales up by 9.3% </li>
<li>ACT - sales up by 0.3% </li>
<li>Northern Territory – sales down by -0.2% </li>
<li>Western Australia – sales down by -1.3% </li>
</ul>
The capital city change in annual sales volumes tends to reflect the state-wide results; sales volumes were lower over the year in Perth and Darwin and higher across each remaining city.  Sydney sales volumes were up 13.3%, in Melbourne they were 9.0% higher, Brisbane volumes rose by 19.8%, Adelaide volumes rose 9.3%, Perth volumes fell -1.7%, Hobart transactions were up 22.5%, Darwin sales were -1.0% lower and Canberra sales were just 0.2% higher.
 <img src="/images/2014/09/11/kush-sept-11-one.jpg" alt="">
While off the plan unit sales are not counted until such time as they settle and as such a proportion are not included in today’s analysis, given this and considering the significant number of unit developments taking place at the moment, it is reasonable to expect an upwards revision to the unit number over the coming year(s).
Across the combined capital cities, a greater rise in home transactions was experienced over the financial year than at a national level.  This is reflective of the much stronger demand and subsequent capital growth across capital city markets.  
RP Data estimates that 218,429 houses and 100,894 units sold over the year. House sales increased by 11.7% over the financial year and unit sales were 7.2% higher. I expect an upwards revision to the unit sales figures.  
 <img src="/images/2014/09/11/kush-sept-11-two.jpg" alt="">
Capital city house sales were at their highest level since the 2006/07 financial year and unit sales were at their highest level since 2010/11.
The lift in transactions has been accompanied by an increase in values across all capital cities.  Of course the magnitude of the rise in values has varied greatly on a city-by-city basis.  
 <img src="/images/2014/09/11/kush-sept-11-three.jpg" alt="">
Higher transactions are arguably more important for market participants than higher values – more sales means more commission for agents and brokers, more lending for banks and more business for valuers.
The combination of higher home values and greater sales is a boon for state and local governments. Stamp duty, which is levied on property transactions, increases as more transactions occur but also as value rise as stamp duty is typically calculated on a sliding scale.
 <img src="/images/2014/09/11/kush-sept-11-four.jpg" alt="">
Looking to the current financial year, interest rates are expected to remain on hold at least to the end of 2014 but potentially starting to rise during 2015.  
Sydney and Melbourne sales volumes appear to have already peaked however, they may rebound once more during spring. Overall we would expect a reasonably high number of sales this financial year however, final numbers may be slightly lower than in 2013/14. 
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Have Sydney and Melbourne sale volumes peaked?

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The Australian Bureau of Statistics (ABS) released housing finance data for July 2014 earlier this week. 
The headline result was the 0.3% rise in owner occupier housing finance commitments over the month.  In my opinion, a more significant result was the 6.8% monthly rise in investment lending. 
Investment lending had shown signs of slowing over recent months but has come surging back in July.
<img class="aligncenter size-full wp-image-3700" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-11.jpg" alt="Chart 1" width="500" height="182">
Looking at the value of housing finance commitments over the month, the total value increased by 2.7% in July (2.6% excluding refinances).  Owner occupier refinance commitments increased by 3.1%, owner occupier new mortgage commitments fell by -1.3% and investment finance commitments increased by 6.8%. 
Year on year, the total value of finance commitments has increased by 17.4% or 17.2% excluding refinances. The year on year increase in owner occupier refinance commitments was 18.6%, new home loan commitments to owner occupiers were 7.1% higher and lending to investors surged 29.6%. 
In the current climate, subsequent purchasers and investors are occupying the majority of housing finance demand.
<img class="aligncenter size-full wp-image-3701" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-21.jpg" alt="Chart 2" width="500" height="182">
Looking at the same data but focussing on the proportion of total lending reconfirms the high level of lending to investors and subsequent purchasers. 
In July, 41.4% of total mortgage lending was for new loans to owner occupiers, 18.3% was to owner occupiers for refinances and 40.3% was to investors.  The 41.4% of total commitments to owner occupiers (excluding refinances) was the lowest proportion of lending to this cohort on record. 
Conversely, at 40.3% of all mortgage lending, investment lending was at its highest proportion since October 2003 (and second highest ever).  If you remove refinances from the equation 49.3% of lending was to investors which was a record high.
<img class="aligncenter size-full wp-image-3702" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-31.jpg" alt="Chart 3" width="500" height="181">
Data focussing on the number of loans to owner occupiers shows there were 52,251 owner occupier commitments in July.  The number of commitments rose by 0.3% over the month however, it has recorded only a moderate 1.7% rise year on year. Loans for refinancing purposes increased by 2.4% over the month and 6.6% year-on-year compared to a -0.7% fall in non-refinanced loans over the month and a -0.7% fall over the year. 
This data and the data previously detailed suggest that demand from owner occupiers for new loans has slowed with investors and refinances currently driving activity.
<img class="aligncenter size-full wp-image-3703" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-41.jpg" alt="Chart 4" width="500" height="179">
The owner occupiers that commit to finance overwhelmingly commit to finance for the purposes of purchasing an established dwelling. 
In July, there were 25,469 new owner occupier loan s (excluding refinances) for the purchase of established dwellings, 6,157 for construction of new dwellings and 2,871 for the purchase of new dwellings. 
Over the month, established dwelling commitments were down -0.7%, construction of dwellings were -1.3% lower and purchase of new dwellings was 0.5% higher. 
Year on year, commitments for the purchase of established dwellings are -3.6% lower while commitments for construction are 16.4% lower and commitments for purchase of new are -5.1% lower.
<img class="aligncenter size-full wp-image-3704" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-51.jpg" alt="Chart 5" width="500" height="181">
The number of housing finance commitments by first home buyers remains stuck at near record low levels. 
In July, there were 6,717 housing finance commitments to first home buyers, which accounted for 12.2% of total owner occupier commitments over the month. 
The number of first home buyer housing finance commitments is -2.2% lower over the month and -15.7% lower year-on-year.  While the number of commitments by first home buyers is lower over the year, the average loan size has risen by 7.0%. 
First home buyers largely remain on the sideline in the current market as investors and subsequent purchasers capture much of the mortgage demand.
<img class="aligncenter size-full wp-image-3705" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-61.jpg" alt="Chart 6" width="500" height="181">
Based on current mortgage rates, fixed rate loans generally have a lower interest rate than discounted variable loans. 
This is not necessarily unusual however, housing finance data showed that there were just 7,553 owner occupier finance commitments (or 13.7% of all owner occupier finance commitments) on a fixed rate in July.  The number of fixed rate loans has been trending lower after most recently peaking at 17.4% of all mortgage commitments in November 2013.
<img class="aligncenter size-full wp-image-3706" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-7.jpg" alt="Chart 7" width="500" height="264">
The RP Data Mortgage Index (RMI) which measures mortgage activity across RP Data’s proprietary platforms recorded a fall in August.  As this index is closely correlated with owner occupier housing finance commitments, we anticipate a fall in the number of owner occupier commitments next month when the ABS releases August data.
In volume terms, owner occupier loan demand is pretty steady and appears to be at or close to its peak.  Focussing on the value of lending it continues to climb as home values continue to increase. 
After seemingly topping out over recent months, investor commitments recorded a sharp rise in July.  As a proportion, investment lending is at its second highest monthly level ever and highest ever level if you exclude refinances.
The high level of investment lending remains a key area of concern.  With returns on safe asset classes extremely low many investors are purchasing property, mainly in Sydney and Melbourne where capital growth is strong and interest costs on loans are historically low.  As we have mentioned many times, such high rates of capital gain won’t continue forever and our concern remains what will happen if once the growth dissipates and interest rates move higher there may be a high number of these investors looking to exit property. 
We know that historically once value growth slows demand also eases, if these investors look to sell as demand drops a risk develops that value falls could become greater as these investors enter a discounting war in order to sell their homes. 
Obviously this may be good news for those first time buyers which are currently sidelined from the market, however it would be bad news for the two thirds of Australians that own or have a mortgage and have the majority of their wealth stored in their home in the form of equity.
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Investor demand for housing reaches an historic high

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The Australian Bureau of Statistics (ABS) released building approvals data for July 2014 last week. 
The data shows that there continues to be a strong pipeline of residential development in place.
<img class="aligncenter size-full wp-image-3677" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-1.jpg" alt="Chart 1" width="500" height="179">
Focussing on dwelling approvals nationally, there were 9,585 house approvals and 6,733 unit approvals over the month.  The number of dwelling approvals increased by 2.5% over the month with house approvals up 1.5% and unit approvals up 4.0%.  Although dwelling approvals have increased over the month they were -7.8% lower in July than the most recent peak in January 2014 when there were 17,698 dwelling approvals.  Although dwelling approvals increased over the month, they have fallen for eight of the past 12 months.
<img class="aligncenter size-full wp-image-3678" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-2.jpg" alt="Chart 2" width="500" height="178">
Monthly dwelling approvals data tends to be volatile so I also like to look at annualised data to see a trend.  Over the 12 months to July 2014 there were 195,227 dwelling approvals.  This was an all-time high number of annual approvals.  Unit approvals were also at an historic high level over the year while house approvals were well below their record high of 140,832 recorded over the 12 months to April 1989.  Over the 12 months to July 2014, unit approvals accounted for 43.6% of all dwelling approvals, up from 42.1% a year earlier.
<img class="aligncenter size-full wp-image-3679" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-3.jpg" alt="Chart 3" width="500" height="178">
Across the combined capital cities, there were a record high of 145,065 dwellings approved for construction over the 12 months to July 2014.  The number of capital city dwelling approvals has increased by 21.9% over the past year.  Over the year there were, 71,085 approvals for houses and 73,980 unit approvals with house approvals up 20.8% and unit approvals 22.9% higher.
<img class="aligncenter size-full wp-image-3680" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-4.jpg" alt="Chart 4" width="500" height="183">
Across the individual capital cities, Brisbane has recorded the greatest increase in dwelling approvals over the year (44.5%) followed by: Sydney (29.0%), Perth (26.6%) and Adelaide (25.1%).  Dwelling approvals are lower over the year in Darwin (-14.5%) and Canberra (-7.6%) while Melbourne (10.9%) and Hobart (11.7%) have recorded only moderate rises in dwelling approvals. 
Despite certain cities recording significant rises in dwelling approvals, Sydney and Melbourne have accounted for more than 57% of all capital city dwelling approvals over the past year.
<img class="aligncenter size-full wp-image-3681" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-5.jpg" alt="Chart 5" width="500" height="179">
A key driver of the overall increase in dwelling approvals has been the rising prominence of the unit market. 
Over the past year, the increase in unit approvals has been greater than the increase in house approvals in Sydney, Brisbane, Adelaide and Perth.  Although unit approvals have recorded greater increases in these cities, there has been a substantial decline in unit approvals across Hobart and falls in both Darwin and Canberra.
<img class="aligncenter size-full wp-image-3682" src="https://blog.rpdata.com/wp-content/uploads/2014/09/Chart-6.jpg" alt="Chart 6" width="500" height="180">
With more than half of all capital city dwelling approvals for units as opposed to houses, all individual capital cities except for Adelaide (31.1%), Perth (25.0%) and Hobart (9.0%) are seeing a majority of approvals for units.  In Sydney, 68.3% of dwelling approvals were for units over the past year, elsewhere 52.1% were for units in Melbourne, 56.0% in Brisbane, 62.0% in Darwin and 57.6% in Canberra. 
Sydney has consistently approved more units than houses since 1993 and Darwin has consistently approved more units than houses since 2003, while across the other cities it is a relatively new phenomenon.   Melbourne has only been approving more units than houses since mid-2012, in Brisbane it has occurred since mid-2013 and in Canberra since mid-2010.
Of course there is increasing levels of demand for units but particularly in Melbourne and Brisbane the number of units in the pipeline is largely untested.  Unless the introduction of supply is closely managed there is a potential risk of unit oversupply.
With dwelling approvals at historic high levels, dwelling construction will continue to help bolster GDP as engineering construction.  The challenge will be whether dwelling construction is enough to offset the fall in engineering construction and it seems that it probably won’t be. 
Construction work done data for the June quarter showed that residential construction accounted for 25.8% of total work done compared to 57.2% attributable to engineering.  At its absolute peak residential construction accounted for just over half of the value (50.2%) of all work done.  It is likely that residential dwelling construction alone will not be able to offset the fall in mining investment.
Furthermore, it is unlikely that all of these approvals will come to fruition in the short-term. Unless there is ongoing demand a proportion of these new approvals won’t commence as they won’t get the necessary pre-sales to receive construction finance.  In light of this, interest rates are likely to remain low to try and encourage further housing demand.  
As a result, unless the RBA and APRA introduce macro prudential tools it seems unlikely home value appreciation will cease until such time as mortgage rates increase.
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Cameron Kusher

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