Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

[smartcode_project:default project_id=135096 project_image_fid=356828]

Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

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The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

[smartcode_project:default project_id=135096 project_image_fid=356829]

Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

[smartcode_project:default project_id=135096 project_image_fid=351104]

Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

[smartcode_project:default project_id=135096 project_image_fid=356822]

ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

[smartcode_project:default project_id=135096 project_image_fid=351102]

Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

[smartcode_project_cta:default project_id=135096]

Joel Robinson

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Virgate Property Group is preparing to commence construction of Verdé, its new apartment development in Melbourne's Arts Precinct at Southbank, following a strong run of sales that has seen more than half of the project's 173 apartments secured.

Verdé has attracted a broad mix of first home buyers, owner-occupiers upgrading from nearby inner-city suburbs and investors, with younger owner-occupier couples aged between 28 and 45 accounting for the strongest enquiry. Many are already living in Southbank, South Melbourne, Albert Park, Port Melbourne, South Yarra and the CBD.

"Verdé is located in one of the most desirable pockets of southern Melbourne," Blair Property Group Director Darren Blair, who is managing sales at Verdé, said.

"It's within walking distance of the Arts Centre, Royal Botanic Gardens, Albert Park Lake, and Southbank's restaurants and retail. It's a great lifestyle location with strong amenity and liveability, which made it a very attractive choice for the project."

[smartcode_project:default project_id=4661 project_image_fid=372549]

Virgate was already familiar with the precinct, having previously delivered the successful Domain House development in neighbouring South Melbourne. That experience gave the developer confidence to acquire the Coventry Street site and continue expanding its presence in Melbourne's inner south.

"We had been keeping an eye on the site and the broader precinct for a few months before deciding to move forward with the acquisition," Virgate said.

The project was ultimately secured in 2020 following feasibility studies, planning assessments and due diligence, with the brief centred on delivering "a high-quality, considered design that feels both refined and fit for purpose."

[smartcode_project:default project_id=4661 project_image_fid=314259]

Designed by <a href="https://www.apartments.com.au/architects/bruce-henderson-architects">Bruce Henderson Architects</a>, Verdé comprises 173 one, two and three-bedroom apartments priced from $599,000. The architecture is distinguished by a faceted glass façade that responds to both the site's outlook and Melbourne's changing light conditions.

According to Bruce Henderson Architects, the coloured glazing gives the building a distinctive identity while also providing privacy and solar shading, with residences oriented to capture views across the bay, city skyline and surrounding parklands.

Inside, <a href="https://www.apartments.com.au/interior-designers/designoffice">DesignOffice</a> has created interiors focused on natural light, efficient planning and enduring materials. Apartments feature engineered oak flooring, natural stone benchtops, floor-to-ceiling glazing and SMEG appliances, while a restrained material palette aims to complement the expansive outlooks rather than compete with them.

[smartcode_project:default project_id=4661 project_image_fid=372550]

Resident amenity has also been designed around everyday functionality rather than occasional use. Facilities include a concierge-serviced lobby, residents' lounge with fireplace, library and co-working space, gym, terrace garden with barbecue facilities, ground-floor café, and package delivery management.

The project's location continues to be one of its strongest drawcards. Positioned on Coventry Street, Verdé sits within walking distance of the National Gallery of Victoria, Arts Centre Melbourne, Royal Botanic Gardens and Albert Park Lake, while Southbank's dining precinct, Sturt Street trams and the new ANZAC Station are all nearby. The surrounding education catchment also includes Melbourne Grammar, Melbourne Girls Grammar, Mac.Robertson Girls' High School and several major university campuses.

The sales team says buyers have responded particularly well to the combination of location, design quality and long-term liveability.

"They're responding really positively to the quality of the design, premium resident amenities and the uninterrupted views. Many also appreciate the location and how connected it is to everything they need."

The ability to secure stamp duty savings before completion has also been a key factor for purchasers, alongside the opportunity to personalise finishes ahead of settlement.

With construction set to commence soon and more than half the apartments already sold, Verdé enters its next phase as one of the Arts Precinct's more established apartment developments, offering remaining buyers an opportunity to secure a residence before construction advances further. Expected completion is scheduled for late 2027.

[smartcode_project_cta:default project_id=4661]

Virgate's Verdé Southbank moves toward construction as sales fly past halfway stage

Downsizer-focused apartment development Kooyongkoot in Hawthorn has been recognised at the 2026 Better Future Melbourne Design Awards, taking home Gold and Silver awards in two categories.

<a href="https://www.apartments.com.au/new-apartments/kooyongkoot-hawthorn-1-kooyongkoot-road-hawthorn-vic-3122">Kooyongkoot</a>, currently being delivered by developer PQD and designed by Cera Stribley, received Gold in the Interior Design – Proposed category and Silver in the Architecture – Proposed category.

The dual recognition reflects the design approach behind the boutique development on prestigious Kooyongkoot Road, where the focus has been on creating homes for downsizers seeking the space, quality and functionality of a detached house within a low-rise apartment building.

Rather than maximising apartment numbers, <a href="https://www.apartments.com.au/developers/pqd">PQD</a> and <a href="https://www.apartments.com.au/architects/cera-stribley-architects">Cera Stribley</a> limited the development to just 18 residences, allowing for larger floorplans, greater privacy, generous landscaping and expansive communal spaces.&nbsp;The majority of the apartments also benefit from corner aspects, allowing for dual sources of natural light.

Now around 70 per cent complete and on track for completion in November 2026, Kooyongkoot will comprise a mix of garden residences, ter​race apartments, sub-penthouses, and is crowned by two half-floor penthouses with direct lift access and private rooftop terraces.

[smartcode_project:default project_id=102717 project_image_fid=355297]

The Silver Award for Architecture recognised the way the building responds to its prominent corner position at the ent​rance to Hawthorn's Scotch Hill precinct, one of Melbourne's most established residential neighbourhoods.

Rather than competing with the grand homes that line Kooyongkoot Road, the architectural approach focused on restraint and longevity, using curved brickwork, generous landscaping and carefully considered proportions to integrate with the existing streetscape.

"The form feels fluid and timeless, as though shaped by the landscape itself – architecture that belongs, rather than competes," said Chris Stribley, Co-Founder and Managing Principal of Cera Stribley.

The judging submission also highlighted practical innovations throughout the building, including lift cores servicing only nine homes each, a central landscaped lightcourt designed to bring daylight and ventilation into the building, and fully enclosed private storage rooms with lighting, power and shelving to better accommodate residents transitioning from larger family homes.

[smartcode_project:default project_id=102717 project_image_fid=355293]

The Gold Award for Interior Design recognised the project's focus on long-term liveability rather than display-home aesthetics.

According to the awards submission, the interiors were designed from the inside out, prioritising how homes would function over decades of daily use through generous proportions, practical storage, durable natural materials and flexible layouts.

The specification includes natural stone throughout, upgraded acoustic glazing, V-ZUG appliances and fully enclosed storage rooms, alongside an amenity offering focused on wellness, entertainment and everyday convenience.&nbsp;

Residents will have access to a gym and yoga studio, a wellness centre featuring traditional and infrared saunas, a cold therapy shower and treatment room, as well as a residents' lounge and golf simulator/cinema room for entertainment.&nbsp;Kooyongkoot has also considered the everyday convenience of its residents by offering a private carwash and pet wash facilities on site as well as dedicated parcel lockers and oversized fully enclosed storage rooms.&nbsp;

[smartcode_project:default project_id=102717 project_image_fid=355303]

The project's attention to detail has already resonated with buyers. Earlier this year, Kooyongkoot recorded one of Boroondara's highest apartment sales when an $8 million penthouse was purchased by a Melbourne CEO downsizing from a nearby family home.

"Every detail feels deliberate, from the overall design down to the smallest touches," the purchaser said.

"The level of quality and refinement is exceptional, but what really sold it was how liveable it felt... It felt like a place where everything had been considered, not just a luxury building."

[smartcode_project:default project_id=102717 project_image_fid=355304]

Sustainability also formed a key part of both award submissions. Kooyongkoot is targeting a minimum 7.5-star NatHERS rating across all residences, supported by passive design principles, high-performance glazing, EV charging infrastructure, water reuse systems and a wellness model focused on lower-energy dry facilities rather than pools and large wet areas.

Located within walking distance of Scotch College, Methodist Ladies' College, Koo​yong Lawn Tennis Club, Aubur​n Village and Camberwell Junction, Kooyongkoot continues to target owner-occupiers looking to remain in Melbourne's inner east without compromising on space or quality. A limited selection of two, three and four-bedroom residences remains available, with prices starting from $1.9 million.

[smartcode_project_cta:default project_id=102717]

Kooyongkoot wins Gold and Silver at Better Future Melbourne Design Awards

New apartment supply has become increasingly constrained across <a href="https://www.apartments.com.au/developments/parramatta-nsw-2150">Parramatta</a> in recent years, with fewer projects progressing through to completion as development conditions have become more challenging.

It makes <a href="https://www.apartments.com.au/developers/novm">NOVM</a>'s 2021-completed <a href="https://www.apartments.com.au/buildings/the-lennox-parramatta-12-phillip-street-parramatta-nsw-2150">The Lennox</a> one of the most recently completed residential towers on the Parramatta River, and among the newest apartment developments in Sydney's second CBD.

With the project largely completed before the sharp escalation in construction costs and inflation following the pandemic, The Lennox is now offering pricing that would be difficult to replicate in a comparable new development in Parramatta today, or across much of Western Sydney.

The majority of the 413 apartments at The Lennox sold before and shortly after completion. A limited release of the remaining apartments has recently been brought to market by capital partner <a href="https://www.apartments.com.au/project-marketer/equitifund-group">Equitifund</a>, with entry-level pricing from $700,000 and two-bedroom apartments available from under $1 million.

Rising above the Parramatta River at 12 Phillip Street, The Lennox comprises one, two, three and four-bedroom apartments, appealing to first home buyers, young professionals, families, downsizers and interstate investors seeking a completed apartment in one of Australia's fastest-growing economic centres.

[smartcode_project:default project_id=5743 project_image_fid=372394]

Rather than positioning Parramatta as an alternative to Sydney's CBD, Equitifund believes the city has reached a point where it stands on its own merits.

"Parramatta is no longer simply an alternative to Sydney CBD, it's becoming a destination in its own right," Equitifund Executive Chairman Greg Huxley said.

"The Lennox captures that evolution with a level of quality and amenity that's difficult to match at its price point."

[smartcode_project:default project_id=5743 project_image_fid=953]

Designed by <a href="https://www.apartments.com.au/architects/marchese-partners">Marchese Partners</a>, the tower responds directly to its riverfront setting through expansive glazing and open-plan layouts that maximise views across the Parramatta River and city skyline. Interiors feature engineered timber flooring, stone benchtops, stainless steel appliances and floor-to-ceiling glazing, while generous balconies extend the living spaces outdoors.

Marchese Partners says the project was conceived to balance high-quality apartment living with practical, long-term functionality, pairing larger, efficient floorplans with amenities more commonly associated with five-star hotels.

That emphasis continues through the resident facilities, which include a 20-metre rooftop swimming pool, fully equipped gym and wellness spaces, full-time concierge, a residents' lounge, function room, private lifts, secure basement parking and rooftop communal areas overlooking the Parramatta River. Ground-floor boardwalk retail and dining further activate the riverfront and integrate the building into the surrounding public realm.

[smartcode_project:default project_id=5743 project_image_fid=925]

Australian housing and finance group Equitifund has secured the remaining apartments, believing there are few completed apartment opportunities in Parramatta that offer the same combination of location, amenity and pricing.

Equitifund National Sales Director Ben Hamblett says buyers are increasingly recognising that premium apartment living no longer needs to come with Sydney CBD pricing.

"The Lennox is where aspirational living becomes attainable," Hamblett said.

"Wake to river and mountain views, step into Sydney's Second CBD, and arrive home to resort-calibre amenities, all without the harbour price tag."

Hamblett says owner-occupiers are also attracted by the convenience of having Westfield Parramatta, Church Street's dining precinct, Parramatta Park, Riverside Theatres, Western Sydney University and major transport connections all within walking distance.

"At The Lennox, lifestyle is not an afterthought, it is the foundation."

[smartcode_project:default project_id=5743 project_image_fid=5374]

The Lennox places residents within walking distance of Parramatta Square, Westfield Parramatta, Church Street Eat Street, Parramatta Station, the ferry wharf, Light Rail, the future Sydney Metro West, Parramatta Park and CommBank Stadium, reinforcing Parramatta's position as one of Australia's most connected metropolitan centres outside Sydney's CBD.

Equitifund says buyers visiting the display suite consistently comment on the quality of the finishes, generous floorplans, river and skyline views, and the walkability of the location. The project has attracted a broad mix of local professionals, upsizers, downsizers, buyers relocating from Sydney's inner suburbs and interstate investors seeking long-term growth opportunities.

That demand aligns with Parramatta's continued evolution as an economic powerhouse. Equitifund Research and Market Insights specialist John Bekiaris says sustained population growth, infrastructure investment and expanding employment opportunities continue to support long-term housing demand across the city.

"Parramatta has evolved from a satellite city into one of Australia's most important economic centres. Population growth, infrastructure investment and employment are all supporting sustained long-term housing demand."

[smartcode_project_cta:default project_id=5743]

The apartment price gap drawing Sydney buyers west

A luxury beachfront apartment at Rainbow Bay has more than doubled in value since it sold off the plan six years ago, setting a new local apartment record in the process.

The three-bedroom apartment in the Flow development on Petrie Street, the first of four new projects locally by Paul Gedoun's S&amp;S Projects, has sold for $7.4 million, after originally selling for $3.27 million when the project launched in 2020.

The seventh-floor apartment, comprising 187 sqm of internal living space and a 54 sqm balcony overlooking Froggies Beach and Snapper Rocks, was purchased by a local family.

The transaction was negotiated by Pezet Matheson director Kerry Pezet and equates to more than $30,000 per sqm.

Pezet said the sale reflected the limited opportunities to buy into the boutique beachfront development.

"The sale highlights the rarity of opportunities within the boutique beachfront development, where residences seldom become available," Pezet said.

"Flow is one of the Gold Coast's most tightly held buildings. Buyers from our database move quickly when residences become available, and achieving an off-market sale at $7.4 million demonstrates the depth of demand for property of this calibre."

<img alt="Flow" data-entity-type="file" data-entity-uuid="c585b206-2130-4eee-a50c-3f27c51a7c70" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-06%20at%208.33.25%E2%80%AFPM.png?VersionId=m3pHRDV62Y3fvN.XQuQHq.52ilTWpRLf" />

Flow was the first of four luxury apartment developments delivered by Paul Gedoun's S&amp;S Projects at Rainbow Bay and was completed in 2023.

Positioned on the beachfront overlooking Snapper Rocks, the residence includes three bedrooms, three bathrooms, a powder room and views stretching north along the coastline towards Surfers Paradise.

Pezet Matheson Residential principal Mitchell Lambert said buyers continued to prioritise quality beachfront apartments in tightly held locations.

"Flow Residences offers a rare combination of elevated beachfront positioning, architectural excellence, comprehensive resident amenity and premium finishes, which is exactly what discerning purchasers are seeking," Lambert said.

"The transaction further reinforces Rainbow Bay's reputation as one of Australia's premier coastal lifestyle destinations, where limited supply and growing demand continue to support strong market performance."

Pezet Matheson originally marketed and sold out Flow off the plan, making the latest transaction a return to one of the project's original buyers.

Paul Gedoun is selling his third project, <a href="https://www.apartments.com.au/new-apartments/radia-rainbow-bay-271-boundary-street-coolangatta-qld-4225">Radia Rainbow Bay</a>, after recently completing, and selling out, <a href="https://www.apartments.com.au/buildings/esprit-217-227-boundary-street-coolangatta-qld-4225">Esprit</a>. He has plans for a <a href="https://www.apartments.com.au/news/qld/first-look-s-s-projects-proposes-88-apartment-wellness-tower-at-coolangattas-boundary-street">fourth building</a>, 88 apartments on <a href="https://www.apartments.com.au/new-apartments/209-213-boundary-street-coolangatta-qld-4225">Boundary Street</a>.

Rainbow Bay apartment doubles in price since off the plan sale during pandemic

Cameron Kusher

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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.  
<img src="/images/2014/10/30/kush-oct-30-one.jpg" alt="">
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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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