The sought-after Latent Defects Insurance policy, offering off the plan apartment buyers peace of mind for 10 years post-completion, has made its way to Sydney’s harbourside. Boutique developer <a href="https://www.apartments.com.au/developers/toohey-miller">Toohey Miller</a> has secured this insurance for its newly launched Elizabeth Bay development, <a href="https://www.apartments.com.au/new-apartments/barncleuth-square-elizabeth-bay-4-4a-barncleuth-square-elizabeth-bay-nsw-2011">Barncleuth</a>. This marks the developer’s second project in the area, following the success of No. 1 Onslow Place.

Latent Defects Insurance, offered by <a href="https://www.apartments.com.au/news/resilience-latent-defects-insurance">Resilience Insurance</a>, provides cover for structural or waterproofing defects in new apartment buildings. It is a policy that only the developer or builder can take out, not the apartment purchaser.

Located just&nbsp;off Macleay Street, one of Sydney’s most desirable high streets, Barncleuth offers a rare collection of only 10 residences. With just two per floor, each oversized floorplan has been designed by SJB specifically for the owner-occupier.

[smartcode_project:default project_id=140184 project_image_fid=356342]

The five-storey building captures views over Rushcutters Bay and Paddington, blending contemporary brickwork with the expressive silhouettes of its Art Deco neighbours.

Inside, the residences, designed by David Hicks, prioritise generous scale and enduring quality, with a mix of two- and three-bedroom layouts. Expansive terraces and cross-ventilated interiors maximise light and airflow, while sustainable features such as a green roof and locally sourced materials reflect SJB’s commitment to long-term liveability.

[smartcode_project:default project_id=140184 project_image_fid=356341]

Developer Toohey Miller, led by Nick Couloumbis, says the design aims to bring lasting quality to an area long celebrated for its apartment heritage.

"It's a stone's throw from the best restaurants in Sydney. Some people call it the Soho of Sydney," Couloumbis told Apartments.com.au when the project was approved.

[smartcode_project:default project_id=140184 project_image_fid=356337]

By securing <a href="https://www.apartments.com.au/news/resilience-latent-defects-insurance">Resilience Latent Defects Insurance</a>, Barncleuth joins a growing group of premium Sydney projects adopting the gold standard in building protection.&nbsp;

The cover, provided before construction begins, ensures any hidden structural or waterproofing defects are repaired immediately, without lengthy litigation or fault disputes.

Resilience Insurance CEO Corey Nugent said the product has been a catalyst for renewed confidence in the off the plan market.&nbsp;

“Ultimately what we’re trying to do is build better buildings consumers can trust. When buyers take possession, they have full insurance protection from day one, for 10 years,” Nugent explained.

Unlike traditional policies such as strata or construction insurance, Resilience LDI is a first-resort, strict liability policy, meaning repairs are covered immediately without needing to prove negligence. Coverage extends to foundations, load-bearing walls, and waterproofing, the elements most critical to long-term structural integrity.

Regarded construction firm Jasara has been appointed to deliver Barncleuth. They are forecasting an early 2027 completion.

[smartcode_project_cta:default project_id=140184]

Joel Robinson

Toohey Miller brings 10-year Latent Defects Insurance to Elizabeth Bay as Barncleuth apartments launch

<a href="https://www.apartments.com.au/developers/golden-sedayu">Golden Sedayu</a> has unveiled plans for the next phase of its landmark $4 billion <a href="https://www.apartments.com.au/new-townhouses/burswood-point-saintly-entrance-burswood-wa-6100">Burswood Point</a> project, just 3.5km from the Perth CBD at the Belmont Racecourse site.

The Local Development Plan Application has been lodged for a world-class mixed-use hub (Precinct B) on the previously untouched 2.5km stretch of Swan River foreshore.

Designed by Skidmore, Owings &amp; Merrill (SOM), recognised for their work on the world’s tallest skyscraper, Burj Khalifa in Dubai and the One World Trade Centre in New York, Precinct B will feature 15 buildings, offering a mix of residential and commercial spaces including a shopping centre up to 30,000 sqm in size.

Complementing this, an internationally acclaimed five-star hotel, and a high-end pedestrian-friendly retail boulevard with vibrant day-and-night retail, dining, and entertainment venues, will provide exciting new ways for Perth residents to connect with the riverfront.

This latest milestone signals continued construction and expansion momentum across Perth’s premier riverfront community, which is set to attract local, national and international visitors.

[smartcode_project:default project_id=142314 project_image_fid=263304]

The masterplan features 110,000 sqm of public open space, which is comparable to other Perth landmarks including inner-city Langley Park and South Perth foreshore. The riverside precinct will be brought to life through a visionary landscape concept by globally renowned architectural practice Grant Associates.

With an impressive international portfolio, including Gardens by the Bay and Funan Mall in Singapore and Barangaroo South in Sydney, the firm brings expertise in creating environments that harmonise with surrounding amenity.

At 38 hectares, Burswood Point is one of the largest urban development projects ever undertaken in Australia, and one of Perth’s most transformative mixed-use developments.

Golden Sedayu Managing Director Andrew Sugiaputra said the company was working closely with SOM, Grant Associates and the Government of Western Australia to ensure Burswood Point’s design responds sensitively to its surroundings, reflecting and enhancing the character, history, and natural features of the local environment.

[smartcode_project:default project_id=142314 project_image_fid=1817]

“West Australians enjoy a privileged outdoor lifestyle and the Swan River is central to their enjoyment,"&nbsp;Sugiaputra said.

"We’re proud to be creating something truly spectacular and unique for the city, a place that feels alive from sunrise to sunset, a place where people can stay, shop, dine, and celebrate life on the river."

Precinct B builds on the outstanding success of Burswood Point’s first residential stage, which has been met with exceptional market demand. Somerset Residences, a two- tower luxury apartment development, and the exclusive riverfront homes collection are under construction and selling fast. As the number of Perth houses listed for sale remain at or near record lows, Burswood Point will deliver 4,500 new homes over the next 10 years.

“Golden Sedayu is dedicated to delivering on our promises,"&nbsp;Sugiaputra added.

"Our clients can buy with confidence, knowing that the price is fixed throughout construction. In an industry that has faced challenging market conditions, we’re proud to provide our clients complete peace of mind and confidence in the value of their investment."

&nbsp;

[smartcode_project_cta:default project_id=142314]

Golden Sedayu reveals next 15 buildings in Perth's $4 billion Burswood Point precinct

Rising at the base of The Remarkables,&nbsp;diversified New Zealand developer&nbsp;<a href="https://www.apartments.com.au/developers/safari-group">Safari Group</a>'s Mountain Oak Apartments presents a foothold in Frankton, one of Queenstown’s most dynamic and fast-growing locales.&nbsp;

Surrounded by soaring alpine scenery and year-round tourism drawcards, Mountain Oak Apartments is a masterplanned precinct that perfectly balances accessibility with lifestyle amenity.

<img alt="Safari Group offers low-touch investment proposition in Queenstown’s popular ski fields district" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_auto/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Ext_Cam15_Sunny.jpg?VersionId=SJAROUM_1s.Tr5ciMk4EEj5oAt_Vewmv" />

Frankton has emerged as a strategic growth zone just seven kilometres from Queenstown’s CBD, popular among both residents and investors for its proximity to the airport, the region’s two premier ski fields, Coronet Peak and Cardrona Alpine Resort, and an expanding network of shops, services, and recreation options. The apartments enjoy immediate access to the popular Market Street dining hub, as well as Five Mile Shopping Centre and the seasonal Remarkables Market, where locals gather for fresh produce and artisan goods.

The location also places residents near the gateway to South Island adventures. Scenic trails, golf courses, and Lake Wakatipu’s edge are within easy reach, while the historic village of Arrowtown, renowned for its preserved gold rush-era charm and walking routes, is a short drive away. Local transport connectivity is supported by the nearby airport and arterial roads, ideal for frequent travellers and short-term guests alike.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/313_Living_WEB.jpg?VersionId=3LglY20Jp_MAzQYdvwODRWvtjL.cZcqI" />

Tourism-driven demand underpins strong investment fundamentals in Queenstown, with a noted shortage of short- and long-term accommodation stock. Mountain Oak’s 365-day visitor accommodation consent directly addresses this need, offering a rare opportunity to serve Queenstown’s dual population of holidaymakers and hospitality workers.

Construction of the 141 residences began in June 2025, with completion anticipated by mid-2027. Apartments range from one-bedroom to penthouses, with pricing from NZ$639,000. Dual-key options and low-maintenance finishes support a flexible rental model with strong gross return potential.

Staff Writer

From slopes to markets: Mountain Oak connects residents to the best of Queenstown

Deicorp is doubling down in the Hills Showground Station Precinct, the rapidly growing area surrounding the Castle Hill Metro and one of the state’s largest transit-oriented urban renewal sites.

Having launched Hills Showground Village several years ago, and now about 70 per cent through its build, Deicorp has brought another mini-masterplan to market just a few streets away.

The developer has now released the first of 873 residences in <a href="https://www.apartments.com.au/new-apartments/showground-pavilions-castle-hill-3-andalusian-way-castle-hill-nsw-2154">Showground Pavilions</a>, five new buildings located just 500 metres from the Metro, which connects Castle Hill residents to Martin Place in around 37 minutes.

[smartcode_project:default project_id=150067 project_image_fid=351416]

The mix includes one, two, and three-bedroom apartments, as well as a limited release of garden terrace homes with studies.

Designed by <a href="https://www.apartments.com.au/architects/turner-studio">Turner Studio</a> and <a href="https://www.apartments.com.au/architects/group-gsa">GroupGSA</a>, the residences are configured around a network of landscaped courtyards and podium-level gardens, with additional rooftop terraces offering views across the district.&nbsp;Communal amenities include a 3,500 sqm public park, playgrounds, shaded seating areas and walking and cycling paths.

[smartcode_project:default project_id=150067 project_image_fid=351416]

Interiors feature flexible layouts with oversized living areas, deep balconies, SMEG kitchen appliances and floor-to-ceiling glass to maximise light and airflow.&nbsp;

Many apartments include a study space, while select residences offer private outdoor areas. A total of 44 apartments have been designated as affordable housing for key workers, such as nurses, teachers and police officers.

[smartcode_project:default project_id=150067 project_image_fid=351413]

On top of its strong connectivity to the city, Deicorp has delivered significant new amenity to the area. The developer recently opened the 9,500sqm, four-level retail precinct at Hills Showground Village, which includes 26 specialty retailers and a 1,400sqm public plaza, creating a new community hub for shopping, dining, fitness, and everyday convenience. Castle Towers, one of Australia’s largest shopping centres, is also just one Metro stop away.

Between Hills Showground Village and Showground Pavilions, Deicorp is delivering more than 1,300 new homes to the rapidly growing Castle Hill precinct, representing a $2 billion investment in the suburb.

Showground Pavilions is one of several Metro-linked projects in Deicorp’s pipeline, joining developments at Tallawong Village, Zetland, Five Dock, Macquarie Park and Crows Nest.

[smartcode_project_cta:default project_id=150067]

Deicorp expands Castle Hill footprint with Showground Pavilions launch

The completion of Melrose Park Village marks a significant achievement in the evolution of one of Sydney’s largest urban renewal projects, developed by <a href="https://www.apartments.com.au/developers/sekisui-house-australia">Sekisui House Australia</a>.&nbsp;

Located in the city’s north-west, <a href="https://www.apartments.com.au/new-apartments/melrose-park-village-2a-2f-appleroth-street-nsw-2114">Melrose Park Village</a> represents the fourth completed stage in the broader $5 billion Melrose Park masterplan, which will ultimately bring over 6,000 new homes, a town centre, new schools and 52,000 sqm of green open space.

The completion of Melrose Park Village delivers 421 apartments across six buildings ranging from six to thirteen storeys, all centred around a 4,000 sqm landscaped courtyard designed as a communal “urban backyard” for residents.&nbsp;

The project is now 96 per cent sold, with 14 premium three-bedroom apartments remaining in the final building. Each offers two car spaces with prices starting from $1.259 million.

Alex Grujovski, Project Director, Apartment &amp; Mixed-Use Developments, said “Sekisui House Australia is proud to celebrate the completion of Melrose Park Village, which stands as a sustainable and connected community in the heart of Sydney’s north-west.&nbsp;

“This project represents a pivotal step in our long-term vision for <a href="https://www.apartments.com.au/developments/melrose-park-nsw-2114">Melrose Park</a>, reflecting our commitment to creating communities that blend nature, technology and human connection. Since 2020, we have delivered over 1,075 apartments across four stages, each designed to enhance wellbeing, connectivity and convenience through exceptional architecture and resident-focused amenities.”

[smartcode_project:default project_id=150065 project_image_fid=356089]

Residents benefit from an array of lifestyle facilities including a 4,000 sqm internal park, rooftop gardens and BBQ areas, wellness amenities such as an infrared sauna, yoga studio and gymnasium, plus co-working spaces, pet wash facilities, EV charging stations and a resident shuttle bus.&nbsp;

Sustainability remains at the core of the precinct with rooftop solar, smart energy meters, air and water filtration systems and groundwater reuse technology supporting efficient resource use.

Melrose Park Village was designed by <a href="https://www.apartments.com.au/architects/ajc-architects">AJC Architects</a>, who have led the design of the broader Melrose Park masterplan since inception, developing architectural principles that continue to guide the precinct’s evolution.

Michael Heenan, Design Lead at AJC Architects said the design is completely generated by AJC’s Urban Backyard concept.

"At the heart of Melrose Park Village is a generous green courtyard, a shared backyard for all residents. We designed it at the scale of a local park, a place for families to live, play and grow, capturing the spirit of the Australian backyard.”

The courtyard features nature play areas, a climbing wall and open lawns for social and recreational use. Heenan added that the team’s approach to smart city design, carbon capture and sustainability guided every aspect of the project.&nbsp;

“Stage 4 reflects our belief that density can improve liveability. By integrating architecture, landscape and open space, we have created a model for sustainable urban living that feels contemporary and distinctly Australian.”

&nbsp;

[smartcode_project:default project_id=150065 project_image_fid=356088]

&nbsp;

Melrose Park Village was delivered in partnership with <a href="https://www.apartments.com.au/builders/parkview">Parkview Constructions</a>, a trusted builder with whom Sekisui House Australia has delivered thousands of apartments across Sydney over the past 15 years.&nbsp;

Upon completion, Melrose Park will deliver more than 6,000 dwellings, 52,000 sqm of open green space featuring over 1,400 mature trees, new transport connections, a town centre set to open in 2026 and Melrose Park High School which is currently under construction and due to open in Term 1 2027.&nbsp;

This milestone marks another major step towards realising Sekisui House Australia’s vision to transform a former industrial site into a future-ready neighbourhood for over 12,000 residents.

[smartcode_project_cta:default project_id=150065]

Completion of Melrose Park Village marks a major step forward in $5 billion masterplan

Investment Risk

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Gold Coast City has been unchallenged for some time as the No.1 municipality in Australia for growth real estate markets, but that’s no longer the case.
The Sunshine Coast has overtaken Gold Coast City as the area with the most upwardly mobile markets.
The Gold Coast housing market remains strong, but the latest Hotspotting research for The Price Predictor Index finds that the number of suburbs with growing sales activity has decreased, while the Sunshine Coast precinct is rising.
The Sunshine Coast now ranks as the leading municipality in the nation in terms of the number of suburbs with growing sales activity (previous market leaders in the major cities, such as the Whitehorse LGA in Melbourne, have faded markedly in 2016).
The region has achieved national prominence on the back of major spending on infrastructure and urban renewal ventures – projects under way or in planning total well above $20 billion.
They’re headed by the $2.3 billion Sunshine Coast University Hospital, which is the centrepiece of a $5 billion health precinct that’s evolving rapidly in the Kawana area.
And there’s a lot more happening. Over $1 billion is being spent on the Bruce Highway, around $400 million on the airport and several billion over time on the new Maroochydore CBD, where preliminary works are now under way. The Sunshine Coast University continues to expand.
A $2 billion light rail project is proposed but is unlikely to be delivered any time soon.
Real estate development includes several master-planned communities and apartment developments, as well as a $400 million expansion of the region’s biggest shopping centre, Sunshine Plaza. Youi Insurance is building its national headquarters on the Sunshine Coast. 
Nambour, one of the inland towns of the Sunshine Coast Region, is typical of the growth markets - with sales up from around 65 per quarter 18 months ago to above 100 per quarter in 2016.
The Sunshine Coast hasn’t always been a hotspot contender – in the past it has been included in my No Go Zones report because of a weak economy (over-reliant on tourism) and bouts of over-supply, leading to price decline. But the broadening the local economy through infrastructure spending and evolution of the medical precinct has been the critical game-changer.
The Gold Coast has been the hottest market among the municipalities of Australia for the past 18 months, but the trend suggests it’s winding down – it surged throughout 2015 and the early part of 2016, but the number of growth suburbs has dropped from 25 six months ago to 20 three months ago to 14 now.
Nevertheless, six of our National Top 30 Growth Star suburbs are in Gold Coast City and the bulk of them are inland housing markets – including Ashmore, Carrara, Nerang and Upper Coomera.
The Gold Coast may surge again, given the high level of spending on infrastructure, some of it associated with the 2018 Commonwealth Games.
I continue to urge caution about the Gold Coast high-rise apartment markets because of the alarming history of boom-bust scenarios, poor capital growth record and looming prospect of oversupply.
Anyone thinking of getting into the Surfers Paradise high-rise market should keep in mind that the median apartment price today is lower than it was a decade ago, such is the ongoing impact of regular doses of over-building.
Other Gold Coast high-rise suburbs have similar track records.
Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a>
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terryryder-YECXbqmri2

Caution for Gold Coast high rise property investment: Terry Ryder

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EXPERT OBSERVATION
Lenders are reluctant to lend and buyers don’t want to buy when it comes to high-rise developments.
That’s according to RiskWise Property Research’s latest analysis of the construction industry which has been hit hard over recent months following the high-profile cases of the Mascot and Opal towers in NSW.
With cracks in both the Sydney towers, fears more will become apparent in other buildings and the need to replace combustible cladding in thousands of buildings throughout Australia, demand for units had dropped dramatically.
Lenders are proceeding much more cautiously too, and this includes non-bank lenders whose business model is to provide alternative solutions from the ADIs, and generally have a less conservative assessment of risk.
Add to that the issue of oversupply in many Danger Zone areas and there is very real risk for developers.
We have a situation now where lenders aren’t eager to lend and buyers don’t want to buy but we still have developers who are considering developing high rise.
Units in the pipeline for the next 24 months Australia-wide equate to 7.6 per cent of current stock. In Sydney there are 58,094 units in the pipeline or (9.5%) of current stock and in Melbourne there are 59,634 units in the pipeline or (8.1%) of current stock.
However, in the last three months to June 2019, only 8 per cent of stock sold in Sydney and in Melbourne, 12 per cent.
The high-profile issues around cladding and defects had created enormous ‘reputational damage’ across the entire industry and because of this, investors had lost interest in high-rise unit developments and were turning to “safer” house-and-land packages suitable for families.
And Sydney’s Mascot and Opal towers are not the only ones that have been hit with negative media coverage with a cladding fire taking hold in the 43-storey Melbourne building, Neo200, in February. In July, a development in Sydney’s Zetland was also forced to shut its doors on residents for eight months after reports of water damage and faulty fire prevention.
According to Knight Frank's Australian Residential Development Review, in Greater Sydney the value of sales of development sites suitable for high-density projects halved in the 2019 financial year, while average site values in both Sydney and Melbourne fell dramatically.
If you combine the recent quality issues with financial losses from investment in high-rise units, this could amount to a permanent structural change in demand.
In some cases developers, instead of assessing the true needs of the market, have developed large numbers of units and have needed to find ways to shift stock by using instrastate or overseas markets with high commissions that are often factored into the property price. A prime example of this type of poor risk management is the oversupply in the Brisbane unit market, as detailed in our case study of 2018, which resulted in lower valuations, rising defaults on settlements, heavy discounting and incredible incentives such as new cars.
We already have significantly reduced levels of demand due to restrictions on foreign investors, credit restrictions, banks refusing to loan to self-managed super funds and local investors looking elsewhere.
Add to that the high level of unit oversupply and it’s possible to see how structural changes could occur in a sense that the overall demand for off-the-plan dwellings shifts from units to house-and-land packages. Medium-density dwellings, such as townhouses, particularly in popular areas also enjoy higher demand.
Some developers were already struggling to meet pre-sales and / or sales targets in areas where there were high levels of stock and many had not proceeded to commencement. In other instances, according to recent media reports, development defaults were on the increase and many developers, such as the high-profile Ralan Group, had collapsed or were on the brink of failure.
 Without demand from investors, and other buyers, you don't have pre-sales or sales and the entire development is at risk. Obviously, an event of default is never planned by the developer. However, developers need to carefully assess the risk that they are taking the risk, and they need to be in a strong financial position to deal with the potential consequences and not be forced to do a fire sale.
Developers needed to do greater risk management and assess whether there was genuine demand for their product.
Demand for existing and off-the-plan properties, mainly units, began to lower with the introduction of APRA’s lending restrictions in 2017 followed by greater scrutiny of home loan applications.
However, with the addition of construction defects and cladding issues, greater government legislation within the industry and oversupply, demand had dropped even further and was now “extremely low” putting developers at higher risk of default if they did not do their due diligence.
DORON PELEG is the CEO of RiskWise
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j.ballantyne1990-6AQqhLzZaK

High-rise units are a massive risk for developers: RiskWise's Doron Peleg

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The non-bank finance group Chifley Securities has created a list of suburbs in Sydney and Melbourne that it rates as “high risk” and no-go zones for lending for residential developments.
In Sydney they won't lend for greenfield development sites in Schofields, in the Blacktown area, as well as regions in Box Hill.
The likes of Leppington, Badgerys Creek and Kemps Creek, Kurrajong Heights, Katoomba and Orchard Hills also make the list.
In Melbourne Chifley Securities highlight Plumpton and suburbs in the Bacchus March corridor as no-go areas.
Truganina to the west, Officer to the east and Cranbourne to the south are also now off-limits for Chifley.
Chifley has lent $2 billion to developers over the 2018/19 financial year.
Chifley Securities principal Dominic Lambrinos says no-go zones have been created on the basis that many outer-lying suburbs of Sydney and Melbourne pose serious risks for both developers and buyers due to an explosion of development activity.
“These areas are seeing explosive growth in the number of residential dwellings, yet are not yet supported by the necessary infrastructure required to support vibrant communities.
“While there might be a new railway station, road and supermarket in a suburb, this infrastructure does not fill the requirement for a sustainable and healthy and profitable development for both developers and residents”, he added.
Lambrinos said the list would be amended once the market and amenities in the suburbs “caught up” with the greenfields developments now saturating the suburbs.  
While the residential market has been flattened by over-supply and a range of quality issues related to a range of buildings, the commercial and industrial property sectors continued to perform well, he said.
“Meanwhile we continue to see more residential developers coming to Chifley and our competitors as their pre-sales dry up, amid the realisation that many have paid comparatively high prices for their land”, he added.
Lambrinos said further cuts to interest rates were expected to be made over the next few months in an attempt to remedy the growth slump in the economy and property markets.
“While credit guidelines have been loosened by the Australian Prudential Regulation Authority (APRA), financing by the major lenders continues to be tight and non-bank lenders are taking up the slack”, Lambrinos said.
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jrobinson-rf4aSBido9

Chifley Securities no-go zones for investors

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The investment management firm Auscap Asset Management has said that Australia's  reliance on past growth trends may be blinding us to certain risks that may adversely affect the property market in the future.
“Risks exist for every investment whether we acknowledge the risks or not. Risks that have not appeared for a long time can be ignored by investors or even assumed not to exist,” Tim Carleton and Matthew Parker, principals at Auscap, said.
The assumption that property inherently carries a low risk could be traced back to the fact that real estate has not experienced a broad decline since 1991, they said.
Risks exist for every investment whether we acknowledge the risks or not, their latest report noted.
"Risks that have not appeared for a long time can be ignored by investors or even assumed not to exist.
"To some extent we believe that the current thinking around the residential property market is illustrative.
"In Australia, residential property is considered the safest of all assets. Residential property prices have not experienced a broad decline since 1991.
"Because property has not fallen for such a long time, the risks involved in investing in property are often assumed to be low."
According to Carleton and Parker, risks most likely to impact the residential property market include:
<ul>
<li>Significant effects from interest rate rises over the medium-term given the current low interest rate environment</li>
<li>Unemployment rates which may increase from the current levels</li>
<li>Natural headwinds for domestic economic growth that overcome any tailwinds</li>
<li>High debt levels compared to historical household leverage ratios such that any deleveraging may negatively impact prices</li>
</ul>
In their opinion, the lack of a meaningful correction in property prices over such a significant length of time is more likely to imply that the risk might be quite high, because excesses in the system have been allowed to build for such a long period.
Similarly the fact that growth rates in house prices have exceeded growth in household income indicates to us that prospective residential housing returns will be significantly lower going forward. But many draw the opposite conclusion, that the historical growth rates are evidence that house prices should continue to grow at those rates in the future.
The inference is that past returns tell us something about future returns, they advised.
Their report said his extrapolation bias carries considerable risk.
National property price growth appears to have two main drivers, national household income growth and leverage.
Over the very long run we might assume that leverage levels oscillate within a range, dependent on the availability of credit and sharing an inverse relationship with the level of interest rates.
If that is true, then in the very long run property price growth should reflect growth in incomes, the report noted.
Adding but this has not been the case in the domestic residential market. Property prices have outstripped household income growth by a considerable margin for some time.
The probability that residential property prices are currently elevated appears to us to be quite high, based on a number of very favourable drivers that are present, including:
- Very low interest rates and therefore borrowing costs
- High debt levels (closely correlated with declining interest rates);
- Solid employment levels (the current unemployment rate is 5.7 percent)
- Strong long term historic growth (currently 1.8 percent and 25 years without a recession).
 
What the Auscap Report said:
 
The preconditions for high property prices are in place. Prices have risen to reflect the favourable macroeconomic factors. But like a stock that is pricing in the continuance of favourable conditions, this most likely means that the downside risks associated with investing in property are elevated.
Risks to the current residential property climate include:
- With global interest rates close to the zero bound, it is hard to envisage significantly better borrowing conditions than currently exist and the risk that interest rates rise over the medium term could be significant;
- Unemployment could rise from current levels
- Domestic economic growth probably has more natural headwinds than tailwinds over the medium term, especially when compared with recent history 
- Debt levels are high in the context of historical household leverage ratios and may fall over time, meaning that any deleveraging would most likely have a negative impact on prices.
We analysed the property market against the two factors we assumed would be the predominant factors affecting property prices, household incomes and debt levels. Below is a chart comparing property price growth against a composite index of the two factors.
<a href="https://www.propertyobserver.com.au/images/2017/01/23/Chart%201.jpg" target="_blank">Click here to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/23/Chart%201.jpg" alt="" width="467" height="269">
It appears that over the last 20 years the correlation between property prices and the composite index is very high, implying what would appear to be logical, that property prices are primarily a function of household income growth and growth in leverage. The short term moves in the composite index also mirror the short term growth rates in house prices, as shown below.
<a href="https://www.propertyobserver.com.au/images/2017/01/23/Chart%202.jpg" target="_blank">Click here to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/23/Chart%202.jpg" alt="" width="445" height="264">
 
The charts demonstrate visually what we know to be true, that property prices have grown by 7.4 percent per annum, a growth rate many take comfort from in making assumptions around future growth.
But the charts also imply that this has been a function of both growth in household income (which has been circa 3.7 percent pa) and the growth in household debt (which has been circa 3.3 percent pa).
Analysing this situation as though residential property prices were a stock, we would try to form sensible expectations around household income growth and growth in leverage in the future.
Household income growth is to a large extent tied to GDP growth, which we expect to be modest over the medium term. Recent growth rates have been lower than historical growth because of headwinds facing the economy that we expect will continue.
<a href="https://www.propertyobserver.com.au/images/2017/01/23/Chart%203.jpg" target="_blank">Click here to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/23/Chart%203.jpg" alt="" width="447" height="233">
On the other hand, leverage levels have risen as interest rates have fallen. We doubt that household borrowing costs can fall substantially from here, implying that growth in household debt levels may be limited.
<a href="https://www.propertyobserver.com.au/images/2017/01/23/Chart%204.jpg" target="_blank">Click here to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/23/Chart%204.jpg" alt="" width="411" height="208">
If this is the case, the best house price growth we might expect is for property prices to grow in line with historical household income growth. But there are a many downside scenarios that are also possible.
Household income might grow more slowly should Australia face periods of slower or even negative growth. The fact that there has not been a nationwide decline in GDP in 25 years implies the risk of such a scenario is elevated, not reduced.
It may not occur, but we can confidently propose that this scenario is not being considered or assessed by the majority of households in the same way it was in 1992, immediately after the last broad decline in Australian residential property prices.
Household leverage may need to decline should interest rates rise. If this were the case, falling leverage may drag on house price growth, rather than add to it as it has for the last 20+ years. If the decline in leverage is greater than growth in incomes, property prices may actually fall.
Certainly our conclusion would be that a continuation of the 7.4 percent per annum growth in household prices witnessed over the last 20 years seems extremely unlikely in the absence of borrowing costs continuing to fall, which we see as limited given where interest rates are currently, the report concluded.
 
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The risks in property in 2017 for Australia are getting higher

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Reserve Bank governor Glenn Stevens has conceded that he has "some discomfort' about rising Sydney house prices, but argued that these concerns need to be weighed up against the need to stimulate economic activity across the nation. 
He said the Reserve Bank remained confident there was little evidence of a widespread bubble in house prices.
Australia had a new "two speed" economy, with strong growth in states such as NSW, while resource-rich states, such as Western Australia and Queensland, had seen growth rates slump as the mining boom had ended.
Hie final interview with The Australian Financial Review, mentioned some mixed evidence as to the strength of the housing market. 
"Prices are probably rising smartly in some areas, but in other areas they're not, and in some cities in the country, they're falling," he said.
"So I think it's a mixed picture. It's not without risk, and it certainly gives me some discomfort, but then we're balancing that against the other obligations we have to pursue."
He said the RBA was tasked "to balance all these things and make a decision that neither completely ignores the financial stability and housing concerns, nor let them completely dictate the decision.
"That's the balance that we've tried to strike".
"Most of the domestic effects of cheap money comes through the household sector. Higher house prices than otherwise, more borrowing than otherwise, wealth effects, lower saving rate, etc."
But he added, "the thing that I've tried to grapple with is – that's where we get the effects, but do we actually want households to engage in a major levering-up from here?
"It's not that what they did before was disastrous – that clearly hasn't been. But from here, how much more do you want?"
"As the facts at the moment are, the credit growth of households is running about 6 percent. Fractionally less if you take account of a build-up in mortgage offsets and so on".
He added, "I don't think you can say this is a terrible risk. If it was 10 percent or 15 percent – that would be a different story".
He noted two speed housing price movements.
"It's probably not that surprising that parts of Sydney are leading the charge, because this economy is leading the country at the present time."
This, he added, is something "which, actually, we needed if we're to manage the transition after the mining boom".
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Housing markets not without risk as Sydney leads the charge: RBA's Glenn Stevens

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Moody's Investors Service says that signs of a re-acceleration in Australian house prices are credit negative for Australian banks and pose a risk to the economy.
The 2016 spurt had raised the banks' sensitivity to downside risk in the housing market.
"The likelihood of an outright downward correction in prices is rising,” the agency advised.
Moody’s Investors Service viewed loans taken out over 2014-15 as “bearing the most risk, given that they were originated after significant house price appreciation had already occurred”.
While noting strong employment conditions and low interest rates continue to support the quality of the banks' housing portfolios, the household debt/income ratios continue to rise.
Moody's conclusions are contained in its report, "House Price Growth is Increasing Tail Risks for Australian Banks".  
Annual house price growth has risen over the past two months, increasing by 10 percent for the 12 months to May 2016.   Moody's says that there is evidence the banks' appetite for investor lending is returning, after a period of tighter underwriting to comply with the Australian Prudential Regulation Authority's 10 percent annual limit for growth in such loans.  
Moody's points out that over the past month, a number of lenders have lifted their maximum loan to value ratios for investor lending, and there are indications that the banks are becoming more competitive in their pricing for investor loans.  Moody's notes, however, that some of the newer lending activity can be explained by investors bringing their purchase plans forward, ahead of the federal election.  
"These trends are unfolding against a backdrop of already high levels of household indebtedness, and elevated overall leverage in the economy," says Daniel Yu, a Moody's Vice President and Senior Analyst.
"The current trends are therefore credit negative for Australian banks, particularly in the context of the banks' high ratings, because these trends raise the banks' sensitivity to any potential deterioration in the housing market," Yu suggested.
According to Moody's senior vice president Ilya Serov, the housing market in Australia appeared to have accelerated over the past couple of months partly on the back of the cut in interest rates in May.
Mr Serov told he ABC's The World Today investors were exposed if the RBA moves or banks hike rates independently.
"The economy now I think from a household sector is more sensitive to increases in interest rates should they occur," Mr Sherov said.
"We are already in an economy which is characterised by fairly high levels of debt particularly in the household sector and the debt to income ratio which had been stable is now creeping up again."
 
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