Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.

Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;

David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;

“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;

[smartcode_project:default project_id=110291 project_image_fid=302785]

<h2>Affordable product leads, premium demand remains resilient</h2>

Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;

Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;

At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.

Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.

Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;

[smartcode_project:default project_id=148957 project_image_fid=364102]

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.

David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.

“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;

Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.

[smartcode_project:default project_id=108869 project_image_fid=317905]

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;

Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;

However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.

Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;

Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.

The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.

Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.

“Brisbane was the right step for Sammut,” Sammut said.

“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" />

Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.

The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.

“We are DA approved now which is very exciting,” Sammut said.

“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”

<img alt="Sammut makes Brisbane apartment play" 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/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" />

Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.

“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.

The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.

“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”

The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.

The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.

Sammut secures approval for debut Brisbane apartment development in Toowong

Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.

Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.

The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.

“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.

“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.

“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”

The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.

“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”

From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.

“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”

The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.

“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.

Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.

“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.

“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”

The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.

“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.

Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.

&nbsp;

Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

Pete Wargent

<html><body>
A lot of water has flowed under the bridge since we issued our calendar year <a href="https://petewargent.blogspot.co.uk/2013/11/property-observer-crystal-ball-gazing" target="_blank" style="line-height: 1.3em;">2014 property market forecasts</a> in November 2013.
To re-cap these were for various reasons generally softer than those projected by most analysts, alphabetically as follows:
<ul>
<li>Adelaide 0-3%</li>
<li>Brisbane 2-5%</li>
<li>Canberra -1 to -4%</li>
<li>Hobart -1% to +2%</li>
<li>Melbourne 2-5%</li>
<li>Perth 0-3%</li>
<li>Sydney 6-9%</li>
</ul>
No forecast was made for Darwin - as a former resident of the "Top End", personally I remain fairly unconvinced as to whether worthwhile forecasts are even possible in such a market.
Regular readers will be aware that we have been tracking progress throughout the year against <a href="https://www.corelogic.com.au/research/daily-indices" target="_blank">RP Data's Home Value Index</a>. Let's take a quick look how many hits and misses we'll score for 2014 and the reasons for them.
<img src="/images/2014/07/04/yellow-one.jpg" alt="">Adelaide (Forecast 0-3%)
I've taken an increased interest in Adelaide since working down there in 2008. 
Adelaide is usually a favourite pick for many property analysts, and continues to be, but our 2013 chart packs again pointed towards a struggling local economy with ongoing flat employment growth and only a tiny positive momentum in owner-occupier housing finance, while investor activity has remained fairly muted in South Australia over the longer term also.
Adelaide has relatively weak population growth and is comparatively speaking a less dense city, and thus should comfortably be able to manage a responsive supply. Wages growth has been solid but concerningly the local economy also faces some serious headwinds too as the car manufacturing industry closes.
The lowest interest rates in a generation could yet shunt prices a little higher, and sales volumes have certainly improved during this year, but land release new building should also easily be able to prevent booms in prices. Year to date price growth of 2.4% is well within our forecast range.
 <img src="https://2.bp.blogspot.com/-WQpAV8UcNuY/VIQmagiwwdI/AAAAAAAARt4/y646tWQdHJE/s1600/ADELAIDE.jpg">
Verdict: Hit. <img src="/images/2014/07/04/yellow-two.jpg" alt=""> Brisbane (Forecast 2-5%)
Our owner-occupier housing finance chart packs showed Brisbane identifiably turning a corner in Q3 2012 on a rolling annual basis, and momentum building steadily but surely ever since. 
This trend was clearly consistent with a gradually recovering market, which is exactly what we've seen play out this year.
Our latest 2014 chart packs suggest more of the same in 2015 too, with investor finance also now steadily picking up over a long period of time to its strongest level since 2007, and, importantly, at a slightly faster clip since Q3 2013 on a rolling annual basis. 
Population growth will be slower in Brisbane in 2015 largely due to net interstate migration as the mining construction boom unwinds but this is likely to be offset by further interest from interstate investors.
A word of warning, though. There is a large volume of construction in the pipeline for attached dwellings and asset selection will be vital in this era of low inflation. If you buy generic new or off the plan high apartment stock without due consideration, then you will do so at your own risk.
Year to date growth in Brisbane has been within our forecast range.
<img src="https://3.bp.blogspot.com/-XAPR8LqSkp4/VILnBYEHd5I/AAAAAAAARsk/Ot21Uhonvio/s1600/RP%2B-%2BBrisbane.jpg">
Verdict: Hit.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
<img src="/images/2014/07/04/yellow-three.jpg" alt=""> Canberra (Forecast -1 to -4%)
Our forecast range for Canberra of negative growth was a reflection of expected trends in the labour force due to projected rationalisation.
RP Data's index does not provide us with daily data to provide the picture through the year, but <a href="https://www.corelogic.com.au/resources/pdf/reports/2014-12-01--corelogic-rpdata-home-value-index.pdf" target="_blank">year to date growth</a> up to November has been stone dead flat at 0%.
The Canberra market is now clearly in decline, posting a drop of 0.5% in November to record a horrible 3.3% loss over the quarter.
This is consistent with what other data providers such as Residex have seen playing out for the Australian Capital Territory over the past year and with the market now in decline this strongly suggests that by the end of the 2014 calendar year we will have seen a negative result for Canberra. In many respects Canberra is an artificial property market. High average disposable incomes and an artificial land scarcity due to restrictions and constraints on zoning. 
Verdict: Hit.
<img src="/images/2014/07/04/yellow-four.jpg" alt=""> Hobart (-1% to +2%)
Tasmanian property markets have faced ongoing challenges, including a near total absence of meaningful population growth and a weak labour force and the faltering of some local industries.
We did note in our forecasts that despite the weakened local economy and labour force there were plans already in place in 2013 to stimulate the property markets, including a substantial first home builders grant.
Unemployment remains high in the regions of Tasmania, although there have been some marginally more promising indicators and data sets flowing through our chart packs in respect of the capital city of Hobart (including e.g. more robust retail trade figures, healthier state final demand, and since Q3 2013, an improvement in wages growth).
RP Data provides no daily figures for us to chart for Hobart but over the <a href="https://www.corelogic.com.au/resources/pdf/reports/2014-12-01--corelogic-rpdata-home-value-index.pdf" target="_blank">year to date</a> the Emerald Isle capital has recorded 0.7% growth, which is in the middle of our forecast range.
Verdict: Hit. <img src="/images/2014/07/04/yellow-five.jpg" alt=""> Melbourne (Forecast 2 to 5%)
Forecasting property markets in Melbourne and Sydney at times feels like one of the old "incomplete records" questions from an accountancy exam.
Our chart packs contain hundreds of data sets from which it should theoretically be possible to build a fairly robust macro housing market model, although naturally plenty of unforeseen events can occur through the course of year to reverse a trend which existed at the beginning of the period.
The established uptrend in owner-occupier finance for Melbourne as at Q4 2013 was broadly reflective of a similar gradient to that of Brisbane, that being indicative of a solid, recovering market.
Investor finance in Melbourne in Q4 2013 was demonstrably stronger still, but working against this Melbourne already had elevated vacancy rates, surfeit of stock on market (double that of Sydney) and a significant volume of dwelling supply in the pipeline at that time.
On balance, a full 12 months looked to be a very long time for growth to be sustained in Melbourne as dwelling completions ramped up, and our moderate 2-5% growth forecast for 2014 reflected that view.
What our chart packs do not adequately capture or pick up, of course, are shifts in sentiment from overseas buyers and the impacts of foreign capital. Indeed our housing finance data series do not record even the loans written for offshore Australian buyers by domestic banks, let alone the effect of those buying residential property with funds sourced from overseas.
In other words, like an accountant who is missing an entire section of documentation, we're working from incomplete records and thus there must exist a very real element of guesswork to be factored in.
At various points in the year, we were left scratching our heads as the Melbourne dwelling price data seemed to defy the law of gravity, but anecdotally the two largest property markets in Australia have been significantly impacted by the increased role of foreign investors and capital which is likely to account for some of the discrepancy.
The Melbourne chart now appears to be finally coming back down to earth with a noteworthy 2.6% drop in November, and with a few weeks left in the year the final result may yet just sneak into the 5% range.
RP Data's index has seen home values increase by approximately $37,000 from $635,000 to $672,000 or 5.8% with a few weeks left in the year to go.
<img src="https://2.bp.blogspot.com/-qQ0thVj4i30/VIQpmA2bzTI/AAAAAAAARuE/p5ezNxwkmQo/s1600/MELB.jpg">
Verdict: {TBC - it looks likely to be very close}.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
<img src="/images/2014/07/04/yellow-six.jpg" alt=""> Perth (Forecast 0-3%)
The trends in both Perth owner-occupier finance and investor loan finance in late 2013 were solid enough, but the city is pulling against a softening state economy as the mining construction boom unwinds. Our chat packs also suggest that a looming glut of apartment supply will impact the market in the years ahead. Detached housing, particularly that located close to key transport links, appears likely to be the better performer in Perth. 
Price growth in Perth in  2014 has been well within our 0-3% expected range.
 <img src="https://1.bp.blogspot.com/-9k-CVNJtpnM/VIQqlfexP9I/AAAAAAAARuQ/4D3qSntNbo8/s1600/PERTH.jpg">
Verdict: Hit. <img src="/images/2014/07/04/yellow-seven.jpg" alt=""> Sydney (Forecast 6-9%)
The Sydney market had an enormous momentum behind it at the end of 2013, with panic buying clearly evident to us in the market "on the ground", particularly at the back end of the year.
Here's what we wrote way back in November 2013 on Property Observer about our forecasts for the calendar year ahead:
"And finally, the problem child...Sydney. After years of weak supply in the harbour city, SQM Research put the cat among the pigeons when it forecast in its base case scenario that Sydney would <a href="https://www.theaustralian.com.au/business/property/sydney-on-track-for-property-boom-prices-set-to-rise-20pc-says-sqm/story-fn9656lz-1226721006886" target="_blank">record housing price growth of 15-20% in 2014</a>, and 20-30% should Australia experience a strong economic recovery and interest rate rises by mid-2014.
"Being a Sydneysider, I'm a vested interest in the Sydney market, but there has never been reason to doubt SQM's integrity (they correctly forecast market price falls in 2011, for example) and their forecast is based on some sound price-to-income logic. Sydney's housing markets were relatively more expensive in 2003 and early 2004 than they are today and thus there is certainly a chance that prices could continue unabated at the growth levels seen in 2013 until the market hits its next irrational peak.
"There is a plenty of new apartment stock due to come online in certain sectors of the Sydney market (inner south, Central Park) but this is unlikely to be enough to halt the present cycle in its tracks in my opinion. However, 12 months is a long time and a lot might happen to slow the present exuberance."
In the event we opted for a conservative 6-9% growth and scored a clear downside miss here with our projection, the Sydney market holding its momentum throughout the entire year, which was clearly a risk we acknowledged given that we don't hedge by providing a wide range of scenario-based forecasts.
Significantly net population growth into the harbour city has accelerated in 2014 as net interstate migration from NSW to the mining and other states has declined to the lowest level on record.
Investor finance has continued to rise, and in the absence of regulatory intervention the Sydney market appears likely to carry some of its momentum into 2015, although the volume of auctions has increased to record levels which should keep an effective lid on rampant price growth.
<img src="https://1.bp.blogspot.com/-9U-A0KJ-C6s/VIIyr9ukH8I/AAAAAAAARsE/DOtNwFCnOXI/s1600/RP%2B-%2BSYdney.jpg">
The Wrap
We scored hits on five cities and a downside miss for Sydney which looks set to record ~12% growth according to RP Data's index. The Melbourne forecast will be close but the result will go right down to the wire over the next few weeks.
Stay tuned for our 2015 forecasts.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

pwargent-M4siyDbqQY

How my 2014 property market forecasts fared

<html><body>
The ABS released its <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/8755.0">Construction Work Done</a> figures for the September quarter which underscored two key systemic risks for Australia's economy and housing markets, with the following alarm bells now sounding loud and clear:
<ul>
<li>The long anticipated "mining construction cliff" is now well underway, with engineering construction spend registering a significant 12% decline over the past year to be 15% off from the peak; and</li>
<li>A forthcoming glut of new build residential properties, particularly of attached dwellings: units and apartments.</li>
</ul>
Let's take quick 'shufty' in four short parts.
Part 1 - Total Construction Slides
Total construction work done remains elevated in historical terms at a seasonally adjusted $51,146 million in the September quarter. 
From a macro-economic perspective, of course, it is the trend which is of importance, and total construction has now passed its peak, declining further by a seasonally adjusted 2.2% in Q3 to be 5.1% lower over the year in chain volume measures terms.
 <img src="https://1.bp.blogspot.com/-UJRluTolNf8/VHWiF3ZHrMI/AAAAAAAAReM/2j4DmNQ9inY/s1600/CONS1.jpg"> 
This was a slightly undercooked result versus expectations, and hardly the most auspicious of starts for the inputs into the Q3 National Accounts. 
Of significantly greater concern is what will eventuate for mining and engineering construction prospectively, with total spend already being some 12.1% lower in chain volume measures terms than only one year ago.
With commodity prices tanking it will be increasingly difficult for marginal projects, such as some of those in the coal sector, to pass through feasibility studies to the construction stage, thus reinforcing the entrenched downtrend.
<img src="https://1.bp.blogspot.com/-1-fZYcR6_eQ/VHWiGQ6q6VI/AAAAAAAAReQ/OD3LSD8ym78/s1600/CONS2.jpg">
Moreover, the sheer scale of the mining construction boom on the way up (even today engineering comprises more than 56% of construction expenditure reported here at a punchy $28,710 million in Q3) means that there must eventually be an equivalent drag on the way back down - a drag which will be nigh on impossible for work done in the other building and construction sectors to offset.
Low interest are thus clearly set to be with us for some time to come, which must in turn impact investment decisions and other construction trends, as the financing component of new developments remains historically speaking very cheap.
Part 2 - The Mining Cliff Cometh
The engineering construction data by state unsurprisingly revealed that total spend in Queensland and Western Australia is now receding sharply. 
Other states which benefited less dramatically from the boom years are also now in decline, albeit to a less significant extent, as the resources boom continues to transition into the export phase from the construction phase.
<img src="https://4.bp.blogspot.com/-TyUSFygg5n8/VHWiI6c7wfI/AAAAAAAARe4/vH4nlSpe9c0/s1600/CONS8.jpg">
The ABS provided few details concerning what caused the tremendous spike in Q3 engineering construction in the Northern Territory, although <a href="https://www.smh.com.au/business/mining-and-resources/ugl-joint-venture-faces-damages-claim-over-550-million-power-plant-at-ichthys-20141106-11i4ar" target="_blank">cost blowouts</a> at the Ichthys LNG project have been reported elsewhere related to the struggling UGL, while <a href="https://www.inpex.com.au/news-media/ichthys-lng-project-updates/" target="_blank">Inpex</a> continues to report project progress in its regular updates. 
From a national perspective, we must now expect further declines ahead, and therefore tomorrow's capex data release takes on an additional level of interest!
Article continues on the next page. Please click below. 
<hr class="system-pagebreak">
Part 3 - NSW Now Leads Building Work Done
With a massive 54% seasonally adjusted increase in non-residential building in New South Wales since Q1 2012 (mainly related to Sydney projects) in concert with a solid pipeline of residential building, NSW now leads the nation in terms of building work done, which is promising news for the state economy.
 <img src="https://4.bp.blogspot.com/-8Ave3nCKlDw/VHWiHvylSWI/AAAAAAAARe0/AwTLTNk3JCA/s1600/CONS5.jpg">
But while an inherent infrastructure and dwelling deficit are working in favour of the NSW economy, some other states are building too much of what they do not need. 
Residential building work done has increased by 9% over the past year. However, new house building has now slipped past its cyclical peak, representing adverse news for the construction sector,  and note the alarming trend of the red line below for "other new residential" building.
We have known for many months of course that Australia has been approving far too many apartment buildings in certain locations, and now these building approvals are becoming a stark reality, showing up in the construction data as an unprecedented spike which is still booming.
Yikes.
<img src="https://1.bp.blogspot.com/-b--ys90pFp4/VHWiHOi5W0I/AAAAAAAAReg/u-RxFDjckdY/s1600/CONS4.jpg">
New Builds Risk Flashing Red - Systemic Risk?
The next three years will see Australia break many all-time records in the residential property space.
These include the highest annualised rate of apartments constructed in Australia's history, and thus in turn record developer kickbacks and commissions paid to 'investment advisers' (i.e. developer salesmen) for the sourcing of willing interstate buyers of the detritus which developers have been unable to flog themselves (itself quite a notable achievement in the prevailing climate of cheap credit). And the inevitable corollary will be a record number of investors losing their hard-earned cash on dud new development investment properties.
We would never recommend new build units anyway from a risk management perspective - they are too expensive and inherently lacking in scarcity value - but we cannot be any clearer on this point at this stage of the cycle. Too risky. The Block? Just as an infestation of cookery shows in Australia has paradoxically coincided with a record boom in the consumption of takeaway food, similarly the glut of TV renovation shows has not led to an equivalent uptick in major home renovations. There have been many murmurings of a boom in renovation intentions but this is not to be evidenced here in the "Alterations &amp; Additions" data, reflected by the moribund trend in the green line of the above chart.
The Housing Industry Association (HIA) forecasts a miserly 2% increase in renovations work in the year ahead following on from a 0.9% increase over the past year. 
"Every little helps" from a macro-economic perspective, of course, but as the above charts clearly demonstrate these renovations numbers are merely a drop in a very large ocean of construction spend as compared to the forthcoming declines in engineering work to be completed.
Part 4 - Residential Building by State
Lastly for today, a glance at residential building by dwelling type at the state level. We already know that Victoria has been building huge numbers of new houses as compared to elsewhere, but new detached house building has now surreptitiously tiptoed past its cyclical peak.
 <img src="https://3.bp.blogspot.com/-qC8PPX_pwAA/VHWx8UZqmDI/AAAAAAAARfU/GgajBovwWUw/s1600/CONNNN.jpg">
As you can see from the chart below, it is new units and apartments which are the greatest risk area for this residential property market cycle, as developers construct unprecedented volumes of attached dwelling stock. With apartment construction hitting record heights there will also inevitably be a glut of new stock to be sold on by commission-hungry agents. Caveat emptor!
Our previous detailed analysis of the data including <a href="https://petewargent.blogspot.co.uk/2014/11/sydney-property-market-booming-but" target="_blank">here</a> and <a href="https://petewargent.blogspot.co.uk/2014/09/is-sydney-heading-for-oversupply-of" target="_blank">here</a> has shown that apartment approvals in Sydney have long since rolled over and accelerating Greater Sydney population growth reduces oversupply risk on a city-wide basis to some extent, despite some pockets of new stock over-supply (cf. CBD, inner south). 
However, it must also be observed here that with unprecedented construction of attached dwelling stock set to take place through the 2-3 years ahead, particularly in Brisbane, Melbourne, Perth and Sydney, but also elsewhere, there will inevitably be some blood spilt down the track for a substantial number of today's purchasers of new and off-the-plan properties.
 <img src="https://2.bp.blogspot.com/-E4kcsCXd9lI/VHWiIRy8wqI/AAAAAAAAReo/mb-xOzjFmVI/s1600/CONS7.jpg">
Scarcity Value
Always remember that, as in any asset class, buyers of and investors in residential property should look to purchase an asset with an element of scarcity value. In this respect, with building approvals breaking record highs in 2014 - a glut of new supply being precisely the polar opposite of scarcity - and the price of new stock at sky high levels, it is therefore almost by definition the most risk-laden time to buy new property that we have yet seen.
One of the many problems with new build investments is that all too often the choice boils down to an over-priced house (as compared to established stock) in a fringe suburb where few people want to live, which is a poor investment, or an over-priced apartment in an suburb which is set to be flooded with new apartments, which is frequently an even worse prospect. Alas there will forever be some nailed on guaranteed winners from this phase of the construction cycle, including the developers who have long land-banked their own gains from key development sites, and the so-termed 'investment advisers' plundering <a href="https://www.theaustralian.com.au/business/wealth/high-price-for-free-advice/story-e6frgac6-1226454402730" target="_blank">thumping sales commissions</a> on new stock. Scant consolation to be found for those at the end of the food chain who lose out, though.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

Latest construction data sets alarm bells ringing

<html><body>
Earlier in the year we were contacted by a rep from a group of overseas investors from Asia with a punchy nine-figure sum to invest in Australian commercial real estate, seeking an office property investment in the harbour city.
Upon meeting at our office, we tactfully pointed out that, even as visible from our very office window, Sydney is busily in the process of constructing an impressive oversupply of office space. With some of the biggest developments in Australian history well underway (the <a href="https://petewargent.blogspot.co.uk/2013/11/cranewatch-barangaroo-emerges-as" target="_blank">LendLease Barangaroo "T1" tower</a> will be Australia's largest ever commercial tower, for example) better office investments must surely exist in other cities well away from Sydney's oversupplied Central Business District (CBD).  
There will be far more Sydney office space than demand for it, and rents must inevitably fall, yet the message conveyed back to us was that Chinese investors are familiar with and like Sydney, and therefore they be would progressing to seek out a Sydney office investment anyway. Dollar Declines When I wrote my first book back in 2011, the Aussie dollar was trading way above parity. I put forward the viewpoint that as and when the dollar declined materially we would see an inflow of foreign capital to Australia, although the impacts could be somewhat different to what we might expect and may be felt most acutely in the respective CBDs of Sydney and Melbourne and the immediate fringes thereof.
With commodity prices now getting whacked across the board, finally it does not seem unreasonable to expect that we might see an Aussie dollar with a "70 handle" some time in the not-too-distant future, which would provide some welcome respite for our exporting economy.
<img src="https://2.bp.blogspot.com/-TS4jgN0zDaM/VG3yvZRixoI/AAAAAAAARWo/GreEQf5jhKE/s1600/CHINA1.jpg">
Australia and China have this week signed a <a href="https://petewargent.blogspot.co.uk/2014/11/china-completes-trifecta-of-free-trade" target="_blank">Free Trade Agreement</a>, and so with China news and views all the rage at this time, let's take a look at three macro trends which we might expect to see that could impact investors in Australia. <img src="/images/2014/07/04/yellow-one.jpg" alt="" style="float: left;"> Land Prices
As <a href="https://petewargent.blogspot.co.uk/2014/11/china-completes-trifecta-of-free-trade" target="_blank">noted here earlier in the week</a>, under the terms of the ChAFTA, the threshold of Foreign Investment Review Board (FIRB) screening for Chinese investors wishing to buy commercial real estate has been lifted from a comparatively trifling $54 million to a massive $1,078 million, in line with limits on private business investments.
Meaning? To all intents and purposes, Chinese investment groups wanting to mop up Australian commercial property can target anything they want.
In theory this could ultimately add to the housing supply in Australia as prime location commercial sites are acquired and residential developments are instead brought to the market. In reality what is happening is that Chinese investors are paying <a href="https://www.canberratimes.com.au/business/property/the-chinese-buyers-property-developers-dont-want-20141120-11q915" target="_blank">way above market price</a> to gain access to prime sites in our two largest cities, and then are proceeding to landbank them.
As also noted by <a href="https://www.businessspectator.com.au/article/2014/11/12/property/great-australian-land-grab" target="_blank">Business Spectator</a>, almost exactly mirroring my own anecdote above, this is only really happening in inner Sydney and inner Melbourne ("mainly around the CBD and their fringes"), where Chinese investors pay "at least 25% more" for sought after areas pushing development site prices "35 to 40% higher".
It's something we can see first hand in Sydney's inner west where I personally have long owned investment properties, including in Erskineville where former warehouses and printing shops are seen as ripe for new development, sending land prices are soaring. Back to <a href="https://www.businessspectator.com.au/article/2014/11/12/property/great-australian-land-grab" target="_blank">Business Spectator</a>:
"Goodman sold an industrial park in Erskinville [sic] in South Sydney [technically it's in the inner west region], a large potential residential site, for $350 million to Hong Kong’s Golden Horse Holdings -- reportedly the highest price yet paid for a residential site in Australia. 
"Mr Williams believes that those entering the market at the current point in the price cycle will have to build the higher land cost into the price of the end product."
When folk see diggers and cranes they instinctively associate the machinery with an oversupply of dwellings, but while there is plenty of construction happening, vacancy rates in Erskineville have been under 1% (effectively nil for any half-way decent property) for the past decade, while across the inner west region the vacancy rate is closer to the city's average at 1.%.
It is important not to underestimate the potentially limitless scale of Chinese investment. Take the example of Greenland, constructors of the 600 unit <a href="https://www.greenlandcentre.com.au/team/" target="_blank">Greenland Centre</a> tower in Sydney's CBD, a behemoth group which has generated an astonishing $78 billion in revenue in the last 12 months. To put that in perspective even the mighty Commonwealth Bank could only muster $44,312 million. Reports the <a href="https://www.afr.com/p/special_reports/opportunityasia/china_greenland_to_make_fta_agriculture_kkcz4WZyJYMhSVIwF3WgRJ" target="_blank">AFR</a>:
"Chinese state-owned property developer Greenland sees “no ceiling” on the amount of funds it is prepared to invest here, declaring it will expand into agriculture, a day after the free trade agreement with China was signed."
The merits of foreign investment in development sites are forever mixed, and land prices around the centre of Sydney and Melbourne are undoubtedly now being pushed higher by Chinese investment. As the investor group suggested to me, however, Chinese developer interest in most other parts of Australia is considerably lower, and probably immaterial in the majority of cases.
<img src="/images/2014/07/04/yellow-two.jpg" alt="" style="float: left;">Share Price Indices
China's construction boom has already distorted Australian share indices, although a good deal of the impact is now to be seen in the rear view mirror. The huge explosion in Australian mining investment was threatening to make a nonsense of my contention that industrials and financials make for a better long term play than Australia's resources companies.
However, as our updated chart packs will confirm next Thursday, mining and engineering construction is now set to drop like a stone over the years ahead, and the resources index is at long last following commodity prices down to earth with a thud as supply ramps up.
<img src="https://3.bp.blogspot.com/-JtigSL_0v9c/VG3ywRLTk9I/AAAAAAAARW4/YvlA640soGg/s1600/SPI.gif">
Industrials and financials as an index tend to be more self-sustaining and can pay stronger dividends through the cycle than the resources explorers and producers which exhaust their reserves and incur heavy reinvestment costs in the form of exploration and construction spend. Remember too that yield and income are not the same thing (aka. beware the "yield trap") and thus the listed property trusts (today known as "A-REITs") which have often paid the highest yields may be better suited to those in the income phase of their lives such as retirees, with high payout ratios stunting growth. The best long-term bet for both growth and dividend income has generally been a diversified share portfolio weighted to industrials and financials and by next month's chart pack we may see that the financials index has finally eclipsed the resources index (which since 1999 in particular has been performing way stronger than long-term history suggests is normal). It is feasible that lower interest rates and a lower dollar could make share indices more attractive to foreign investors, who already own a sizeable chunk of Australian shareholdings, but forecasting monthly index movements is essentially a fool's errand, so I'll pass on that for today.
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
<img src="/images/2014/07/04/yellow-three.jpg" alt="" style="float: left;"> Residential Property One way or another Chinese investors will inevitably have an impact on Australian residential property. Consider the inexorable rise in the number of Chinese visitors to our shores.
<img src="https://4.bp.blogspot.com/-GgqASg4ms5k/VG3yvpimevI/AAAAAAAARWs/UsTaBDexz-o/s1600/China2.jpg">
And, indeed, Chinese permanent settlers. 
<img src="https://3.bp.blogspot.com/-gkF7OoZdAA4/VG3yv7BRNhI/AAAAAAAARWw/SPGQqZca3_o/s1600/China3.jpg"> 
Funds might flow into Australian residential property either legally or illegally as is debated ad infinitum. My contention has always been that inner Sydney, inner Melbourne, and to some extent inner Brisbane, will be the locations impacted by the trend towards the globalisation of capital city property markets. <a href="https://www.afr.com/p/business/property/the_top_suburbs_for_asian_investors_5zZJDau39TShWuaJzSAS1J" target="_blank">Reports the AFR</a>, offshore interest from Chinese buyers is very heavily focussed on a few inner Sydney, Melbourne and Brisbane areas, with $1.35 million the average price bracket of interest and average purchase budgets ranging from $3.36 million to $3.7 million. Unsurprisingly the most popular suburbs include Mosman and Bondi Beach, prime location Sydney suburbs with access to beaches, as well as other locations in the eastern suburbs and lower north shore from Coogee to Cremorne. Melbourne and Brisbane suburbs also feature prominently.
The "blue chip versus blue sky" suburb debate was discussed <a href="https://propertyupdate.com.au/blue-chip-versus-blue-sky/" target="_blank">over at Property Update</a> earlier this week. As an investor in Bondi myself, I always tend towards the blue chip choices. While it's not everyone's cup of tea, we have seen median apartment price growth in Bondi Beach of 45% in the past five years or $231,000, while median unit prices in Bondi Junction, where I'm an investor (generally, I like train lines), are up by 50.4% or $234,000. Granted this is not the fastest rate of growth in Sydney. As previously cited, another example I'm familiar with as an investor is the inner west suburb of Erskineville, where we've seen median unit prices rise by 56.7% in the past five years, or $243,000. Quality investments have done better than median price growth. Whatever your view on Bondi, and there are no doubt a fair few detractors, I'll take a bet that there are plenty of investors around Australia who would chew your arm off for results of $250,000 plus in capital growth over the last five years. Beware the Yield Trap in Real Estate It may seem counter-intuitive that prime location suburbs are the long-term outperformers, since there is ever a tendency to feel that the best of the growth must always lie in the past. However, in common with all commodities, it is demand outstripping supply that moves prices as capital city real estate becomes a more global product. We have seen this play in London over the decades, with house prices in Kensington &amp; Chelsea <a href="https://allenwargent.com/wp-content/uploads/2013/04/AW-LONDON-BE-SP13-031.pdf" target="_blank">easily outperforming</a> all other property types in Britain, and continuing to do so throughout the financial crisis and beyond. Despite a thousand crash predictions over the years, the average asking price today is <a href="https://petewargent.blogspot.co.uk/2014/11/london-prices-surge-past-600000" target="_blank">more than £2.2 million</a>...and we are talking an entire London borough here, not only Egerton Crescent. Buying cheap property in outer areas (where there is more land available for release) because prices seemingly "can't get cheaper" can often be a more risky approach. My bookshelves at home are strewn with UK "Buy-to-Let Bibles" written a decade ago before the financial crisis, many of which stressed the importance of seeking 8% yields since capital growth was apparently impossible to predict. Yet the high-yielding 8 percenter suburbs listed therein now read like a retrospective list of where to find property which has crashed in value, from the north-east of England to the Potteries. Yield in itself is rarely a reliable indicator of the quality of an investment, and higher yield can often represent higher risk. With Australian household debt nudging up against its likely effective ceiling from around 2006 onwards, one wonders whether the chat forums will begin to be filled with yield-focused property investors from around Australia who are beginning to question whether property is even a worthwhile investment at all as the current property cycle eventually reaches its peak. Capital growth has been very weak and even negative for years in many areas, since spiralling household debt can no longer lift all boats as it once did.
<img src="https://www.rba.gov.au/chart-pack/images/5-6-household-sector/6tl-hhfin-small.gif?accessed=2014-11-20-17-15-04" alt="Household Finances graph">
If income was your goal then for the past five years, you need have looked no further than Australian <a href="https://petewargent.blogspot.co.uk/2014/11/monthly-macro-housing-market-update" target="_blank">bank stocks</a>. Investing in residential property predominantly for its yield is akin to attending an AC/DC concert in order to appreciate Phil Rudd's drumming prowess. It's important - integral to the overall result even - but it's not the main event. Capital growth is.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

Chinese funds seeking a home: The three macro trends that could impact Australian investors

jrichardson-uRX5hFdKfN

EXCLUSIVE: Negative gearing – what needs to change?

<html><body>
The ABS released its <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6291.0.55.001Main+Features1Oct%202014?OpenDocument" target="_blank" style="line-height: 1.3em;">Detailed Labour Force</a> data last Friday and it revealed a concerning and widening disparity between the prosperity of capital city Australia and our struggling regional centres. 
There's a bit of analysis to rip through here, so let's dive straight in and take a look in three short parts, commencing with...
Part 1 - Capital Cities are Dominating Employment Growth
In the two largest states, aggregate employment growth is now being driven entirely by the capital cities, although even therein the trend has softened. Note that regional New South Wales has barely added any employment at all in aggregate (on a net basis) for more than six and a half years. Regional Victoria has fared little better with total employment lower today than it was in January 2011.
Moreover, the trend in the regional employment has now clearly been down over the past couple of years.
<img src="https://4.bp.blogspot.com/-t7muucmvYVU/VGSM2K8AEDI/AAAAAAAARMs/HH1PjiQctoo/s640/CITY1.jpg">
There has only been one shining light in terms of regional jobs growth over the past half decade, that being regional Queensland.
Alas with the mining construction boom now unwinding total employment is now declining in regional Queensland too. The coal industry in particular <a href="https://petewargent.blogspot.co.uk/2014/09/pain-ahead-for-coal-mining-regions" target="_blank">looks vulnerable</a>.
The size of the total workforce in South Australia has been shrinking, with regional employment falling significantly over the past five years and total employment in Adelaide now some 20,000 lower than it was around 18 months ago, with the fallout from the decline of the automobile manufacture industry probably yet to be felt in full. 
Not a pretty picture for SA.
<img src="https://3.bp.blogspot.com/-9WGp3259SWI/VGSM3UapvoI/AAAAAAAARM4/kobxSzJCDtE/s640/CITY2.jpg">
Employment Over the Long Run
Now sure, property "advisors" are virtually all vested interests of one sort or another, and of course anyone can torture the figures until they confess.
One of the latest favourites has been the "strongest property market performer of the month!" proclamation, which is appallingly misleading.
But through presenting the full data sets across a range of timelines as we shall now undertake below leaves far less wriggle room for blatantly making nonsense up.
Indeed this is a perennial problem in the real estate commentary space - as if by a force of nature few advisors will ever highlight risks facing regions they own property in themselves, which is understandable enough, but not very helpful for would-be investors.
Personally I own property in regional Victoria (and regional Britain) but I'm hardly going to recommend that it's likely a great idea right now from a macro perspective given what the graphic below tells us. Any credibility I have would quite rightly be shot to pieces!
Logically, from my perspective, property investment is likely to entail significantly more risk where employment is falling or flailing, so to my mind there is a good deal of more elevated risk facing parts of Adelaide and Canberra, as well regional New South Wales, regional Victoria, regional Queensland, regional South Australia and regional Tasmania.
Why? Because employment is falling.
<img src="https://2.bp.blogspot.com/-0-9LeUbBcJ0/VGSM3ap3yTI/AAAAAAAARM0/nWVhzUWfxUI/s640/CITY3.jpg">
It should - but probably doesn't - go without saying that we also continue to believe there to a very high level of risk associated with mining and resources towns and regions in the current climate, and indeed, going forward as the mining construction boom implodes.
There is always some risk involved in buying property, that's a given. Our recommendation is that if you're going to do it, minimise the risks to the extent that this is possible through detailed research at both the macro and the micro level.
This article continues on the next page . Please click below. 
<hr class="system-pagebreak">
Part 2 - Unemployment Elevated and Rising in Regional Australia
As noted here previously, headline unemployment figures as reported by the ABS can be a relatively crude and volatile measure, failing to adequately capture discouraged workers or the underemployed, for example.
Nevertheless, it is worth a look at what is happening around the states, and the general picture is that unemployment is rising sharply in the regions. 
Sydney remains well placed with a headline unemployment rate of only 5.1% and a huge volume of dwelling and infrastructure construction in the pipeline, yet in regional New South Wales the unemployment rate trend has been up to now sit above 7%, which is much too high for comfort.
<img src="https://4.bp.blogspot.com/-PVbFLpPOLsA/VGSM5opf7qI/AAAAAAAARNU/tQn58uxZ65A/s640/UE1.jpg">
Below we have presented the three month moving average figures for Victoria, but we note that this month's ABS data is now beginning to record a sizeable disparity here too, with Melbourne's 6.3% unemployment rate now substantially lower than regional Victoria at 7.2%.
<img src="https://4.bp.blogspot.com/-8EdOMF2vFXg/VGSM57ZzaBI/AAAAAAAARNY/bkAeKyDCprI/s640/UE2.jpg">
The most concerning of all states, perhaps, is Queensland. While this is not yet fully reflected in the three month moving average figures, Brisbane's unemployment rate of 6.3% has diverged dramatically from regional unemployment which has leapt alarmingly to 7.7%. 
We have warned about parts of regional Queensland here repeatedly, particularly potential job losses in the coal mining sector.
<img src="https://1.bp.blogspot.com/-Hb7dG0tyP94/VGSM6W_bB4I/AAAAAAAARNg/2LUzTbuoiCw/s640/UE3.jpg">
With our chart pack on demographic statistics revealing a debilitating "brain drain" from South Australia in the form of net interstate migration, and the total size of the workforce having shrunk, it is perhaps unrealistic to expect elevated unemployment rates in the state's regions.
In fact the unemployment rate in regional South Australia has all but evaporated into thin air over the past month or two, but this is clearly not due to employment growth since there were more folk employed in regional South Australia way back in 2007 than there are today.
Adelaide's unemployment rate is too high for comfort at 6.9%.
<img src="https://2.bp.blogspot.com/-AIu_CkHVulk/VGSM7Dv8pxI/AAAAAAAARN0/3uO--Rc0QHA/s640/UE4.jpg">
Perth and WA still have the lowest headline unemployment rates respectively, although the trend in Perth has been steadily up since 2009 when the Western Australian capital city was effectively close to full employment.
<img src="https://3.bp.blogspot.com/-J906OHJ9T94/VGSM7Xs_5-I/AAAAAAAARNs/dhptShf1gaw/s640/UE5.jpg">
Finally the unemployment rate appears to have fallen in Hobart which is wonderful to see, but regional Tasmania has even managed to record a double digit unemployment rate reading in the past two months, which is less heartening.
<img src="https://1.bp.blogspot.com/-vY75mbXEkoY/VGSM7_Cf1TI/AAAAAAAARNw/uM_Lfx13d3U/s640/UE6.jpg">
Part 3 - The Casualisation of the Workforce
I think we are about done for today, but let's just acknowledge here the likely gradual casualisation of the workforce which must be a key consideration for property investors, particularly in the regional Australia where full-time employment in aggregate appears to be in an entrenched decline.
<img src="https://2.bp.blogspot.com/-nZ3BbpdoK-4/VGSM3y5_ieI/AAAAAAAARM8/wv4vlYYnme0/s640/FT1.jpg">
<img src="https://4.bp.blogspot.com/-tIM-PF6i-j4/VGSM41n1KyI/AAAAAAAARNI/-a1dGzz7Bp4/s640/FT2.jpg">
The Wrap
We've covered a lot of ground in a short space here, but the macro picture is that unemployment rates are trending up worryingly in regional Australia with jobs growth overwhelmingly focused in only the four largest capital cities.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
 
</body></html>

Employment gap between capital cities and regions becoming a gulf

<html><body>
The ABS released its <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Products/5204.0~2013-14~Main+Features~Related+National+Accounts+Products?OpenDocument" target="_blank">System of National Accounts for 2014-14</a> a couple of weeks ago which contained some interesting data on aggregate Australian land values. 
While commercial property tends to offer comparatively high yields, this is at least in part due to a comparative lack of capital growth in this asset class.  
While residential land values have boomed over the years, commercial land values have been virtually flat since 2008 and have simply never performed in the same manner. 
Residential land on the other hand...
<img src="https://1.bp.blogspot.com/-mVEzD9wXbkg/VFf0uicyCXI/AAAAAAAAQ8g/EoI7IExhZSw/s1600/LAND4.jpg"> 
This is not surprising, since the entire Australian financial and taxation system is set up for us to strive for home ownership and in many cases, to strive for property investment on top.
I noted the year 2008 above because it was at that time that the Australian property bubble theory really garnered support (to be fair, much of the financial world outside of Australia was imploding at that time), with some big studies eventually being released explaining why the Australian land value bubble must collapse.
<blockquote>
The thesis that land prices would inevitably suffer an epic crash from 2008 levels are looking shaky to say the least.
</blockquote>
The data series produced were never wrong, but they were frequently misinterpreted because users of the data took no account whatsoever of the factors which did not support their theory that land prices must collapse.
For example, disregarded were many of the real world factors which have served or continue to serve to push land values higher, including the deregulation of the financial system, interest rates falling substantially from above 15% to only 2.50% today, massive population growth in Australia, and a string of other factors as often discussed here before.
Six years on, let us now consider on what has happened to land values according this latest ABS data. 
<img src="https://1.bp.blogspot.com/-3FKRxdZ0H40/VFf0s0qtWTI/AAAAAAAAQ8Q/NvcuteYQPas/s1600/LAND1.jpg">
Goodness. As the chart shows the thesis that land prices would inevitably suffer an epic crash from 2008 levels are looking shaky to say the least.
Over the last six years, residential land values have continued to increase by 37% in New South Wales, by 46% in Victoria, 21% in Queensland, by 33% in South Australia and by 11% in Western Australia, having previously already boomed in Perth. 
Land values have taken off dramatically in all of the less populous states too.
Of course, with Australia's population growing at around 1.7% per annum, and thus some new land being rezoned for residential use, we would expect to see some increase in aggregate land values.
In fact, between June 2008 and June 2014 the Australian population increased by 2,051,000 or 9.6% (although apparently, it was further argued, population growth does not impact dwelling prices).
But clearly a population increase of less than 10% in no way accounts for residential land values in Australia increasing by 33% across the same time period. 
For completeness, here is what happened to commercial land values across the states. 
<img src="https://2.bp.blogspot.com/--GAH1Z8AMJ8/VFf0tDOkqSI/AAAAAAAAQ8M/NcKEHSxgQ1I/s1600/LAND2.jpg">
And rural land values, which outside of New South Wales, have done absolutely nowt.
<img src="https://4.bp.blogspot.com/-fqt-4GEw3kQ/VFf0taQHGqI/AAAAAAAAQ8I/JqyR4r7bdAc/s1600/LAND3.jpg">
Overall, the data shows that the demand for residential land, which is so heavily focused on a few key coastal locations, particularly Sydney, Melbourne, Brisbane and Perth, has pushed land prices higher over time.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

Soaring Australian land values put paid to property bubble theories

<html><body>
A huge shift in net interstate migration has taken place since the financial crisis, a major demographic trend which is a game-changer for this property market cycle, particularly in Sydney. Let's take a look in four short parts.
Part 1 - Mining states slowing...but Sydney booming 
Drilling into the most recent round of demographic data from the Australian Bureau of Statistics confirmed an interesting fact: net interstate migration from New South Wales has declined to its lowest level on record at just 1,036 in the March 2014 quarter.
Typically there has been a very significant population flow away from NSW, especially expensive Greater Sydney, which is comfortably more than replaced by immigrants from overseas and natural population increase. But as the mining construction boom fades so too does the tide of interstate population shift away from Sydney.
The mining states which have benefited most from net interstate migration historically are now no longer doing so - predominantly the maroon line of Queensland (and how!), the gold line of Western Australia (we use state cricket colours, see?) and the red of South Australia (Redbacks? Ah, you have the hang of it now), in that order.
<img src="https://1.bp.blogspot.com/-TqZE7VZ8DeY/VFFcNaz6RgI/AAAAAAAAQ00/_WzKb3KVooI/s1600/NIM.jpg">
Instead an expected rebound in services and construction jobs in Sydney and to a lesser extent Melbourne is seeing a massive boom in the population of those two cities.
Charted below is the annualised rate of population growth by state, which shows New South Wales (+115,000) now threatening to spiral off the top of the chart, with Victoria (+109,000) not too far behind.
<img src="https://4.bp.blogspot.com/-afEmTfIBbSk/VFDtIiTQVCI/AAAAAAAAQzw/ZC_nBRz52Dg/s1600/DEMOG2.jpg">
It never pays to get too aroused by one quarter of data - particularly from ABS releases at the present time! But the population change in the March 2014 quarter showed NSW recording an extraordinary increase of 35,285, potentially implying an unheard of annualised pace of well over 140,000.
In the event, we will not see the state's annual population growth figure scaling such dizzying heights due to the now slowing pace of net overseas migration, with fewer Kiwis and Poms in particular choosing to take the path Down Under at this stage in the cycle. Indeed, most immigrants to Australia now hail from Asia.
Nevertheless, despite the slowing pace of net overseas migration, by the time the June 2014 data rolls around we will probably see New South Wales annual population growth approaching 120,000, which is a huge figure.
<img src="https://2.bp.blogspot.com/-6qzI7bGd7Hs/VFDtI7tCGpI/AAAAAAAAQz0/fNpiDo3qm-s/s1600/DEMOG3.jpg">
Part 2 - Dwelling supply: too hot, too cold...or just right?
There is some some conflicting and some zany market commentary when it comes to the adequacy of dwelling supply in Australia, often involving a preconceived notion ("massive overbuilding" or "chronic undersupply") and the producing of data to support the position.
Sometimes we see analysis of building completions in Australia compared to the existing population, which is an interesting point of comparison, but a clear confusion of stock versus flow.
Much more unusually we see offbeat comparisons of Australian construction versus that seen in certain US states which previously had a cahuna oversupply and now aren't constructing much (relevance?), or on particularly obscure days, comparisons with Japanese construction. 
The slightly boring answer is that there is no chronic undersupply of dwellings in Australia and nor is there massive overbuilding in aggregate, although it is possible to highlights regions and suburbs which represent examples of each.
Property markets are complex and imperfect beasts. If you can analyse and understand data flows it becomes possible to identify specific areas where undersupply will begin to bite, and thus you can comfortably outperform market capital growth averages over time by buying investment property with an element of scarcity value in these locations. 
The data to analyse 
A better starting point is to scrutinise Australian building approvals, dwelling commencements and completions data against the changes in demand in Australia, drawing inferences based upon average household sizes (a little over 2.5 depending on your preferred source) for the regions analysed.
There have been warnings about a potential oversupply of dwellings in Sydney, for example. Travelling around certain parts of town I can see why you might reach that conclusion, but from a macro perspective, you'd be wrong. 
There is something of an oversupply of units looming in a few pockets - in the CBD and inner city, around the airport and inner south, and in a few of the new Urban Activation Precincts (UAPs) around transport hubs, where there will now be fewer height restriction on the building of apartment tower blocks.
Largely bought by offshore investors, these off-the-plan apartments will generally be poor performers and are likely to suffer from falling rents, vacancies, and possibly both.
(As an aside it's often highlighted how most property investor loans written are for established dwellings, but since there are now 9,366,800 dwellings and counting in Australia, and since a high proportion of the new stock is sold offshore, the percentage of domestic investment in established stock will continue to rise. 
Moreover, established properties usually represent better value than most expensive new units and therefore a majority of domestic investors will rationally steer clear of the newly constructed stock in the absence of incentives to do otherwise. In short, we probably do need foreign investors to create supply).
Sure, there are some areas where there are more new flats than willing renters. But ask anyone in the market and they'll tell you that in the lifestyle suburban areas where most people actually want to live, precisely the opposite problem exists - there is a dearth of quality stock and the decent stuff is selling in a matter of days.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
Part 3 - New stock has come online 
Think back to the annualised population growth figures discussed previously for New South Wales, which are tracking at about 115,000 over the year to March 2014. In the 12 months to June 2014, the state saw the completion of 19,134 houses...
 <img src="https://2.bp.blogspot.com/-9sqF6UvrvTg/VFDtMwvBFQI/AAAAAAAAQ0M/scA_2nrj8wE/s1600/DEMOG6.jpg">
...and only 17,510 completions for unit and apartments.
 <img src="https://1.bp.blogspot.com/-Pey-sa1PVEE/VFDtNSYhAJI/AAAAAAAAQ0U/ltPQkykWxb8/s1600/DEMOG7.jpg">
That's a grand total of 36,644 completions. Given that the state population in the year to March 2014 increased by 114,509, I don't think we need to panic about massive overbuilding just yet.
Completions have not even been high enough to match the demand from the state population growth let alone address previously inherent supply imbalances in Sydney...and that's before we even begin to account for brownfield site demolitions and stock obsolescence.
In fact, if you drill in more closely to the population and demographics data you will find that population growth in New South Wales regional centres has been far below the national averages in all but a tiny handful of localities. Meanwhile Greater Sydney is set to record population growth somewhere in the vicinity of 90,000 in this calendar year.
Part 4 - Decent approvals &amp; supply in the pipeline
In terms of forthcoming supply, it is true that there is more to come in the pipeline. In the 12 months to June 2014, New South Wales commenced 20,000 houses and 25,000 units. And Greater Sydney apartment approvals are now tracking at a little over 26,000 on a rolling annual basis.
That's a decent enough supply response to rising prices, assuming all approvals make it to completion, which they won't.
However the level of monthly apartment approvals peaked way back in March 2014 and is now rolling over. The major developers, who are nobody's dummies, are aiming to have their Greater Sydney new apartment stock completed and sold by December 2015.
<img src="https://1.bp.blogspot.com/-T_iG24vTjOY/VFDtODsprWI/AAAAAAAAQ0c/uz-oy6QHkaY/s1600/DEMOG8.jpg">
Oversupply theory? Doesn't pass the "sniff test".
With the exception of the aforementioned locations, there is no city-wide oversupply of dwellings in Sydney, and nor is there going to be any time soon. 
Inner Melbourne and inner Brisbane are two other areas we can talk about with an apartment oversupply. And, for example, some coal mining towns and regions are likely to experience oversupply too, albeit as result of a collapse in demand rather than overbuilding.
As a Chartered Accountant and sometime auditor, too many years ago now I was trained at accounting college to consider that when people make sweeping yet unsubstantiated claims such as "there is an obscene amount of construction going on in Sydney" then that claim should be weighed up against or made to pass a common sense or "sniff test".
Even if you choose to dismiss vacancy rates as an unreliable indicator, which in Sydney are hovering way below the notional equilibrium position of 3% at just 1.7%, the best "sniff test" for oversupply to my mind is to look for signs of negative rental growth. 
Today apartment rental growth is tracking somewhere between at 3% and 5.3% in Sydney, depending on your data provider of choice.
Over the past 10 years the growth in median rental for detached houses in Sydney has been 80%, and for attached dwellings the equivalent growth in median rental is 77%.
'Nuff said.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

Migration away from Sydney falls to record low

<html><body>
At times it is possible to become so engrossed in analysing weekly data series concerning the Australian economy and housing markets that we neglect to recap on the bigger trends unfolding over the years ahead. Here are four of them...
Trend #1 – Rebalancing: The “Great Rotation” is well underway
The Reserve Bank’s best laid plans to rebalance the Australian economy away from mining construction and towards a residential construction boom have been vigorously denigrated at almost every step along the way.
Variously it has been argued that credit growth was too low, land prices too high and that a sharp property market correction was assured.
And yet while the transition has by no means been perfectly engineered, dwelling prices have recovered fairly robustly in most cities, supply has begun to follow accordingly, and 2015 is shaping up to be a prodigious year for dwelling construction.
Building activity has already scaled levels not seen for two decades, while dwelling approvals are all but brushing around 200,000 on a rolling annual basis, reflecting a substantial volume of supply in the pipeline as the market responds.
<img src="https://4.bp.blogspot.com/-60LCdZCJOcw/VEw-6PyMnkI/AAAAAAAAQsA/02Dl2UDlzm4/s1600/1a%2B-%2BBUILDING%2BAPPROVALS.jpg">
From an economic perspective this is a welcome result, especially since previous research has proven residential construction to unfurl a strong <a href="https://petewargent.blogspot.co.uk/2014/07/construction-multiplier" target="_blank">multiplier</a> effect.
Of course, there are always weak links in the economic data.
Major renovation activity is moribund, which has continued to shave irritating fractions from housing investment’s quarterly contribution to GDP growth.
The dearth of renovation activity is no doubt partly a result of the structural shift towards apartment dwelling, and to some degree it reflects the expensive nature of detached housing stock in the capital cities.
There is also a generational factor at play, with younger family buyers having used first home owner grants to buy new properties or in some cases being priced out of the detached housing sector entirely. In the UK Homebase announced this week that it would close a quarter of its 323 stores as Brits also fall out of love with renovating and DIY.
Paradoxically, while Australian television viewers are bombarded by an artillery of cookery and renovation shows, official ABS data continues to show retail turnover for takeaway and café meals booming to unprecedented levels and renovation activity in most states dying a slow death.
We seem to enjoy watching others rustle up fancy meals and renovating houses; actually doing the stuff ourselves, not so much. If capital growth in earlier property market cycles was once in part illusory, driven by improvements to the existing stock of dwellings, this is not so much the case today.
<img src="https://1.bp.blogspot.com/-XCUvcgKBfwk/VEw_EIF4pAI/AAAAAAAAQsI/E7VHQKpr8_U/s1600/1b%2B-%2BALTS%2BAND%2BADDS.jpg">
Overall, though, the picture is strong for residential construction activity – for units and apartments in particular - and the aggregate new capex volumes in 2015 will not represent anything like the disaster that had been feared as the resources-driven engineering construction boom unwinds.
<img src="https://1.bp.blogspot.com/-1fR66lz8QHs/VE1pu1BbFWI/AAAAAAAAQuw/BqkILtQ3r-0/s1600/1c%2BRESI%2BCONSTRUCTION%2BWORK%2BDONE.jpg">
The above having been said, dwelling investment alone can only bridge so much of the gap.
As has been well documented previously, residential construction activity represents only a relatively small percentage of GDP and itself cannot offset the forthcoming plunge in mining capital investment.
More heavy lifting will be required from other sectors of the economy, and the net result of this is that the official cash rate will be lower for longer, with perhaps up to 18 months or more of uncommonly low interest rates ahead.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
Trend #2 – Real rental growth is dead
It is often said that a “quest for yield” is dramatically altering investment decisions, wrenching savers out of cash into the risk asset classes in a search for acceptable returns above the rate of inflation.
While this may be true of the equity markets, net yields in residential property are in fact low and heading lower, and the incentives to invest in residential real estate are largely centred upon expectations of reliable future price growth as an inflation hedge.
One of the most notable trends playing out through this cycle is that levels of investor activity are set to break through unparalleled levels, with the Reserve Bank’s own financial aggregates data showing that the gradient of credit growth relating to investment housing continues to rise more steeply than that associated with owner occupiers. 
The inescapable conclusion of this is that property buyers seeking capital growth must anticipate the locations investor funds will flow to, which research has shown are very heavily concentrated in the inner and middle ring suburbs of the large capital cities.
As each month passes further evidence also gradually comes to light that the official data may be materially understating the role of foreign investment in the capital cities, particularly from Asia, and the real level of investor activity could be significantly higher still if offshore funds were to be captured effectively.
<img src="https://1.bp.blogspot.com/-lQmOezz6SEg/VEw_YFqc4KI/AAAAAAAAQsY/gf1XucXGJq4/s1600/2A%2B-%2BOO%2BVS%2BINVESTORS.jpg">
While these trends are doubtless pushing inner city dwelling prices higher, the corollary is that with greater volumes of supply coming online - a high proportion of which is investor owned – real rental growth is declining.
While the rate of rental inflation has held up reasonably well in supply-constrained Greater Sydney to date, where the population is also booming, the risks for most cities are to the downside (and in some smaller cities such as Canberra, nominal rents have already turned alarmingly negative).
<img src="https://1.bp.blogspot.com/-fqMtUdBim-U/VEw_jz_NXTI/AAAAAAAAQsg/t4AeS0Aw99M/s1600/2b%2BRENTAL%2BGROWTH.jpg">
Article continues on the next page. Please click below.
<div>
<hr class="system-pagebreak">
Trend #3 – At long last…it’s time for Brisbane to shine
</div>
Sydney has become the Antipodean equivalent of London and the residential property market just keeps on keeping on.
An imperiously strong FY14 will be followed by more of the same in FY15, with SQM Research forecasting a further 8 to 12% growth for the harbour city.
The supply versus demand imbalance in Sydney has been well known about by those close to the market for half a decade, and dwelling price growth continues to respond accordingly.
Variously Australian cities face considerable challenges. Adelaide’s labour market and economy are lacklustre, Melbourne has a surfeit of supply and of sellers, while Perth is juggling an awkward transition from mining construction to production in concert with a decline in Australia's terms of trade. Queensland aside, full-time employment in regional Australia has stalled completely and is actually lower now in the major states than it was way back in 2006, <a href="https://petewargent.blogspot.co.uk/2014/10/city-versus-country-widening-jobs-gulf" target="_blank">as I analysed here</a>.
We have taken great care to analyse the Brisbane data for false dawns and have refrained from calling prematurely for a marked uplift in prices, but the data suggests that at long last it is time for the maroon of Queensland to have some time in the sun.
<img src="https://3.bp.blogspot.com/-4G2nnN-OvNI/VEw_uGbTnqI/AAAAAAAAQso/5LGtQAgrOIo/s1600/3A%2BOO%2BBY%2BSTATE.jpg">
The recovery in Brisbane housing finance to date has been studious rather than explosive, but upon closer inspection of the figures we see that while most states have recorded seasonally weak mortgage finance data since June, Queensland is going from strength to strength, with owner occupier commitments increasing by another 15% over the past year.
It has been a significant bounce back for Queensland owner occupier finance activity and dwelling transaction levels since 2011, and more timely data from mortgage aggregators suggests that there has been further strength through to October 2014.
<img src="https://2.bp.blogspot.com/-CJyzCOsCqkk/VEw_2m4cllI/AAAAAAAAQsw/hhuyueuz8dI/s1600/3b%2BQLD%2BOO%2BBY%2BMONTH.jpg">
We called the Sydney property investor boom long ago and took action accordingly - you would have to be living under a rock not have heard about it by now.
However the ABS Lending Finance activity data that investors have not yet fully come to the party in Brisbane - at least, not domestically.
Enquiries and mortgage broker data have indicated that a steady rotation towards Queensland is taking place, with interstate investors enticed by stronger yields and considerably more attractive entry prices.
<img src="https://2.bp.blogspot.com/-te6rwa5azak/VExAAz-J3pI/AAAAAAAAQs4/Bms_8hmDnJA/s1600/3c%2BBRISBANE%2BINVESTORS.jpg">
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
Trend #4 – Asset selection will be critical in this cycle
For all the above, buyers in Brisbane need to undertake more educated investment decisions than in cycles past, and asset selection will be critical to a successful outcome.
The coming upturn in Brisbane is not resultant from a chronic undersupply such as was the case in Sydney, with more attached housing stock (units and apartments) approved in Brisbane on a rolling annual basis than we have previously seen.
<img src="https://1.bp.blogspot.com/-wYAUJvwvyUc/VExAJMWDI8I/AAAAAAAAQtA/lvFGjWGjjWo/s1600/4a%2B-%2BCAP%2BCITY%2BUNIT%2BAPPROVALS.jpg">
The clear implication of this is buying generic, off the plan city apartment stock is an almost guaranteed route to a sub-optimal investment outcome, and the return on investment from such a strategy could easily be negative.
Not only do investors need to steer clear of the standout pockets of looming apartment oversupply and elevated vacancy rates, they must look to source stock which will retain a level of scarcity value through the cycle.  For units this can mean boutique blocks, river views or district views which will not be subsequently built out.
The apartment construction boom will be effectively absorbed by population growth in due course and over time, yet Brisbane will not any time soon see a repeat of the dramatic boom in interstate migration which played out in previous cycles.
<img src="https://1.bp.blogspot.com/-a1jq7bbVZ60/VE1qksOPb7I/AAAAAAAAQu4/U_5W0mUT9Do/s1600/4B%2BPOPULATION%2BGROWTH.jpg">
Population growth in Queensland remains very strong, but in common with other mining states, the pace of growth is presently declining.
<img src="https://2.bp.blogspot.com/-AXYPUB5A7pg/VE1quBf3vBI/AAAAAAAAQvA/-Er6P_hW4Ec/s1600/4C%2B-%2BQUEENSLAND%2BPOPULATION%2BGROWTH.jpg"> 
As the mining construction boom begins to unwind net interstate migration to Queensland has slowed, and it will be natural increase combined with net overseas migration which drives Brisbane forward in the immediate future.
Informed investors will take note of the property types favoured by immigrants, leaning towards favoured modern types of investment housing (ideally, as noted, with water or district views which will not be built out).
Headwinds and challenges persist in the local economy in Brisbane, as indeed is the case in most Australian capital cities.
Previously encouraging labour force growth appears to have hit something of a plateau lately, and while strong construction employment is a welcome start, Australia needs to stimulate a broad-based recovery in the services sector and encourage household consumption.
<img src="https://3.bp.blogspot.com/-2XfKBMaPJrE/VExBUEXP0KI/AAAAAAAAQtc/HOwPOqfsEbs/s1600/4D%2BCUM%2BJOBS%2BGROWTH.jpg">
Price growth for Brisbane and Sydney ahead
Dwelling price growth in Brisbane has been weak for more than half a decade with prices having declined from peak to trough by close to a fifth in real terms, which, with interest rates at exceptionally low level might give an indication as to the potential quantum of a successful rebound. After a prolonged hiatus, sentiment has turned a corner and improved prospects lie ahead.
BIS Shrapnel forecasts capital growth in Brisbane of 17% over the next three years, while SQM Research’s forecast of 8 to 12% capital growth in Sydney will continue to attract investors in the harbour city.
Over the longer term Residex forecasts capital growth tracking at 5 to 6% per annum in Sydney and Brisbane.
We will be buying investment outstanding properties for clients in both cities in 2015.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' .
</body></html>

Four major housing market trends for this decade

<html><body>
Last week, I noticed Craig James, chief economist of Commsec, pointing out to David "Kochie" Koch that although wages growing have been growing slower than prices, household incomes are actually growing at the fastest pace in two years, increasing by 4.7% in the last 12 months.
While wages growth has indeed slowed (<a href="https://petewargent.blogspot.co.uk/2014/05/wages-grow-at-26" target="_blank">as I analysed here,</a> among other places), apparently household disposable incomes have been rising more quickly. Interesting statistic I thought, so I asked "CJ" for the source.
<img src="https://3.bp.blogspot.com/-7SzKL4Y4BIU/VCF5vBSJ3TI/AAAAAAAAP70/Yhw_QqERMLs/s1600/HICJ.jpg"> 
Straight from the National Accounts, advised CJ. So I thought I'd take a little look to confirm or deny.
Household gross incomes rising
First, I ran the seasonally adjusted household income data from the National Accounts.
As you can see from the green line circled below, after a rampant boom in employee compensation spurred on by Australia's mining boom, income growth from paid employment has slowed since December 2012.
Although the trend does remain up on a national basis, in real terms wages are at best flat and at worst declining moderately.
Of course there are many forms of income including dividends, rent, social assistance, other transfers, and more besides, and overall household incomes have increased at the significantly faster pace of 4.4% seasonally adjusted over the last year according to the Australian Bureau of Statistics (ABS) - in essence, everything that is not wages has increased in real terms.
 
 <img src="https://2.bp.blogspot.com/-8H1Wz0wmWcQ/VCF5psR7OkI/AAAAAAAAP7Q/opfMA4K1EVA/s1600/HI1.jpg">
Still, even this income growth cannot fully account for a 4.7% rise in household disposable incomes.
Payables down?
The big mover in terms of payables in recent decades has of course been interest paid on dwellings, which skyrocketed until September 2008, then collapsed as interest rates were slashed and house prices eased. Then it repeated the trick once again from September 2011 as the latest easing cycle took hold.
With interest rates significantly closer to the zero bound than historically has been the case and household debt levels today much higher than they were before the deregulation of the banking system, relatively small adjustments to mortgage rates can result in wild swings in total interest payments on dwellings. And how!
<img src="https://3.bp.blogspot.com/-xFfk72ZbyRo/VCF5p2fT1FI/AAAAAAAAP7U/ucfhOLYzSDo/s1600/HI2.jpg"> 
With most mortgage debt being charged on variable rate products, this explains why Australia's housing market is so sensitive to shifts in interest rates, and why only a few rate hikes would quickly quell speculative sentiment and swiftly end the property price uptrend for this cycle.
Why? Because the people lumbered with the highest mortgage debt as a percentage of their household income are those at the margin i.e. those buying much of the property which transacts.
It is difficult to draw hard conclusions from macro level data, but the two charts above show that for existing homeowners on variable rate mortgages, disposable income has surely roared higher in the period since the dramatic peaks in interest repayment levels of September 2008 and September 2011 respectively.
Anyone with existing mortgage debt who has remained in employment will appreciate just how comparatively easy life is with a standard variable rate of 5.2% rather than the 9.6%, we saw as recently as July and August 2008.
<img src="https://www.rba.gov.au/speeches/2013/images/sp-so-230413-graph11.gif"> 
This article continues on the next page. Please click below to continue. 
<hr class="system-pagebreak">
Household income accounts
On a national basis total gross income dwarfs property payables largely because most Australians are not mortgaged to the eyeballs as is widely believed. 
Depending on your state, between a quarter and a third of homes <a href="https://petewargent.blogspot.co.uk/2014/05/dynamics" target="_blank">are owned debt free</a> while mortgage holders over recent years have been moving well ahead on their repayments. 
Meanwhile income taxes payable have moved higher in concert with rising taxable incomes. 
The trend in gross disposable income is shown by the red line below.
 <img src="https://4.bp.blogspot.com/-ew6soAsW11s/VCF5umNs6jI/AAAAAAAAP7w/d8MQCRJdCdQ/s1600/HI4.jpg">
So, in this sense, Commsec's observation is correct - gross disposable incomes are indeed 4.7% higher than a year ago.
However it is a fair bet that those who are not homeowners and are 100 percent reliant on a salary for their income do not feel much better off, if they even do at all.
Homeowners and in some instances those with diversified income streams are clearly benefiting very significantly from record low borrowing rates.
These things naturally tend to work in cycles, though - when interest rates were much higher and rising and dwelling prices easing, the boot was on the other foot entirely.
 
 <img src="https://3.bp.blogspot.com/-CV4uoAihbTI/VCF5tvRx9fI/AAAAAAAAP7k/dN77fz2dzgw/s1600/HI5.jpg">
Gross disposable income nationally has been launched massively higher by more than 80% in the past decade, unadjusted for population growth.
However, the trend disposable income growth per capita seems likely to slow, and if interest rates are hiked several times gross disposable income in aggregate could plateau unless wages growth rebounds.
 <img src="https://2.bp.blogspot.com/-fXYwdyho_XE/VCF5vQP6fjI/AAAAAAAAP74/O2tfGis_r1o/s1600/HI6.jpg">
 
</body></html>

Are household disposable incomes really increasing at 4.7%?

<html><body>
There is a bit of debate around as to whether it is escalating land prices which are pushing up dwelling prices, or whether development and construction costs have a role to play too.
An unbiased observer with no barrow to push would surely conclude that it is both.
Lot prices
Clearly, land prices have increased, there can be no contesting this fact. The latest data from the HIA showed that median capital city lot values have increased by approximately 20% over the past five years to March 2014 as looked at <a href="https://petewargent.blogspot.co.uk/2014/07/capital-city-lot-prices-jump-33-qq-75-yy" target="_blank">here</a>, the most recent gains driven largely by a material annual increase of 5.6% in Sydney. 
<img src="https://3.bp.blogspot.com/-eyGvHmjA7tE/U8eJFkwXdQI/AAAAAAAAOk0/0Ox0UHIewqI/s400/HIAlot+prices.jpg"> 
Source; HIA
Further, with lot sizes decreasing, the rate of of increase in land values may be deceptively somewhat steeper than implied by the HIA's charts.
While Australia continues to pursue a population policy which pushes 80,000 to 95,000 persons in one calendar year into both of its largest metropolises, it does seem that absent radical tax reform that lot prices will probably increase over time. 
The below chart represents what has happened over the last decade to the respective populations of Greater Sydney and Greater Melbourne according to the Australian Bureau of Statistics, which is to say that they increased by 600,000 and 750,000 persons respectively.
 <img src="https://1.bp.blogspot.com/-9P9TepnB90M/VBbgWjGJkSI/AAAAAAAAPws/keV69nJLCLQ/s1600/CONSTRUCTPIOPN.jpg">
This is a colossal rate of growth and indeed this was one of the reasons that will felt a dramatic housing bust was unlikely in 2008. Notably, the population growth is increasingly focused on the capital cities rather than the "rest of state" areas, and in particular, the population growth rates are focused on the areas highlighted below.
"At June 2013, just under two-thirds of the state's population (4.76 million people) resided in Greater Sydney. Population growth in Greater Sydney accounted for 78% of the state's total growth in 2012-13." 
 <img src="https://3.bp.blogspot.com/-3jzCRPX-QAM/VBbfP-hXOII/AAAAAAAAPwQ/JVN87TyStJA/s1600/CONSTRUCT1.jpg">
"Greater Melbourne accounted for 76% of Victoria's population at June 2013. Population growth in Greater Melbourne equated to 89% of Victoria's total growth in 2012-13."
<img src="https://4.bp.blogspot.com/-Jfe1YKtTMj0/VBbfUk-syqI/AAAAAAAAPwY/m4LxdNPZG3I/s1600/CONSTRUCTVIC.jpg">  
Perhaps unsurprisingly, then, capital city land prices have indeed increased. 
Construction costs
That said, observers should not dismiss the role of rising construction and development costs because they don't fit the narrative.
The Reserve Bank of Australia (RBA) went to some lengths to demonstrate the high replacement cost of infill apartment dwellings in particular as at 2010.
Their research implied that a fall in apartment prices would quickly dry up the supply of new stock given that two bedroom apartments in Sydney and Melbourne had a replacement cost approaching $500,000 per dwelling.
Notably, the RBA found there to be a heavy weighting of the costs towards construction, service and financing and government charges, with the land cost only comprising a small component of the total. 
 <img src="https://www.rba.gov.au/speeches/2013/images/sp-so-230413-graph8.gif">
The above chart shows how it is plainly unrealistic to expect dwelling prices in our largest capital cities to be based upon an arbitrary multiple of a median salary income. Of course dwelling prices can fall below replacement cost for a time, but 'Housing Market Economics 101' should tell you that in a city with a rapidly expanding population this will rarely remain the case for very long.
The above data ties in neatly with what the Australian Bureau of Statistics <a href="https://www.abs.gov.au/ausstats/abs@.nsf/featurearticlesbytitle/2609898B87F95519CA25792D000E2DF5?OpenDocument" target="_blank">found in October 2011</a>, which was that:
"Over the last 20 years, the cost of building a new house has increased nearly fourfold.
"The average cost of building a house in Australia almost quadrupled in the twenty years to June 2008, rising from $65,000 in 1987-88 to $236,000 in 2007-08. Graphs 1 and 2 (below) show that the cost of building a house in Australia has been rising, with the rate of increase greater in the second decade."
 <img src="https://www.abs.gov.au/ausstats/abs@.nsf/3d68c56307742d8fca257090002029cd/2609898b87f95519ca25792d000e2df5/Body/0.98C!OpenElement&amp;FieldElemFormat=gif" alt="Graph: Graph 1: AVERAGE COST PER NEW HOUSE">
 <img src="https://www.abs.gov.au/ausstats/abs@.nsf/3d68c56307742d8fca257090002029cd/2609898b87f95519ca25792d000e2df5/Body/0.13A6!OpenElement&amp;FieldElemFormat=gif" alt="Graph: Graph 2: AVERAGE COST PER NEW HOUSE">
Source: ABS 
This massive increase in the average cost of a new house was not limited to the major states - the costs of new housing increased way ahead the rate of inflation everywhere as the data clearly demonstrates.
<img src="https://1.bp.blogspot.com/-tb5SOOnJ_Ik/VBbgPIsKFyI/AAAAAAAAPwk/T5J14dLwh0E/s1600/CONSTRUCTABS.jpg" style="display: block; margin-left: auto; margin-right: auto;">
Source: ABS 
It is folly to ignore <a href="https://www.abs.gov.au/ausstats/abs@.nsf/featurearticlesbytitle/2609898B87F95519CA25792D000E2DF5?OpenDocument" target="_blank">these statistical findings</a> simply because they do not fit the land prices meme.
Why did developer costs rise and what is the impact?
Ask any developer in our capital cities and they will tell you the same thing - that the costs of development and construction are dramatically higher in real terms than they were 25 years ago.
I looked at some of the reasons for this in detail <a href="https://petewargent.blogspot.co.uk/2014/03/9-reasons-developer-costs-jumpedand" target="_blank">here</a>, also demonstrating how there is scant evidence of developers gouging high returns on capital employed, with margins remaining relatively tight even today.
This leads me to be reasonably confident in what we have heard from developers in Sydney, that approvals and rates of construction will have well passed their peak through 2016. 
One of the impacts of this combination of high land remediation costs and growing demand for dwellings close to the city has been that with replacement cost relatively high in built-out inner city locations, the house price gradient, or the ratio of house prices in the inner ring to those in the outer, has steepened considerably over the past seven years.
 <img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph11-small.gif" alt="Graph 11: House Price Gradient">
</body></html>

Pete Wargent

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Pete Wargent

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News