<p>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.</p>

<p>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;</p>

<p>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;</p>

<p>“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;</p>

<p>[smartcode_project:default project_id=110291 project_image_fid=302785]</p>

<h2>Affordable product leads, premium demand remains resilient</h2>

<p>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;</p>

<p>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;</p>

<p>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.</p>

<p>Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.</p>

<p>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;</p>

<p>[smartcode_project:default project_id=148957 project_image_fid=364102]</p>

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

<p>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.</p>

<p>David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.</p>

<p>“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;</p>

<p>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.</p>

<p>[smartcode_project:default project_id=108869 project_image_fid=317905]</p>

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

<p>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;</p>

<p>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;</p>

<p>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”.</p>

<p>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;</p>


Joel Robinson

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

<p><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.</p>

<p>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.</p>

<p>Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.</p>

<p>“Brisbane was the right step for Sammut,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>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.</p>

<p>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.</p>

<p>“We are DA approved now which is very exciting,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.</p>

<p>“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.</p>

<p>The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.</p>

<p>“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.”</p>

<p>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.</p>

<p>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.</p>


Sammut secures approval for debut Brisbane apartment development in Toowong

<p>Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.</p>

<p>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.</p>

<p>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.</p>

<p>“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.</p>

<p>“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.</p>

<p>Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.</p>

<p>“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.</p>

<p>“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”</p>

<p>The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.</p>

<p>“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.</p>

<p>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.</p>

<p>&nbsp;</p>


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

<p>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.</p>

<p>The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.</p>

<p>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.</p>

<p>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.</p>

<p>“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.</p>

<p>“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.”</p>

<p><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" /></p>

<p>GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.</p>

<p>“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.”</p>

<p>Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.</p>

<p>“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.</p>

<p><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" /></p>

<p>&nbsp;</p>

<p>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.</p>

<p>Green praised local policy settings.</p>

<p>“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.”</p>

<p>One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.</p>

<p>“The way we will be able to achieve economies of scale is through size,” Green added.</p>


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

<p>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.</p>

<p>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.</p>

<p>Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be</p>

<p data-end="683" data-start="511">"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.</p>

<p data-end="882" data-start="690">"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."</p>

<p data-end="882" data-start="690">[smartcode_project:default project_id=134646 project_image_fid=6109]</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6110]</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6116]</p>

<p data-end="247" data-is-last-node="" data-is-only-node="" data-start="0">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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project_cta:default project_id=134646]</p>


WM Residences fills gap in Mordialloc townhouse market

Shane Oliver

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<p>Although 2017 saw the usual worry list – around President Trump, elections in Europe, China, North Korea and Australian property – it was good for investors. Balanced super funds had returns around 10%, which is pretty good given inflation was around 2%. This year has started favourably but volatility may pick up as geopolitical threats loom a little larger and US inflation rises. This note provides a summary of key insights on the global investment outlook in simple dot point form. </p>
<p>Five lessons from 2017</p>
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<li>The global economy is finally emerging from its post-Global Financial Crisis (GFC) hangover. Talk of secular stagnation was overdone. Slow global growth since the GFC largely reflected a typical constrained aftermath from a major financial crisis.</li>
<li>The withdrawal of extreme monetary stimulus won’t cause economic chaos if central banks don’t move too quickly and recovery is entrenched – this is clear in the US where the Fed has now been able to move away from zero interest rates and start reversing quantitative easing.<br><br>
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<li>The Eurozone is far more resilient than many give it credit for – with voters across numerous countries opting for centrist pro-Euro parties as opposed to the populist parties that many said were going to sweep to power./<br><br>
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<li>Turn down the noise – retreating to cash on talk of war with North Korea, worries about Trump, ahead of elections in Europe and perennial talk of a property crash in Australia – would have been costly in terms of missed returns.<br><br>
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<li>Stick to an investment strategy – 2017 had its share of distractions for investors but they would have done okay provided they stuck to an investment strategy that prevented them from getting blown around by various scares.</li>
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<p>Key themes for 2018 </p>
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<p>• Still in the sweet spot for investors – a further rise in global growth to around 3.9%, driving solid earnings growth with continuing low inflation and easy global monetary conditions should keep investment returns favourable.</p>
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<p>• But expect more volatility as US inflation stirs, the Fed hikes more than the market expects, other central banks edge towards less stimulus and political risk increases.</p>
<p>• Apart from the likelihood of more volatility through the year, global shares are likely to trend higher through 2018 on the back of rising earnings and still easy monetary conditions.</p>
<p>• Australian shares are likely to do okay but underperform global shares with returns around 8% with moderate earnings growth. Expect the ASX 200 to reach 6300.</p>
<p>• Commodity prices are likely to push up with global growth. • Low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds.</p>
<p>• Unlisted commercial property &amp; infrastructure are still likely to benefit from the search for yield, but it is waning and listed variants are vulnerable to rising bond yields.</p>
<p>• National capital city residential property price gains are expected to slow to around zero as the air comes out of the Sydney and Melbourne property boom and prices fall by around 5%, but Perth and Darwin bottom out, Adelaide and Brisbane see moderate gains and Hobart booms.</p>
<p>• Cash &amp; bank deposit returns to remain poor at around 2%.</p>
<p>• After a short-term further bounce higher, the $A is likely to fall against the $US as the gap between the Fed Funds rate and the RBA’s cash rate goes negative. Solid commodity prices will provide a floor for the $A, though.</p>
<p>Seven things to watch </p>
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<p>• President Trump – the risks around the Mueller inquiry and renewed political pressure from the mid-term elections risks more populist policies (with trade conflict with China and Mexico and a possible escalation with North Korea and Iran high on the list) after the business-friendly policies of 2017.</p>
<p>• How quickly US inflation turns up – a rapid upswing would see a far more aggressive Fed, a strong rise in the $US and bond yields, and pressure on emerging market shares.</p>
<p>• Bond yields – a rapid rise in bond yields would be bad for shares and assets that benefitted from the search for yield.</p>
<p>• The March Italian election – the Five Star Movement is likely to do well, which may create investor angst, but they are unlikely to be able to form government and are less anti- Euro. Moreover, support for the Euro remains high in the rest of Europe so Italy is unlikely to trigger a domino effect.</p>
<p>• Whether China, post the Party Congress, embarks on a more reform focussed agenda, slowing short-term growth.</p>
<p>• The Sydney and Melbourne property markets in Australia – too fast a slowdown could threaten broader growth.</p>
<p>• Global business conditions indicators (PMIs). </p>
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<p>Four reasons why global growth is likely be strong </p>
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<p>The post-GFC hangover has faded with high levels of confidence helping drive stronger investment and consumer spending. Self-sustaining growth has returned.</p>
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<p>Global monetary conditions are still easy. While some fret about a flattening US yield curve, this is unlikely to signal a growth downturn because it’s been driven by rising short rates rather than falling long rates, high demand for long bonds as a portfolio diversifier and continuing QE in Europe and Japan holding down global and hence US bond yields.</p>
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<p>Fiscal austerity has faded, with the US seeing stimulus.</p>
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<p>We have not seen the excesses – massive debt growth, overinvestment, capacity constraints or excessive inflation – that normally precede recessions. </p>
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<p>Three reasons why a grizzly bear market is unlikely</p>
<p>Shares are overdue a decent correction and even a brief (or gummy) bear market (where shares fall 20% but are back up a year after) is possible. But a deep (or grizzly) bear (where shares fall 20% and a year after are even lower) is unlikely: </p>
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<p>A recession is unlikely with growth more likely to accelerate. Most grizzly bear markets are associated with recession.</p>
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<p>Short-term sentiment measures are bullish but longer-term sentiment and positioning suggests investors are far from euphoric. (Some of the euphoria may have even been siphoned off to schemes like Bitcoin!)</p>
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<p>The liquidity backdrop for shares is still positive, with low rates still providing an inducement to allocate to shares. </p>
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<p>Three reasons why risks around Trump may rise a bit</p>
<p>For 2017, we expected Trump the business-friendly pragmatist to dominate, but there are several reasons why we may see a bit more of Trump the populist in 2018:</p>
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<p>Much of his business-friendly policy agenda has been implemented notably tax reform and deregulation. So the good news from these sources is largely behind us.</p>
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<p>The Mueller inquiry is getting closer to Trump. We don’t see the Republicans impeaching Trump unless there is clear evidence of wrongdoing. Even if he is replaced by Vice- President Pence, policy wouldn’t change much – but markets may worry about it and this may be intensified if Trump lashes out and creates populist distractions.</p>
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<p>The mid-term Congressional elections in November (with polling pointing to the GOP possibly losing control of the House) will see a renewed focus on issues around trade (as evident in just imposed US tariffs on solar panels &amp; washing machines) and inequality as Trump tries to boost his base.</p>
<p>But the 2016 fears around Trump are still unlikely to be realised – he has a focus on growth and jobs and won’t want to threaten this. A full ontrade war with Mexico or China is unlikely as a surge in consumer prices won’t go down well with his base. </p>
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<p>Three reasons why the trend in bond yields is likely up</p>
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<p>Deflation risks have retreated and are being replaced by inflation risks as global spare capacity is being gradually used up (led by the US) and commodity prices trend higher.</p>
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<p>Long bond yields remain well below levels consistent with nominal growth of around 3-3.5% in developed countries.</p>
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<p>Bonds are over-loved with a huge post-GFC inflow. </p>
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<p>Three reasons why Chinese growth won’t slow much </p>
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<p>The Chinese Government’s tolerance for a sharp slowing in growth is low given the risk of social instability it may bring.</p>
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<p>Monetary &amp; fiscal policy has not been tightened significantly.</p>
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<p>In the absence of much lower savings (the main driver of debt growth), rapid deleveraging would be dangerous. </p>
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<p>Five reasons Australia won't have a recession (again) </p>
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<p>A downturn in the housing cycle and uncertainty around the consumer are the main risks facing Australia but against this:</p>
<p>• The drag from falling mining investment has faded.<br> • Non-mining investment and infrastructure spending are turning up.</p>
<p>• National income is no longer falling as commodity prices have stabilised or are trending higher.</p>
<p>• Stronger export volumes from resource projects like LNG and stronger global growth will provide an additional boost.</p>
<p>• Interest rates can still fall further if needed.</p>
<p>The next move in Australian interest rates will likely be up, but the RBA will wait for more confidence on growth &amp; that inflation has bottomed before starting to gradually hike later this year. </p>
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<p>Five reasons to expect more share market volatility </p>
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<p>• As US inflation rises it will likely result in a more aggressive Fed than the market is allowing for.</p>
<p>• Geopolitics may be a bit more negative than it was in 2017 if Trump becomes more populist.</p>
<p>• Volatility indexes like VIX are around record lows and net speculative short positions on VIX (bets volatility will fall further) are near record highs, warning of some reversal.</p>
<p>• Low volatility years like 2017 often lead more volatile years. • The US share market is expensive on some measures. </p>
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<p>Three reasons Bitcoin is a bad “investment” </p>
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<p>• It’s impossible to value, generating no income flow – making it highly speculative (as evidenced in extreme volatility) and subject to a crowd-driven mania (as we saw in 2017).</p>
<p>• New supply potential is huge – eg, from other crypto currencies and futures trading which is allowing easy shorting and syphoning away demand.</p>
<p>• Governments are likely to ramp up regulation of it, are unlikely to give up their monopoly of legal tender (and the “seigniorage” they earn from it) and will likely develop their own crypto currencies using block chain. </p>
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<p>Nine things investors should remember </p>
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<p>The power of compound returns – saving regularly in growth assets can grow wealth substantially over long periods. Using the “rule of 72”, it will take 29 years to double an asset’s value if it returns 2.5% pa (ie 72/2.5) but only 9 years if the asset returns 8% pa.</p>
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<p>The cycle lives on – markets cycle up and down and we need to allow for it and not get thrown off by rough patches.</p>
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<p>Diversify – don’t put all your eggs in one basket.</p>
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<p>Turn down the noise – increasing social media and the competition for your eyes and ears is creating much noise around investing that is really just a distraction.</p>
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<p>Starting point valuations matter – for example still low bond yields will mean low medium term bond returns.</p>
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<p>Remember that while shares can be volatile, the income stream from a diversified portfolio of shares is more stable over time and higher than the income from bank deposits.</p>
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<p>Avoid the crowd – at extremes it’s invariably wrong.</p>
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<p>Focus on investments with sustainable, decent cash flows – not financial engineering and schemes like Bitcoin.</p>
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<p>Accept that it’s a low nominal return world – when inflation is 2%, a 10% superannuation return is pretty good (and probably not sustainable at that rate). </p>
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Shane Oliver's Insights - 2018 - a list of lists regarding the macro investment outlook

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5 percent price falls, rather than a property crash tipped by AMP Capital's Shane Oliver for 2018

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<p class="x_MsoNormal">The RBA left interest rates on hold again for the 16<sup>th</sup><span class="Apple-converted-space"> </span>month in a row following its November Board meeting and its post meeting statement provided no urgency to start raising rates.</p>
<p class="x_MsoNormal">As has been the case for some time now the RBA expects growth to pick up to around 3% or just above over the next few years – and is getting more confident that a pick up in non-mining investment and increased infrastructure spending will help on this front – and it sees stronger growth along with continuing labour market strength driving an eventual pick up in wages growth and inflation.</p>
<p class="x_MsoNormal">However, for now it remains in wait and see mode thanks to uncertainty hanging over the outlook for consumer spending and wages growth and inflation remaining low. At the same the RBA continues to warn that a stronger $A would likely result in slower growth and inflation than forecast and worries about the overheated Sydney and Melbourne property markets have receded with national home prices flat over the last six months.<span style="font-size: 12.16px;"> </span></p>
<p class="x_MsoNormal">While some express surprise that the RBA isn’t following the US Federal Reserve in its interest rate tightening cycle, it’s worth noting that the RBA sets rates on the basis of Australian conditions so there is no automatic linkage from the Fed to RBA on rates.</p>
<p class="x_MsoNormal">In fact, ever since the GFC we have diverged – raising rates in 2009-10 when the Fed held rates at zero and cutting rates last year when the Fed had started to hike. While a tightening Fed in the year ahead and an on hold RBA are likely to contribute to a fall in the value of the Australian dollar, given weak inflationary pressures and some uncertainty around growth this would be a desirable development and so wouldn’t prompt an RBA move unless the $A crashed causing a surge in inflation (which looks unlikely).</p>
<p class="x_MsoNormal">Given all this, we remain of the view that the RBA won’t start raising interest rates until late next year at the earliest.</p>
<p class="x_MsoNormal"><span class="s1"><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author"><em>SHANE OLIVER</em></a></span><span class="s2"><em> is head of investment strategy and economics and chief economist at </em><a href="https://www.ampcapital.com.au/home"><span class="s1"><em>AMP Capital</em></span></a><em> and is responsible for AMP Capital's diversified investment funds.</em></span></p>
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RBA have no urgency to start raising rates

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<p>Guest observer</p>
<p>Introduction</p>
<p>At the start of last year, with global and Australian shares down around 20% from their April/May 2015 highs, the big worry was that the global economy was going back into recession and that there will be another Global Financial Crisis (GFC). Now, with share markets having had a strong run higher, it seems to have been replaced by worries that a crash is around the corner and this will give us the global recession and new GFC that we missed last year!</p>
<p>Australians seem particularly vulnerable to worries these days. On the weekend I read that Australians are suffering from an “epidemic of anxiety” and that out of a survey of 24 nations Australians ranked in the upper half in terms of worries about a health epidemic (9th highest), a terrorist attack (8th highest) and a nuclear attack (5th highest) – way above South Korea in terms of the latter despite Kim Jong-un’s new found nuclear capability just across the border! And a Roy Morgan survey has found that only 31% of surveyed Australians expect next year to be a better year than 2017, which is the lowest on record and only just above the 30% who expect next year to be worse. See the next chart.</p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/30/Next_year.jpg" alt=""></span></p>
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<p>In fact, it’s the lowest net balance of “better” less “worse” expectations for the year ahead since Australia was in the midst of the last recession in 1990. Whatever happened to the “she’ll be right” approach? Surely it’s not that bad!</p>
<p>At a broader global level, there seems to be a never ending worry list which since the GFC has rolled on through worries about a new collapse in the US (on the back of too much debt, hyperinflation on the back of money printing, deflation after the hyperinflation failed to materialise, a slump when monetary stimulus ends, or whatever), to worries the Eurozone will blow (or vote) itself apart, to worries that China will collapse as a result of too much debt and/or a property crash, interspersed by worries about the emerging world, Ebola, Ukraine, deflation, North Korea and various elections including the advent of President Trump along the way. And of course, the worries about Australia collapsing keep rolling on with the focus switching from a commodity crash to a housing crash.</p>
<p>Despite this ongoing worry list, investment returns have generally been good. Most assets have had good returns over the last year and the last five years, and balanced growth superannuation funds after fees and taxes returned an average 8.2% over the year to September and 9.3% per annum over the last five years.</p>
<p><strong>So why the persistent gloom? </strong></p>
<p>Some might argue that post the GFC, the world is now a more negative place and so gloominess is understandable today. But given the events of the last century – ranging from flu pandemics, the Great Depression, several major wars and revolutions, numerous recessions and financial panics – it’s doubtful that this is the case.</p>
<p>More fundamentally, it’s well known that humans are naturally attracted to bad news stories. The evolution of the human brain through the Pleistocene age where the trick was to dodge woolly mammoths and sabre toothed tigers means that much more space in our brains is devoted to threat than reward. This means that we are constantly on the lookout for risks and so more disposed to check out bad news stories as opposed to good news. In the investment world, an outcome of this is known as “loss aversion” in that a financial loss is felt far more keenly than a same-sized gain. As a result, doomsters are far more likely to be seen as deep thinkers than optimists and “bad news sells”.</p>
<p>But there is nothing new here. What has changed is the flow of information from a trickle to an avalanche. This is the case everywhere and the investment world is not immune. As the well know</p>
<p>US stock picker Peter Lynch observed “stock market news has gone from hard to find (in the 1970s and early 1980s), then easy to find (in the late 1980s), then hard to get away from”. This can be great in a way, but it can also just add to confusion.</p>
<p>But more significantly, the information age has led to not just greater access to information but also an explosion of media begging for attention. And in the scramble to get me and you to tune in, bad news and gloom beats good news and balance. I just have to swipe right (no, not Tinder!) on my smart phone to see an updated list of links to bad news stories and celebrity gossip (but rarely anything positive!).</p>
<p>Arguably, the political environment has added to this in some countries with politicians becoming more polarised to the left and the right and more willing to scare the electorate into supporting them.</p>
<p>Despite the improvement in the global economy over the last year, Google the words “the coming financial crisis” and you’ll still get 49.3 million search results including such gems as:</p>
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<p><span>  </span><span>“The next financial crisis is coming ‘with a vengeance’.” </span></p>
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<p><span>  </span><span>“The next financial crisis is coming, I just don’t know when.” </span></p>
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<p><span>  </span><span>“Financial crisis coming by end 2018: Prepare urgently."</span></p>
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<p><span>  </span><span>“Trump can’t stop the next financial crisis.” </span></p>
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<p><span>  </span><span>“It’s a scary time with a global crisis on the way.” </span></p>
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<li> “Major crisis coming, bigger than 2008 financial crisis.”</li>
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<p style="font-size: 12.16px; display: inline !important;">And on and on.</p>
<p style="font-size: 12.16px;">Of course, people have always been making such predictions of imminent disaster – my favourite was Ravi Batra’s The Great Depression of 1990, which didn’t happen so it morphed into The Crash of the Millennium, which saw an inflationary depression that didn’t happen either. It’s just that it’s now a lot easier and cheaper to access it and be scared by it.</p>
<p style="font-size: 12.16px;">So with all the talk of another global financial crisis and some sort of collapse in Australia, it’s not that surprising that people are apprehensive and Australians are less positive about the future.</p>
<p style="font-size: 12.16px;">But the world is actually looking good</p>
<p style="font-size: 12.16px;">While all countries have their challenges, the global economy is in its best shape in years:</p>
<p style="font-size: 12.16px;">After years of downgrading its global growth forecasts, the IMF has been revising them up this year.</p>
<br style="font-size: 12.16px;"><br style="font-size: 12.16px;"><br style="font-size: 12.16px;"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/30/GDP%20forecasts.jpg" alt="" style="font-size: 12.16px;"><br style="font-size: 12.16px;"><ul>
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<li>Global profits are up around 15% over the last year.</li>
<li>Unemployment has been falling virtually everywhere (except Japan where it’s just 2.8%!).</li>
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And while Australia could be doing a lot better and is not without its issues (notably around record low wages growth, high underemployment, expensive housing and high household debt), the economy has managed to keep growing despite the mining investment boom going bust and should benefit from stronger global growth and the end of the drag from falling mining investment. All of which should be able to keep it growing, albeit we don’t see strong enough growth or inflation for the RBA to start raising rates for a while yet.</div>
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<p><strong>The case for optimism as an investor </strong></p>
<p><span>Dr Don Stammer – a doyen of Australian economists and investing – has said there are six things we owe our children or grandchildren: a sense of humour; a reasonable education; an early understanding of the magic of compounding; an awareness the cycle lives on; some help when they buy their first house or apartment; and a feeling of optimism. I completely agree. I have written lots on the importance of compounding and the cycle but I think a degree of optimism is essential if you wish to succeed as an investor. </span></p>
<p><span>Benjamin Graham once said: “To be an investor you must be a believer in a better tomorrow.” If you don’t believe the bank will look after your term deposits, that most borrowers will pay back their debts, that most companies will see rising profits over time, that properties will earn rents etc then there is no point investing. This is flippant but true – to be a successful investor you need a favourable view of the future. </span></p>
<p><span>Of course this does not mean blind optimism where you get sucked in with the crowd when it becomes euphoric or into every new whiz bang investment obsession that comes along (with bitcoin the latest in a long list of manias that goes back to Dutch tulip bulbs and includes the dot com stocks of the late 1990s). If an investment looks and feels too good to be true and the crowd is piling in, then it probably is... particularly if the main reason you are buying in is because of huge recent gains and their extrapolation off into to the future. So the key is cautious optimism, not blind optimism. </span></p>
<p><span>But when it comes to conventional investments like shares, since 1900 shares in the US have had positive returns around seven years out of ten and in Australia it’s around eight years out of ten. So getting too hung up in permanent pessimism on the next financial crisis and when it will come and what will on the basis of history inevitably drive the market down in the two or three years out of ten may mean missing out on the years it rises. </span></p>
<p><span><span class="s1"><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author"><em>SHANE OLIVER</em></a></span><span class="s2"><em> is head of investment strategy and economics and chief economist at </em><a href="https://www.ampcapital.com.au/home"><span class="s1"><em>AMP Capital</em></span></a><em> and is responsible for AMP Capital's diversified investment funds.</em></span></span></p>
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Why cautious optimism is better for your investment health than perma pessimism

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<p>Key Points</p>
<p>- The Chinese economy is not about to collapse and isn’t likely to be at “peak commodity demand”.</p>
<p>- The failure of the Australian economy to crash after the end of the commodity price boom and mining investment boom early this decade highlights that it’s a lot more diversified than many give it credit.</p>
<p>- The housing boom in Sydney and Melbourne has not been built on the China boom – in fact it has had more to do with strong population growth and the end of the mining boom.</p>
<p>- And we don’t just make good “flat whites” – why does Chai tea brewed with soy never get a mention?</p>
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<p><strong>Introduction </strong></p>
<p>I don’t normally comment directly on articles by others but an article by Matt Barrie with Craig Tindale called “Australia’s economy is built on shaky foundations, and it’s about to collapse,” has been sent to me several times for comment so I thought I would make an exception this time.</p>
<p><span>The gist of the article seems to be that growth in the Australian economy has been built on “a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a Chinese bubble” and that “Australia has relied on China for too long – our whole economy is built on China buying our stuff. And it’s about to collapse.” </span></p>
<p><span>This note takes a look at this risk. </span></p>
<p><span><strong>Crash calls for the Australian economy are like a broken record</strong> </span></p>
<p>The first thing to note is that there is nothing really new in the latest call for a collapse in the Australian economy. In fact, for as long as I have been an economist there have been calls for the Australian economy to collapse. Back in 1985, I recall going to presentations on fears the economy might soon “default” and require a rescue by the IMF. The crash calls have accentuated post the Global Financial Crisis (GFC). The Australian economy was supposed to have crashed when the mining investment boom ended in 2012-13 and every year since then there has been an ad on the internet titled “Australian recession 2014: why it’s coming, what to do and how you can profit” but the year just keeps getting updated to the current year. I guess it will be right one day.</p>
<p><span><strong>Is China about to collapse?</strong> </span></p>
<p><span>China is Australia’s number one trading partner so Australia is more vulnerable to the Chinese economy than in the past. But warnings of a Chinese collapse have been around for years </span></p>
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<p><span>now and I continue to regard it as unlikely. The most common concerns about high and rising debt in China miss the reality that China’s high debt growth reflects its high saving rate (of around 46% of GDP compared to around 22% in Australia), which in turn gets largely channelled through the banking system as its capital markets remain underdeveloped. China does not rely on foreign capital (in fact it supplies savings to the rest of the world) and to slow its debt growth, it actually needs to save less and spend more (so very different to countries that normally have debt problems!) and broaden its capital market beyond the banks. But this will take time and the Chinese authorities will not act precipitously. And in the meantime, yes, there is a risk that some corporate loans will go bad but don’t forget much of the growth in debt has gone from state-owned banks to state-owned businesses and will be supported by the Government if there is too much trouble (just like the Chinese Government solved its local government debt problem of a few years ago). </span></p>
<p><span><strong>But isn’t China at peak commodity demand?</strong> </span></p>
<p><span>Similarly, concerns about China’s property market and commodity demand are misplaced. The Chinese property cycle has regular ups and down as the property market is generally undersupplied but the Government periodically tries to keep a lid on prices. But every time there is a downturn in the property cycle (usually after Government moves to cool it down), out comes new crash stories. The “ghost cities” stories of a few years ago were evident of this but were literally just scary stories – they are part of an effort to decentralise away from crowded cities and the biggest “ghost city” (Ordos Kangbashi) is now almost full. The reality is that much of China continues to have a housing shortage as the population urbanises and many of the apartments built 20 years ago are now substandard and need to be replaced. So demand for steel and concrete from the property market is likely to remain strong for many years to come. Similarly, much of China remains under developed in terms of infrastructure. So yes, China is trying to wind back excess capacity in some sectors that have got ahead of themselves but peak raw material demand from China is a long way off. Yes, Chinese growth could slow towards 6% over the next few years but I doubt a hard landing any time soon. Certainly there was no sign of any hard landing in China when I visited it again in the last week – things were just as frantic as ever!</span></p>
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<p><span><strong>Australia has always had some export dependence</strong> </span></p>
<p><span>It’s worth noting that over the years Australia has always seemed to have some dependence on some foreign country in terms of export demand – the UK, Japan, it’s now China but as China’s industrialisation phase slows I suspect other countries will just jump into the commodity demand space (Vietnam, India, Pakistan) and in any case our relationship with China is also shifting across to services. </span></p>
<p><span><strong>But the mining boom has long ended so why hasn’t the Australian economy collapsed already?</strong> </span></p>
<p><span>If Australia is so dependent on the commodity price boom and mining investment boom, why didn’t it crash when they crashed after 2011 and 2012-13 respectively? The simple answer is that the Australian economy is actually less dependent on mining and hence China than many commentators claim. In reality, mining activity is only 7% of Australian economic activity (or GDP) and agriculture is 3%, which taken together hardly suggests an excessive reliance on exports and China. </span></p>
<p><span>The mining boom basically meant that south east Australia – and sectors like manufacturing, tourism and higher education along with housing – was suppressed by high interest rates and the high Australian dollar. Once the commodity and mining investment booms went away and interest rates and the $A fell, south east Australia was able to bounce back offsetting the slump in Western Australia and the Northern Territory and parts of Queensland. So Victoria, NSW and even Tasmania were able to go from near recessionary conditions and at the bottom of state rankings a decade ago to now being at the top. </span></p>
<p><span><strong>More than housing</strong> </span></p>
<p><span>This has not just been driven by housing-related activity, smashed avocados and flat whites (how come Chai tea brewed with soy never gets a look in?) but also in services like tourism and higher education (our third biggest export earner), which are booming. Even manufacturing is looking better. In fact, for many Australians the China driven mining boom was more a curse than a blessing – the saying in Sydney was that the people of western Sydney were paying the price for the mining boom in Western Australia. </span></p>
<p><span>Housing construction is starting to slow causing many to wheel out the disaster scenarios again. But the contribution to economic growth from growth in housing construction is regularly exaggerated. Last year it contributed around 0.3% directly to growth and indirect effects are likely to have taken that contribution to around 0.6%. In other words its relatively modest and a housing construction slowdown should be easily offset as the drag on growth (of around 1-1.5% per annum) from slumping mining investment is nearly over, infrastructure spending is booming (partly on the back of the asset swap program), non-mining investment looks to be bottoming at last and export volume growth is strong. </span></p>
<p><strong>What about a house price crash? </strong></p>
<p>Yes, there is a risk of a house price collapse but it’s a lot more complicated than most people think as pointed out in my last house price note http://bit.ly/2y97kCE . Basically: we have not built enough housing to keep up with strong population growth since mid-last decade (see the next chart); the boom lately has been confined to Sydney and Melbourne (which were more harmed than helped by the mining/China-related boom); and the deterioration in lending standards has been modest with, for example, little in the way of the NINJA (no income, no jobs, no assets) loans that caused so much trouble in the US. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/22/Chart1.jpg" alt=""></p>
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<p>Sydney and Melbourne home prices are likely to fall by 5-10% (like in 2008 and 2011-12) but a crash is unlikely unless unemployment goes up a lot (unlikely), the RBA raises rates aggressively (again unlikely) or the current unit supply surge continues for several more years (again unlikely with approvals off their peak).</p>
<p><span><strong>More than “dumb luck” in Australia’s 26-year expansion</strong> </span></p>
<p><span>While luck has played a role in Australia’s 26 years of economic expansion, it’s worth noting that the China-related boom only really ran for eight or nine years of it (from 2004-2012), and a significant contribution came from the economic reforms of the 1980s and 1990s that made the Australian economy more flexible in responding to shocks. Also, sensible economic policy meant that we managed the China boom well (by avoiding an overheating economy and running budget surpluses), which meant we were better placed to ride out the global shock from the GFC and the subsequent end to the commodity and mining investment booms. </span></p>
<p><span>26 years of economic expansion has left the Australian economy with lots to show for it: the economy is 129% bigger in real terms than it was when the 1990-91 recession ended, per capita GDP is up 61%, unemployment is less than half its early 1990s high and our dependence on foreign capital as measured by the current account deficit relative to GDP is about one third smaller than it was 26 years ago. Sure we can do better – underemployment, weak wages growth and poor housing affordability are serious problems and we seem to have given up on serious economic reform – but the economy is in better shape than some give it credit for. </span></p>
<p><span><strong>Australia versus the world</strong> </span></p>
<p><span>Finally, I should note that while we are not in the crash camp for Australia, we remain of the view that it will be a while before interest rates can rise and that Australian economic and profit growth will be subpar compared to other countries for a while yet. As a result, we remain of the view that while Australian shares have more upside they are likely to remain relative underperformers versus global shares for some time yet and that the Australian dollar still has more downside. This is really just a continuation of the “mean reversion” of the huge outperformance in Australian shares versus global shares and in the Australian dollar seen last decade. </span></p>
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<p><span><span class="s1"><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author"><em>SHANE OLIVER</em></a></span><span class="s2"><em> is head of investment strategy and economics and chief economist at </em><a href="https://www.ampcapital.com.au/home"><span class="s1"><em>AMP Capital</em></span></a><em> and is responsible for AMP Capital's diversified investment funds.</em></span></span></p>
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Is Australia’s economy “built on shaky foundations” that are “about to collapse”? Shane Oliver

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<p>The Sydney auction clearance rate was now approaching levels associated with prior price declines, AMP Capital chief economist Shane Oliver has suggested.</p>
<p><a href="https://twitter.com/ShaneOliverAMP?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor" target="_blank">Oliver tweeted</a> the Domain weekend's result of 66 percent for Sydney, and its prior weekend result being revised after late results to 56 percent, was at levels similar to when there were price declines in 2008-09 and 2011-12.</p>
<p>But Gaby Kennard, the first Australian woman to fly around the globe by airplane, scored the nation's top auction result when her Woolloomooloo Wharf apartment sold for $5.55 million.</p>
<p>The three bedroom, two bathroom harbour front apartment was snapped up pre-auction having had $5 million to $5.5 million price guiduance <a href="https://www.bresicwhitney.com.au/buy/10-lincoln-crescent-woolloomooloo-17205" target="_blank">through BresicWhitney Darlinghurst agent Nic Krasnostein</a>.</p>
<p>Kennard, who had renovated after paying $3.31 million in 2013, is remembered for her accomplishment taking 99 days to complete a journey circling the world in the late 1980s.</p>
<p>She covered 29,000 nautical miles (54,000 kilometres) and followed Amelia Earhart's route as much as possible.</p>
<p>Adelaide had the cheapest weekend sale when $222,500 was paid for a one bedroom house.</p>
<p>The <a href="https://www.realestate.com.au/property-house-sa-ethelton-126646282" target="_blank">340 sq m</a><a href="https://www.realestate.com.au/property-house-sa-ethelton-126646282" target="_blank"> Waite Street, Ethelton</a> offering was marketed as set for demolition.</p>
<p>There were significantly fewer homes taken to auction across the combined capital cities on the weekend, after last weekend's year-to-date high of 3,713.</p>
<p>There were a total of 2,019 auctions held returning a preliminary auction clearance rate of 66.8 per cent, a tad up on last week’s final clearance rate of 64.5 per cent, CoreLogic advised.</p>
<p>Over the corresponding weekend last year, 73.6 per cent of the 2,517 auction held were successful.</p>
<p>Melbourne saw a notable decrease in volumes given the spring racing festivities, with only 309 auctions.</p>
<p>CoreLogic calculated 77.3 per cent sold across Melbourne with its dearest result unusually in Wheelers Hill at $2.82 million. The <a href="https://www.realestate.com.au/property-house-vic-wheelers+hill-126554658" target="_blank">2 Latrobe Court home</a> was a modern rendered 60 square residence.</p>
<p>Sydney’s preliminary auction clearance rate sat at 67.4 per cent, according to Coreogic, who put last week’s final auction clearance rate at 58.3 percent, its lowest recorded since early 2016.</p>
<p>There were 1,217 homes taken to auction across Sydney last week, including 900 plus on Saturday, virtually unchanged from prior week.</p>
<p>Performances across Sydney’s sub-regions were mixed, with Baulkham Hills and Hawkesbury recording a 78.8 percent success rate across 41 auctions, while the outer South West region of Sydney recorded a much lower clearance rate of 33.3 per cent across 18 auctions.</p>
<p>The south west results included Sydney's cheapest notified sale when $470,000 was paid at Rosemeadow. The three bedroom <a href="https://www.realestate.com.au/property-house-nsw-rosemeadow-126715950" target="_blank">Tamora Street offering</a> was a 1960s brick veneer home on its 442 sqm Campelltown district block.</p>
<p>The preliminary auction clearance rate in Brisbane was 53.5 per cent, increasing from 44.8 per cent over the weekend prior.</p>
<p>Auction volumes were lower this week across Brisbane with 169 auctions held, down from 190 last week. </p>
<p>Brisbane's top price was a modern three level riverfront that fetched $4,125,000. The <a href="https://www.realestate.com.au/property-house-qld-east+brisbane-126565402" target="_blank">29 Laidlaw Pde, East Brisbane</a> offering was five bedroom, three bathroom house, which Ray White agent Dean Yesberg said was "one of only 25 homes that enjoys this irreplaceable position."</p>
<p>Brisbane's cheapest result was a loss taker near Goodna. The sale of the three bedroom home at <a href="https://www.realestate.com.au/property-house-qld-collingwood+park-126637458" target="_blank">5 Drysdale Avenue, Collingwood Park</a> at $240,000 was down on its prior $293,000 sale in 2009, and just above its $232,000 sale in 2005. </p>
<p>Adelaide saw an auction clearance rate of 65.5 per cent, across a total of 125 auctions, increasing from the previous week’s 62.5 per cent, and similar to the 65.6 per cent one year ago.</p>
<p>Adelaide's dearest sale was $1.32 million when a three bedroom house at <a href="https://www.realestate.com.au/property-house-sa-unley+park-126615874" target="_blank">21 Northgate Street, Unley Park</a> was sold. The sandstone house on 890 sqm had $1,295,000 price guidance through Scarce Real Estate. </p>
<p>Canberra’s preliminary auction clearance rate of 68.2 per cent was down on the weekend prior when the final auction clearance rate was 72.6 per cent. </p>
<p>Its top sale was a Forrest house designed in 1927 by Oakley &amp; Parkes, who had previously designed The Lodge. The home on <a href="https://www.luton.com.au/6467164/6-barkly-crescent-forrest" target="_blank">its 1500 sqm Barkly Crescent block</a> last sold in 1997 at $525,000.</p>
<p>There were 48 Perth auctions this week with only 30 per cent clearing.</p>
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Sydney's auction clearance rate suggests price decline possibility: Shane Oliver

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<p>GUEST OBSERVER</p>
<p>The low interest rates of recent times along with periodic turmoil in investment markets has provided us with a reminder of the importance of the income (cash) flow or yield an investment provides.</p>
<p>It’s particularly important for those relying on investment income to fund their living expenses. As with all investment topics, investing for income can seem complicated and daunting once you move beyond bank deposits but in fact it’s really quite simple. So this note looks at five charts I find useful in understanding investing for income or yield.</p>
<p><strong>Chart #1 There are lots of alternatives to bank deposits</strong></p>
<p>The yield an investment provides is basically its annual cash flow divided by the value of the investment.</p>
<ul>
<li>
<p>For bank deposits, the yield is simply the interest rate, eg bank 1-year term deposit rates in Australia are about 2.25% and so this is the cash flow they will yield in the year ahead.</p>
</li>
<li>
<p>For ten-year Australian Government bonds, annual cash payments on the bonds (coupons) relative to the current price of the bonds provides a yield of 2.8% right now.</p>
</li>
<li>
<p>For corporate debt, it’s a margin above government bond yields and depends on the riskiness of the company but is currently averaging around 3.6% in Australia.</p>
</li>
<li>
<p>For residential property, the yield is the annual value of rents as a percentage of the value of the property. On average in Australian capital cities it is about 3.9% for apartments and around 2.5% for houses. After allowing for costs, net rental yields are about 2 percentage points lower.</p>
</li>
<li>
<p>For unlisted commercial property, yields are around 5.5%. For infrastructure investment it averages around 4.5%.</p>
</li>
<li>For a basket of Australian shares represented by the ASX 200 index, annual dividend payments are running around 4.3% of the value of the shares. Once franking credits are allowed for, this pushes up to around 5.7%.</li>
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<p>The next chart shows the yield available on a range of investments both now and in December 2009. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/24/Chart1.jpg" alt=""></p>
<p>Key messages: first, there are plenty of alternatives to cash when it comes to yield or income. Second, the yields on these investments will move over time and since the aftermath of the Global Financial Crisis (GFC) the trend has been down.</p>
<p>Of course investors need to allow for risk. Bank deposits have close to zero risk but any move to higher-yielding investments does entail taking on risk. More on this later.</p>
<p><strong>Chart #2 The gap between yields on different assets relative to historic norms provides a guide to value</strong></p>
<p>The next chart shows average yields on Australian shares and unlisted commercial property relative to the one-year term deposit rate since 2000. While yields have fallen, the gap between share and property yields and the bank deposit rate is extreme historically, with neither share or property yields plunging to the degree bank deposit rates have. In fact, the share yield is in its historic range. All things equal, this suggests commercial property and Australian shares continue to provide better value. The same would apply to unlisted infrastructure. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/24/Chart2.jpg" alt=""></p>
<p>Key message: comparing yields provides a guide to relative value and right now shares and unlisted commercial property remain very attractive relative to bank deposits. </p>
<p><strong>Chart #3 Shares can provide stronger growth in income with less volatility than bank deposits</strong></p>
<p>Investing in shares of course entails the risk of capital loss. But it can offer a higher and less volatile income flow over time. The next chart is a bit heavy but it compares initial $100,000 investments in Australian shares and one-year term deposits in December 1979 and the income they have provided over time (before franking credits are allowed for in the case of shares). </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/24/Chart3.jpg" alt=""></p>
<p>The term deposit would still be worth $100,000 (red line) and last year would have paid roughly $2450 in interest (red bars). By contrast the $100,000 invested in shares would have grown to $1.12 million (blue line) by end 2016 and last year would have paid $51,323 in dividends before franking credits (blue bars). The point is that dividends tend to grow over time (because profits and hence an investment in shares tends to rise in value) and are relatively stable compared to income from bank deposits, which vary with interest rate settings. Over the period the worst decline in dividend income from shares was a 32% decline between 2009 and 2011, whereas the income from bank deposits plunged 68% between 1990 and 1994 and by 60% between 2011 and last year. Once franking credits are allowed for, the comparison would become even more favourable towards shares.</p>
<p>Key message: while shares come with the risk of capital loss, a well-diversified portfolio of Australian shares can provide stronger growth in income with less volatility in that income than bank term deposits. Investors focussed on income need to decide what is most important: stability in the value of their investment or a higher, more sustainable income flow. The key when investing in shares for income is to have a well-diversified portfolio. Or better still a well-diversified portfolio of shares paying high and sustainable dividend yields. Finding high dividend yields is easy but the key is to look for stocks that have a reliable track record of growing those dividends and that have dividends that are not threatened by things like excessive gearing.</p>
<p><strong>Chart #4 A bird in the hand is worth two in the bush</strong></p>
<p>A high and sustainable starting point yield provides some security during volatile times. Since 1900, dividends (prior to allowing for franking credits) have provided just over half of the 11.8% average annual return from Australian shares and as can be seen in the next chart their contribution has been stable in contrast to the capital value of shares. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/24/Chart4.jpg" alt=""></p>
<p> </p>
<p>Dividends are relatively smooth over time because most companies hate having to cut them as they know it annoys shareholders so they prefer to keep them sustainable.</p>
<p>Key message: a high and sustainable income yield for an investment provides some security during volatile times. It’s a bit like a down payment on future returns.</p>
<p><strong>Chart 5 Yield provides a guide to future returns</strong></p>
<p>The yield an investment provides forms the building block for its total return, which is essentially determined by the following: t<span style="font-size: 12.16px;">otal return = yield + capital growth.</span></p>
<p>As a general principle, the higher the yield an investor invests at, the higher the return their investment will likely provide. This is self-evident in the case of bank deposits because the yield is the return (assuming the bank does not default on its deposits – which is very unlikely in Australia given Government protections). It can be seen in relation to bonds in the next chart, which shows a scatter plot of Australian ten-year bond yields since 1950 (along the horizontal axis) against subsequent ten-year bond returns based on the Composite All Maturities Bond</p>
<p>Index (vertical axis). Over short term periods, bond prices can move up and down and so influence short-term returns, but over the medium term the main driver of the return a bond investor will get is what bond yields were when they invested. If the yield on a ten-year bond is 5%, then if you hold the bond to maturity your return will be 5%. Of course a portfolio of bonds will reflect a range of maturities and so the relationship is not perfect, but it can be seen in the next chart that the higher the starting point bond yield, the higher the subsequent return. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/24/Chart5.jpg" alt=""></p>
<p>Put simply when bond yields are high they drive high bond returns over the medium term and vice versa. For example, when Australian ten-year bond yields in January 1982 were 15.2% it’s not surprising that returns from bonds over the subsequent ten years were 15.4% per annum. Similarly, when bond yields were just 3.1% in January 1950, it’s no surprise that returns from bonds over the next ten years were 3.1%. At 2.8% now, we are off the bottom of the chart meaning record low bond returns for the next decade.</p>
<p>Similar albeit less perfect relationships exist for other asset classes – the higher the yield, the higher the subsequent return.</p>
<p>Of course there are some risks investors must watch out for. At the individual share level, a very high dividend yield may be a sign of a “value trap” – where current profits and dividends may be fine but there is an impending threat to the company and so the share price is low. Second, high distributions may also be unsustainable if they are being paid for out of debt and reflect excessive gearing or high risk investments (eg, sub-prime mortgages prior to the GFC). Just remember that there is no free lunch.</p>
<p>Key message: while returns have been solid lately, low investment yields do warn of lower returns ahead – most notably from government bonds.</p>
<p><em><strong><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> </strong>is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.</em></p>
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How property ranks as an investment asset: Shane Oliver

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<p>A common narrative on the Australian housing market is that it’s in a giant speculative bubble propelled by tax breaks, low interest rates and “liar loans” that have led to massive mortgage stress and that it’s all about to go bust, bringing down the banks and the economy with it. Recent signs of price falls – notably in Sydney – have added interest to such a view.</p>
<p>The trouble is we have been hearing the same for years. Calls for a property crash have been pumped out repeatedly since early last decade. In 2004, The Economist magazine described Australia as “America’s ugly sister” thanks in part to a “borrowing binge” and soaring property prices. At the time, the OECD estimated Australian housing was 51.8% overvalued. Property crash calls were wheeled out repeatedly after the Global Financial Crisis (GFC) with one commentator losing a high-profile bet that prices could fall up to 40% and having to walk to the summit of Mount Kosciuszko as a result.</p>
<p>In 2010, a US newspaper, The Philadelphia Trumpet, warned “Pay close attention Australia. Los Angelification (referring to a 40% slump in LA home prices around the GFC) is coming to a city near you.” At the same time, a US fund manager was labelling Australian housing as a “time bomb”. Similar calls were made last year by a hedge fund researcher and a hedge fund: “The Australian property market is on the verge of blowing up on a spectacular scale...The feed-through effects will be immense... the economy will go into recession." Over the years these crash calls have even made it on to 60 Minutes and Four Corners.</p>
<p>The basic facts on Australian property are well known:</p>
<p>- It’s expensive relative to income, rents, its long-term trend (see the next chart) and by global standards.</p>
<p>- Affordability is poor – price to income ratios are very high and it’s a lot harder to save a sufficient deposit.</p>
<p>- The surge in prices has seen a surge in debt that has taken our household debt to income ratio to the high end of OECD countries, which exposes Australia to financial instability should households decide to cut their level of debt.</p>
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<p> </p>
<p>These things arguably make residential property Australia’s Achilles heel. But as I have learned over the last 15 years, it’s a lot more complicated than the crash calls suggest.</p>
<p>First, it’s dangerous to generalise</p>
<p>While it’s common to refer to “the Australian property market”, only Sydney and Melbourne have seen sustained and rapid price gains in recent years.</p>
<p>On CoreLogic data over the last five years dwelling prices have risen at an average annualised rate of 11.4% per annum (pa) in Sydney and 9.4% pa in Melbourne but prices in Brisbane, Adelaide, Hobart and Canberra have risen by a benign 3 to 5% pa and prices have fallen in Perth and Darwin.</p>
<p>Australian cites basically swing around the national average with prices in one or two cities surging for a few years and then underperforming as poor affordability forces demand into other cities. This can be seen in the next chart with Sydney leading the cycle over the last 20 years and Perth lagging.</p>
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<p>Second, supply has not kept up with demand</p>
<p>Thanks mostly to an increase in net immigration, population growth since mid-last decade has averaged 368,000 people pa compared to 218,000 pa over the decade to 2005, which requires roughly an extra 55,000 homes per year.</p>
<p>Unfortunately, the supply of dwellings did not keep pace with the surge in population growth (see the next chart) so a massive shortfall built up driving high home prices. Thanks to the recent surge in unit supply this is now being worked off. But there is no broad based oversupply problem.</p>
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<p><span>Third, lending standards have been improving </span></p>
<p><span>For all the talk about “liar loans", Australia has not seen anything like the deterioration in lending standards other countries saw prior to the GFC. </span></p>
<p><span>Interest-only loans had been growing excessively but are not comparable to so-called NINJA (no income, no job, no asset) sub-prime and low-doc loans that surged in the US prior to the GFC. Interest-only and high loan to valuation loans have also been falling lately. </span></p>
<p><span>And much of the increase in debt has gone to older, wealthier Australians, who are better able to service their loans. </span></p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/18/Chart3.jpg" alt=""></span></p>
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<p>Fourth, the importance of tax breaks is exaggerated</p>
<p>A range of additional factors like tax breaks and foreign buyers have played a role but their importance is often exaggerated relative to the supply shortfall. While there is a case to reduce the capital gains tax discount (to remove a distortion in the tax system), negative gearing has long been a feature of the Australian tax system and if it’s the main driver of home price increases as some claim then what happened in Perth and Darwin?</p>
<p>Similarly, foreign buying has been concentrated in certain areas and so cannot explain high prices generally, particularly with foreign buying restricted to new properties.</p>
<p> </p>
<p>Finally, the conditions for a crash are not in place</p>
<p>To get a housing crash – say a 20% average fall or more – we probably need much higher unemployment, much higher interest rates and/or a big oversupply. But it’s hard to see these.</p>
<p>There is no sign of recession and jobs data remains strong.</p>
<p>The RBA is likely to start raising interest rates next year, but it knows households are now more sensitive to higher rates &amp; will move only very gradually – like in the US – and won’t hike by more than it needs to to keep inflation on target.</p>
<p>Property oversupply will become a risk if the current construction boom continues for several years but with approvals to build new homes slowing this looks unlikely.<br>Don’t get me wrong, none of this is to say that excessive house prices and debt levels are not posing a risk for Australia. But it’s a lot more complicated than commonly portrayed.</p>
<p>So where are we now?</p>
<p>That said, we continue to expect a slowing in the Sydney and Melbourne property markets, with evidence mounting that APRA’s measures to slow lending to investors and interest-only buyers (along with other measures, eg to slow foreign buying) are impacting. This is particularly the case in Sydney where price growth has stalled and auction clearance rates have fallen to near 60%. Expect prices to fall 5-10% (maybe less in Melbourne given strong population growth) over the next two years. This is like what occurred around 2005, 2008-09 &amp; 2012.</p>
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<p>By contrast, Perth and Darwin home prices are likely close to the bottom as mining investment is near the bottom. Hobart and increasingly Brisbane and Adelaide are likely to benefit from flow on or “refugee” demand from Sydney and Melbourne having lagged for many years.</p>
<p>Implications for investors</p>
<p>Housing has a long-term role to play in investment portfolios, but the combination of the strong gains in the last few years in Sydney and Melbourne, vulnerabilities around high household debt levels as official interest rates eventually start to rise and low net rental yields mean investors need to be careful. Sydney and Melbourne are least attractive in the short term. Best to focus on those cities and regional areas that have been left behind and where rental yields are higher.</p>
<p>Dr Shane Oliver</p>
<p>Head of Investment Strategy and Chief Economist AMP Capital</p>
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Conditions for Australian housing crash not in place: Shane Oliver

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<p>GUET OBSERVER</p>
<p>It seems momentous things happen in years ending in seven.</p>
<p>Well, at least in the last 50 years starting with the “summer of love” in 1967 and the introduction of the Chevrolet Camaro.</p>
<p>But after that, it was downhill with Elvis leaving the building in 1977, the 1987 share market crash, the Asian crisis of 1997 and the GFC that started in 2007.</p>
<p>While Lehman Brothers didn’t go bankrupt until September 2008, the GFC’s initial tremors occurred in 2007.</p>
<p>Financial markets really started to take notice in August of that year, with shares taking a big hit before rebounding to new highs for US and Australian shares in October/November 2007 ahead of a roughly 55% decline into March 2009.</p>
<p>This note looks at the main lessons for investors from the GFC and whether it can happen again.</p>
<p>But first some history.</p>
<p>The GFC was the worst global financial crisis since the Great Depression.</p>
<p>It saw the freezing up of lending between banks, multiple financial institutions needing to be rescued, 50% plus share market falls and the worst post-war global economic contraction.</p>
<p>At the core of the GFC was something very basic.</p>
<p>In an environment of low interest rates (with often initially low “teaser” rates) too many loans were made to US homebuyers that set off a housing boom that went bust when interest rates rose and supply surged.</p>
<p>So no big deal – it happens all the time!</p>
<p>But it was what went on around it that ultimately saw it turn into a global crisis.</p>
<p>A massive proportion of the loans (40% or so) went to people who had no ability to service them – sub-prime and low doc borrowers.</p>
<p>Remember NINJA loans – loans to people who had no income, no job and no assets!</p>
<p>And many were non-recourse loans – so borrowers could just hand over the house if its value fell below the debt owed on it and that was the end of their liability.</p>
<p>Recall – jingle mail!</p>
<p>This was encouraged by public policy aimed at boosting home ownership and ending discrimination in lending.</p>
<p>It was made possible by a massive easing in lending standards facilitated by financial innovation that packaged up the sub-prime loans into securities, which were then given AAA ratings on the basis that while a small proportion of loans may default the risk will be offset by the broad exposure.</p>
<p>These securities were then leveraged up and sold all over the world with fancy names like Collateralised Debt Obligations (CDOs) that found willing buyers looking for decent low risk (remember AAA rated!) yield at a time of low interest rates.</p>
<p>Hedge funds investing in such products even got awards like “yield manager of the year”.</p>
<p>But the trouble was that with the sub-prime loans moved out of the banks, there was no “bank manager” looking after them.</p>
<p>This all came as banks globally were sourcing an increasing amount of the money they were lending from global money markets – which had freed them up from relying on expensive bank deposits via bricks and mortar branches.</p>
<p>The music stopped in 2006 when poor affordability, an oversupply of homes and 17 interest rates hikes from the Fed over two years saw US house prices peak and then start to slide.</p>
<p>This made it harder for sub-prime borrowers to refinance their loans at their initial “teaser” rates.</p>
<p>As a result, more and more borrowers defaulted causing investors in the fancy products that invested in sub-prime loans (like CDOs) to start suffering losses.</p>
<p>The problem really caught the attention of global investors in August 2007 after BNP froze redemptions from three of its funds because it couldn’t value the CDOs within them, which in turn set in train a credit crunch with sharp rises in the cost of funding for banks and a reduction in its availability triggering sharp falls in share markets.</p>
<p>Shares rebounded but only to peak in late October/November 2007 before commencing roughly 55% falls as the credit crunch worsened, the global economy fell into recession, mortgage defaults escalated and multiple banks failed.</p>
<p>The crisis went global as: losses mounted; these were magnified by gearing, which forced investment banks and hedge funds to liquidate sound positions to meet redemptions thereby spreading the crisis to other assets; the distribution of securities investing in US sub-prime debt globally led to a wide range of exposed investors and hence greater worries about who was at risk; this all led to a freezing up of lending between banks.</p>
<p>All of which affected confidence and economic activity.</p>
<p>Fault lay with home borrowers, the US Government, lenders, ratings agencies, regulators, and investors and financial organisations for taking on too much risk.</p>
<p>It came to an end in 2009 after significant monetary easing and fiscal stimulus helped restore the normal operation of money markets, confidence and growth.</p>
<p>That said, aftershocks continued with sub-par global growth and very low inflation.</p>
<p>The GFC highlighted several lessons for investors:</p>
<p>· <strong>The economic and investment cycle is alive and well</strong>. Talk of a “great moderation” was all the rage prior to the GFC but the GFC reminded us yet again that periods of great returns are invariably followed by a fall back. If returns are too good to be true they probably are.</p>
<p>· <strong>High returns come with higher risk</strong>. While risk is often dormant for years, it usually returns with a vengeance as was apparent in the GFC. Backward-looking measures of volatility are no better than attempting to drive focussed only on the rear view mirror.</p>
<p>· <strong>While each boom bust cycle is different, markets are pushed to extremes of valuation and sentiment</strong>. The low in 2009 was characterised by ultra cheap shares and credit investments with investors highly pessimistic.</p>
<p>· <strong>Be sceptical of financial engineering or hard-to-understand products</strong>. The biggest losses for investors in the GFC were generally in products that relied heavily on financial engineering purporting to turn junk into AAA investments that were impossible to understand.</p>
<p>· <strong>Avoid too much gearing or gearing of the wrong sort</strong>. Gearing is fine when all is going well. But it will magnify losses when things reverse and can force the closure of positions at a big loss when the lenders lose their confidence and refuse to roll over maturing debt or when a margin call occurs forcing an investor to sell their position just at the time they should be adding to it.</p>
<p>· <strong>The importance of true diversification</strong>. While listed property trusts and hedge funds were popular alternatives to low-yielding government bonds prior to the GFC, through the crisis they ran into big trouble (in fact Australian Real Estate Investment Trusts (REITs) fell 79%), whereas government bonds were the star performers. REITs have cut their gearing and returned to their knitting. But “in a crisis correlations go to one – except for true safe havens”.</p>
<p>· <strong>Fiscal and monetary policy work</strong>. There is a role for government in putting free market economies back on track when they get into a downward spiral. While some have argued that easy money just benefitted the rich (who invest in shares), doing nothing would have likely ended with 20% plus unemployment and worse inequality.</p>
<p><strong>· The return to normal from major financial crises can take time</strong>, as the blow to confidence depresses lending and borrowing and hence consumer spending and investment for years afterwards. This muscle memory eventually fades but the impact can be seen for a decade or so.</p>
<p>· <strong>The importance of asset allocation</strong>. The GFC provided an extreme reminder that what really matters for your investment performance is your asset mix – ie your allocation to shares, bonds, cash, property, etc. Exposure to individual shares or fund managers is second order.</p>
<p>· <strong>Finally, “stuff happens”. </strong>While after each economic crisis there is a desire to “make sure it never happens again”, history tells us that manias, panics and crashes are part and parcel of the process of “creative destruction” that has led to an exponential increase in material prosperity in capitalist countries. The trick is to ensure that the regulation of financial markets minimises the economic fallout that can occur when free markets go astray but doesn’t stop the dynamism necessary for economic prosperity.</p>
<p>Of course there will be another boom and bust...but as Mark Twain is thought to have said “history doesn’t repeat, but it rhymes” so the specifics will be different next time.</p>
<p>History is replete with bubbles and crashes and tells us it’s inevitable that they will happen again as each generation forgets and must relearn the lessons of the past.</p>
<p>Often the seeds for each new bubble are sown in the ashes of the former.</p>
<p>Fortunately, in the post-GFC environment seen so far there has been an absence of broad-based bubbles on the scale of the tech boom or US housing/credit boom.</p>
<p>E-commerce stocks like Facebook and Amazon are a candidate but they have seen nowhere near the gains or infinite PEs seen in the late 1990s tech boom.</p>
<p>Click to enlarge</p>
<p>On the global debt front, a concern is that after a post-GFC pull back, it has grown to an all-time high relative to global GDP.</p>
<p>Click to enlarge</p>
<p>However, just because global debt has grown to a new high doesn’t mean a crisis is upon us.</p>
<p>It has been trending up for decades, much of the growth in debt in developed countries post the GFC has been in public debt and debt interest burdens are low thanks to low interest rates in contrast to the pre-GFC period.</p>
<p>Furthermore, the other signs of signs of excess that normally set the scene for recessions and associated deep bear markets in shares like that seen in the GFC are not present on a widespread basis just now.</p>
<p>Inflation is low, monetary policy globally has barely tightened, there has been no widespread overinvestment in technology (as preceded the tech wreck) or housing (as preceded the GFC in the US) and bank lending standards have not been relaxed to the same degree as seen prior to the GFC.</p>
<p>Moreover, financial regulations have tightened significantly with banks required to have higher capital ratios and source a greater proportion of funds from their depositors.</p>
<p>So another boom bust cycle is inevitable at some point, but it will likely be very different to the GFC.</p>
<p>And many of the signs of excess that normally precede deep bear markets are still absent.</p>
<p><span class="s1"><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank"><em>SHANE OLIVER</em></a></span><span class="s2"><em> is head of investment strategy and economics and chief economist at </em><a href="https://www.ampcapital.com.au/home" target="_blank"><span class="s1"><em>AMP Capital</em></span></a><em> and is responsible for AMP Capital's diversified investment funds.</em></span></p>
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Lessons learned a decade from the GFC: Shane Oliver

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<p>GUEST OBSERVER</p>
<p>Australian employment rose by a stronger than expected 37,400 in April taking annual jobs growth back up to 1.6 percent. Coming on the back of a 60,000 gain in March this is much better than expected.</p>
<p>Full time jobs declined by 11,600 so the quality of jobs growth was poor but this followed two strong months of full time jobs growth.</p>
<p>Unemployment fell to 5.7 percent as the participation rate was unchanged and remains in the same range it’s been in for 18 months.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/05/18/unemployment.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/05/18/unemployment.png" alt=""><br><br>The strength in jobs growth is to be welcomed and suggests that jobs growth is heading back towards the solid pace indicated by forward looking jobs indicators (like job ads, vacancies and hiring intentions from the NAB survey).</p>
<p>As combined in our Jobs Leading Indicator these forward looking indicators continue to point to strong jobs growth ahead (although it has been overstating jobs growth a lot lately).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/05/18/unemployment%202.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/05/18/unemployment%202.png" alt=""><br><br><strong>Implications</strong></p>
<p>April’s jobs data is consistent with Reserve Bank expectations and so on its own is consistent with interest rates remaining on hold.</p>
<p>The risk though is that weakness in retail sales (on the back of subdued consumer confidence and weak wages growth) and weaker growth in housing construction will start to impact employment growth down the track.</p>
<p>Fortunately, forward looking jobs indicators are continuing to hold up at present suggesting reasonable jobs growth ahead.</p>
<p><em>Shane Oliver is AMP Capital's Head of Investment Strategy and Chief Economist. You can follow him on Twitter <a href="https://twitter.com/shaneoliveramp" target="_blank">here</a>.</em></p>
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Shane Oliver

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