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Are property prices set to collapse?

Are property prices set to collapse

The good news for first home-buyers is that house prices are set to fall. The bad news is that that the bottom end of the market won’t see too much change, with falls concentrated in the higher end and those areas popular with investors.

This bearish prognosis is based on the simple observation that shares, commercial property, residential property and other investment assets such as artwork are correlated, and that you don’t get a collapse in one market without that impact being felt in the other markets.

In fact, both shares and commercial property have tanked. From its high on 20 February of 7163, the sharemarket has lost almost 31%, with the S&P/ASX 200 closing last night at 4953. Commercial property has been one of the hardest hit sectors on the ASX. Over that same period from 20 February, sector leaders such as Dexus has lost 25.3%, GMG 31.9%, GPT 34.8% and the Scentre Group (which owns the Westfield shopping centres) is down by a whopping 51.7%. Pure play commercial office fund, Centuria Office REIT, has shed 35.1%. This is carnage!

Residential property, on the other hand, is still performing well. Last week’s auction clearance rate (according to Core Logic) was a relatively strong 70.6%. Although down for the second week in a row, it was still up massively on the 51.4% clearance rate recorded for the corresponding week in 2019. That was right at the time when investors were worried about the prospect of a Bill Shorten Government, and APRA’s mini credit squeeze was still to unwind.

Since the election last May, residential property has witnessed a huge recovery. According to Core Logic, Sydney home prices rose by 1.7% in February, 4.6% over the last 3 months, and 10.9% over the last 12 months. The median dwelling price is $873,000, with the median house price back over $1 million. The Sydney market is only 3.7% below its all-time peak. But the other capital cities are even hotter!. Apart from struggling Perth, Melbourne is just a breath away from its peak, while Adelaide, Brisbane, Hobart and Canberra recorded new peaks in February.

Interest rate cuts have helped the residential property market, and it looks like we will get another cut today when the RBA slashes the cash rate to just 0.25%. Mortgage rates starting with big figure ‘2’ (and there may even be some special rates starting with a ‘1’) are going to support the market, keeping demand from first home-owners strong.

But interest rate cuts aren’t going to help investors and retirees who have seen their share portfolios slashed by 30% or more, or help those who have borrowed to invest in shares and are forced sellers to meet margin calls.

And they are not going to help those canny investors who look at both commercial property and residential property, and recognize that with price drops of 30% to 50%, the former is starting to look pretty attractive.

And lower interest rates are not going to provide much relief to the hundreds of thousands of people involved in the tourism, hospitality, airline, recreational and service industries now worried about whether they will have a job or their small business will survive the shutdown of the economy due to the Coronavirus. Homeowners and investors, the last thing they will have on their mind is buying property and unfortunately, some will now be thinking about selling.

It only takes a small change in demand (less buyers or less keen buyers), or a small change in supply (more properties or keener sellers), to impact prices. Remarkably, the residential property market hasn’t been impacted, yet, but this is because it has been so rapid in the other markets and the residential property market always moves more slowly.

However, catch up it will.

For the record, I am  a “glass half full” guy when it comes to residential property. It is not going to collapse – but a pullback in the order of 5% to 10% is on the cards, particularly for those residences that are typically purchased by investors. And if the Government’s measures to stop the spread of the Coronavirus work and things are back to normal within a couple of months, this pullback might just be a blip.

But, if I was a seller, I would be looking to close this weekend, and if a buyer, keep my wallet firmly in my hip pocket.




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Coronavirus pandemic to slug Queensland’s property prices, industry figures say

Coronavirus pandemic to slug Queensland's property prices, industry figures say

For Queensland mortgage broker and property consultant Carolyn Walshe, it is not a matter of if, or when, the coronavirus will hit property prices, but by how much and for how long.

“You’d have to expect that they’re going to fall,” Ms Walshe said.

“The question is going to be just exactly how much — I think the smartest thing that people can do right now is just to hold back and wait and see what happens over the next few months.”

The latest figures show Queensland reached record median house prices for Brisbane, Noosa and other parts of the state in the last quarter of 2019.

Real Estate Institute of Queensland (REIQ) chief executive Antonia Mercorella agreed that COVID-19 would put a dent in that.

“Inevitably we will see the property market impacted by the coronavirus — I think it would be incredibly naive to think otherwise,” Ms Mercorella said.

“We know that a large volume of people will lose their jobs during this time.

“We know that it will completely erode confidence and those things — security and confidence — are very much key to the property market.”

Last night, Prime Minister Scott Morrison included the property sector in the latest moves to limit social interaction.

“Real estate auctions and open house inspections, in particular open house inspections — that cannot continue,” Mr Morrison said.

He said that from midnight tonight they would not be allowed.

Lenders, investors cannot foresee what’s to come

Ms Walshe, who also advised clients through the global financial crisis — suggested the forced shutdowns of parts of the economy, the restrictions on travel and the massive queues for Centrelink all added to the uncertainty.

“The list of instructions that people have to live under is breathtaking, so until we see some endpoint to all of that, it’s going to be very, very difficult to see exactly where the other side is,” Ms Walshe said.

Ms Walshe said the fact the Federal Government had moved the budget from May to October showed neither it nor investors, could foresee what was to come with any certainty.

“I don’t think anyone can have a lot of confidence at the moment until we see things that are far less alarming,” Ms Walshe said.

“Therefore, less property sales will complete until we have some confidence returned to the market and people are back at whatever semblance of normal work is.”

She said banks would be reluctant to lend, as people’s ability to repay loans also looked uncertain.

“Lenders are now going to be seriously looking at [the] possibility of there being lower numbers of borrowers who are in occupations where their income can be absolutely guaranteed,” Ms Walshe said.

Ms Mercorella said while some investors would be reluctant, others might pounce.

“We will see some investors perhaps getting cold feet and making a decision to suspend that,” Ms Mercorella said.

“But similarly, we will see some prospective investors being quite bullish about it and actually looking at this as an opportunity and probably pouncing on what’s available to try and secure a property at a better price, at a lower price.”

Coronavirus pandemic to slug Queensland's property prices, industry figures say (1)

Renters and landlords also to come under strain

Ms Mercorella said the REIQ’s immediate concern was tenants facing eviction for not being able to make their rent.

“Around 35 per cent of the Queensland population rents,” she said.

“The vast majority of that supply comes via the private investor, so given the predicted job losses, we are concerned about the impact that will have on a tenants ability to make their rent obligations.

“We don’t want to see renters being evicted on account of non-payment.”

She said the REIQ welcomed any support governments could give to tenants.

“Equally, what we need to be cognisant of is that the vast majority of that rental supply is coming from private investors — mum and dad investors — and they will have their own obligations at the other end to the bank.” Ms Mercorella said.

“So the challenge will be how we protect tenants in this in this environment, but also supporting owners who ultimately — if they don’t meet those obligations — will end up defaulting on mortgages, and ultimately having to sell those properties and losing those properties, which will mean that we all lose.”

Coronavirus pandemic to slug Queensland's property prices, industry figures say (2)

Ms Mercorella said there was hope the property market would recover relatively quickly.

She said the Queensland market was robust and recovered well from the global financial crisis.

“Again, we bounced back from the GFC rather well, but I but I do expect that this will be far more severe than that,” she said.

“It will also depend on how long we’re in the situation for, so it really is crystal ball gazing at this stage.”





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Coronavirus, a threat or opportunity for the housing market? Hotspotting’s Terry Ryder

Coronavirus, a threat or opportunity for the housing market Hotspotting's Terry Ryder

On Tuesday (24 March) I will be hosting a lunchtime webinar in which I will discuss the impact of the coronavirus on real estate with Rich Harvey of propertybuyer.

We’ve been inundated with registrations and it will the most popular webinar ever hosted by Hotspotting. Not surprisingly, with the virus impact dominating news media, people have an urgent interest in how this will play out for real estate.

The virus impact is creating volatile share markets but I expect the outcomes for property markets to be quite positive by comparison.

At times of extreme uncertainty and volatility, Australians tend to retreat to the solidity and relative safety of bricks and mortar.

We saw that the last time there was a global crisis impacting on our economy and causing the Federal Government and the Reserve Bank to take special action – and that was in the wake of the Global Financial Crisis in 2008. 

At that time we were inundated with economists and others seeking their 15 minutes of fame by forecasting a collapse in housing values. Academic Steve Keen famously predicted that our property values would drop at least 40% in 2009. If he’d been right, it would have been an unprecedented demise of house prices, not only in Australia but anywhere in the world.

And Keen was not alone. At that time, and in subsequent years, there was a seemingly never-ending line-up of doomsday forecasters for Australian real estate. 

One American spruiker, seeking to drum up publicity for an Australian seminar tour, claimed that house values would drop 60% and that land values would fall 90%. 

Renowned doomsday ranter Harry S Dent has claimed our property values were on the point of collapse on at least three separate visits to Australia over the past decade.

Keen, Dent and all the other forecasters have one thing in common: they were all proven spectacularly wrong, every time.

In 2009, at a time when Keen predicted a 40% drop in Australian property values, house values rose 13.6% – that’s the weighted average increase across the eight state and territory capital cities in calendar 2009, according to the Australian Bureau of Statistics.

Every capital city except Adelaide recorded a double-digit rise in house prices in 2009.

And in 2010 property values rose another 6%, according to the ABS, with all capital cities recording some level of growth, except Perth.

One of the messages we received from those times, and from other periods when share markets have over-reacted to situations in the global economy, is that the Australian property market does not follow the lead of the share market.

In fact, often it does the opposite. 

One of the factors that will keep residential real estate solid amid the virus crisis is the general shortage of homes in Australia, amid times of strong demand from owner-occupier buyers, including first-home buyers.

There was relatively little construction of new dwellings in 2019. Vacancies across Australia are very low in most locations and listings of properties for sale remain well down on the levels of recent years.

One measure showing the general shortage of homes is the vacancy rate figures published each month by SQM Research.

Their latest report shows that, for the first time in many years, every one of the eight state and territory capital cities has a vacancy rate below 3%.

In recent years both Perth, Brisbane and Darwin have had quite high vacancy rates and Sydney recently also had a vacancy rate above 3%. But now Perth is down to 2%, Brisbane is 2.2% and Darwin has dropped steadily lately and is now 2.7%. Sydney’s rate has also fallen and it’s now 2.9%.

Hobart, Canberra and Adelaide all have vacancy rates around 1%, which means their rental markets are very tight. Melbourne has fallen lately and well as its vacancy rate is now just 1.9%.

So four of the capital cities are below 2% and all of them are lower than 3%.

With availability of rental properties so low, we’re seeing rents rising in most of the capital cities.

If vacancies are tight and rents are rising, prices are likely to heading north as well – and that’s certainly the case at the moment.

The price report published by CoreLogic earlier this month showed prices had risen in the previous three months pretty much everywhere in Australia – in all eight capital cities and in all seven state regional jurisdictions.

The SQM Research figures published on 17 March showed strong growth in our largest cities, with Sydney up 11%, Melbourne 9% and Brisbane around 7%.

But Hobart still leads, according to these figures, with house prices 14% higher than a year ago.

And there were also moderate rises in cities like Canberra and Adelaide.

So, overall, the data shows that our property markets are very strong – and well placed to handle whatever outcomes arise from the virus crisis.




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Parts of Queensland’s coastline identified as global hotspots for sea level rise

Parts of Queensland's coastline identified as global hotspots for sea level rise (1)

He only moved in seven months ago, but Roly Green has already been forced to clear out the shed in the backyard of his home on the northern Gold Coast.

Mr Green’s property at Jacobs Well was one of many across the Gold Coast that flooded when record rainfall drenched the region in February.

Fortunately, the rain did not coincide with a king tide — that would have pushed water levels even higher as drains backed up.

“The water was coming down the street and the drains aren’t good enough and so it pooled around [the front of the property] and into the yard,” he said.

Fortunately, the house was spared.

Parts of Queensland's coastline identified as global hotspots for sea level rise (12)

“It’s a great house — the only reason I bought this place is because it was a metre off the ground.”

But scientists are concerned 1 metre will not be enough to protect Mr Green’s house in the future.

Parts of Queensland's coastline identified as global hotspots for sea level rise (11)

Even the most conservative of predictions by the Intergovernmental Panel on Climate Change (IPCC) show global sea levels will rise 30 to 60 centimetres by 2100.

If temperatures climb more than 2 degrees Celsius above pre-industrial levels, the IPCC estimate the sea level rise will blow out to between 60 and 110cm.

In Queensland, several islands in the Torres Strait are particularly vulnerable.

But the problem does not stop there — Port Douglas, Cairns and the Sunshine Coast are also at risk.

‘The last line of defence’

Coastal scientist Daniel Harris said parts of Australia’s east coast have been identified as global hotspots.

The Gold Coast is of particular concern, given the density of development and population, often in sensitive areas.

“There are a lot of people and infrastructure in very low-lying areas or on top of what used to be dune systems,” Dr Harris said.

“It’s a massive amount of water that’s all of a sudden impacting on the coast, and the beach will respond to that by eroding back towards the dunes, if they’re available. If they’re not, it will go into homes, infrastructure (and) roads,” Dr Harris said.

Dubbed the “last line of defence”, a boulder wall concealed behind sand dunes stretches along much of the Gold Coast’s 42-kilometre coastline.

Parts of Queensland's coastline identified as global hotspots for sea level rise (10)

Combined with sand replenishment, the wall is an integral part of Gold Coast beach management.

But without an upgrade, Dr Harris said the seawall might not provide the protection needed.

“With higher sea levels, those defences may start being overtopped, creating damage and a lot of the iconic buildings on the Gold Coast could be at risk,” Dr Harris said.

Parts of Queensland's coastline identified as global hotspots for sea level rise (9)

But he warned there would also be a downside to going higher.

“One of the big things that can happen when you build seawalls on beaches that are eroding is that you can lose the beach,” he said.

More than an inconvenience

The impacts will also be felt inland, and areas already prone to flooding face the biggest threat.

Parts of Queensland's coastline identified as global hotspots for sea level rise (8)

Budds Beach on the Nerang River in Surfers Paradise is an idyllic sandy retreat.

But on a king tide, water can rise through drains and flood the streets.

Kate Madison, who has owned a cafe in Budds Beach for 20 years, said the flooding was usually just a nuisance.

“All our copper wiring gets impacted [and] it’s just you couldn’t drive the car through the salty water. I think we all get a bit concerned about that,” she said.

Parts of Queensland's coastline identified as global hotspots for sea level rise (7)

However, a rising sea level will bring more than inconvenience.

“Around here, there’s not one property that wouldn’t be devastated. There’s not one business that wouldn’t be devastated,” Ms Madison said.

As part of a campaign to raise awareness, local environmental group Gecko engaged a surveyor to map out the impact on Winders Park at Currumbin.

The flood level was calculated by adding 80 centimetres to the highest king tide.

Campaign organiser David Paynter said he was shocked by the result.

“That covers across all the park out onto the road and laps up against the houses on the far side of the road,” he said.

Parts of Queensland's coastline identified as global hotspots for sea level rise (6)

Lois Levy from Gecko said most of the Gold Coast’s recreational areas are beside creeks, canals and flood plains.

“They’ll probably be underwater and as far as I know — there aren’t any possibilities of alternatives,” she said.

“If there’s no way for people to recreate, that’s also going to impact on the Gold Coast economy,” she said.

Parts of Queensland's coastline identified as global hotspots for sea level rise (5)

Development sites are at a premium and developers are eyeing off floodplains.

At a 25-hectare site known as The Cow Paddock at Carrara, a Gold Coast suburb several kilometres inland, a 2013 development approval stipulated that it have lifeboats on standby.

More than 500,000 people call the Gold Coast home and the population is forecast to grow to 850,000 in the next 20 years.

Parts of Queensland's coastline identified as global hotspots for sea level rise (4)

Costly litigation risk

Environmental lawyer Justine Bell-James said local governments faced a dilemma when deciding on a course of action.

“Irrespective of what decision governments make on development, they could end up in court,” Associate Professor Bell-James said.

She said saying no to a development in the short term could end up in a costly court challenge.

But Professor Bell-James said where she and other lawyers saw the litigation risk in the future was “against local governments for approving developments in hazard areas”.

The Gold Coast City Council is already incorporating an 80 centimetre sea level rise into its mapping as part of the City Plan.

The council declined the ABC’s request for an interview, but in a written statement pointed to a number of measures already undertaken to address issues associated with sea level rise.

That includes the installation of an artificial reef off one of the most vulnerable areas: Palm Beach.

Parts of Queensland's coastline identified as global hotspots for sea level rise (3)

It will work to prevent erosion by influencing waves and currents to preserve the sand.

Griffith University’s Joerg Baumeister, who was working with the council on adaption strategies, said it was important to act now.

“We have to start to think strategically, and that costs money, but the earlier we start to prepare ourselves the better it is,” Professor Baumeister said.

He said the Netherlands was a “wonderful” case study for the idea that cities could flourish despite rising sea levels.

“They are building new floating settlements for example … and even floating farms,” he said.

Dr Harris agreed early action was essential.

Parts of Queensland's coastline identified as global hotspots for sea level rise (2)

“The last thing we’d ever want is … [to] start losing these national icons, these really beautiful parts of the world that make Australia kind of famous but [are] also important to our culture.”

But Gecko spokeswoman Lois Levy said unless more action was taken on reducing global warming, adaption would be pointless.

“The temperatures will be so high that basically it’ll be a planet you can’t live on,” she said.

“We need definite targets on reducing greenhouse gases.”

While authorities grapple with the problem … residents like Mr Green are left wondering what they can do.

“It’s not just as easy to pack up and go. If we’ve got to leave here … how do you sell your house,” he said.

Scientists say it is a tomorrow problem that must be tackled today.




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