Australian capital city average dwelling prices rose a whopping 2.8% in March according to CoreLogic and are up 4.8% on a year ago. This is their seventh monthly gain in a row and their fastest monthly rise since October 1988 and they have now surpassed their September 2017 record high by 3.5%.
Sydney dwelling prices rose a very strong 3.7%, which is their faster since August 1988, and they have now surpassed their July 2017 record high.
Melbourne prices also rose 2.4% and have now surpassed their November 2017 record high.
Prices in other cities were all up strongly led by Hobart with prices up 3.3% in March, followed by Canberra up 2.8%, Darwin up 2.3%, Brisbane up 2.4%, Perth up 1.8% and Adelaide up 1.5%. Prices in Hobart, Canberra, Brisbane and Adelaide are all at record highs.
Regional dwelling prices rose 2.5% in March and are up 11.4% on a year ago with their relative strength over the last year reflecting lower levels of indebtedness and hence less vulnerability to the financial stresses caused by the pandemic driven economic downturn, less exposure to the slump in immigration and increased buyer interest as people seek to relocate from cities as part of a secular trend towards working from home and a greater focus on lifestyle.
Capital city house prices rose 3.1% in March and 6% over the last 12 months whereas unit prices lagged with a 1.9% gain in the month and 1.1% rise on a year ago, with the relative underperformance reflecting an ongoing shift in preferences towards houses as a result of more working from home and a lifestyle choice and as weak rental conditions made worse by the slump in immigration constrained the inner city unit markets in Sydney and Melbourne.
Over the last 12 months unit rents fell -3.8% compared to a 5.2% in house rents, with the weakness in unit rents concentrated in Sydney and Melbourne. However, the Sydney and Melbourne unit rental markets have shown signs of stabilisation and improvement in recent months.
The strength in home prices is consistent with other data showing a booming property market including record new housing finance commitments over recent months, surging home sales and record or near record auction clearance rates.
Clearance rates are now at levels consistent with 15% to 20% annual price gains in Sydney and Melbourne!
So why is the property market back to booming?
The property market has seen a huge turnaround from expectations of a year ago for sharp falls in home prices as a result of the pandemic driven lockdowns. Capital city home prices did fall nearly 3% around mid-last year (led by Melbourne), but the fall was brief as the government policy response intervened to protect the housing market from the recession and to push prices higher. Basically the combination of ultra-low mortgage rates, multiple government home buyer incentives, economic recovery, the strengthening jobs market and now an increasing element of FOMO (buying now for fear of missing out) combined initially with low listings are driving prices sharply higher. The pandemic driven desire to “escape from the city” also appears to be pushing up suburban house prices and regional prices up at a faster rate than its depressing inner city unit prices in Sydney and Melbourne.
While first home buyers led the initial recovery, spurred on by various incentives, owner occupiers have followed and now investors appear to be starting to jump in too.
Average capital city dwelling prices have now surpassed their September 2017 boom time high by 3.5% with Brisbane, Adelaide, Hobart and Canberra and now Sydney and Melbourne along with average regional prices all at clear record highs. Perth and Darwin remain well down on their 2014 mining boom highs, but are now recovering rapidly.
With variable mortgage rates set to remain ultra-low for the next few years average prices are expected to rise another 15-20% or so over the next 18 months to two years.
However, the pace of increase is likely to slow through 2021-22.
First, government housing incentives are likely to be sharply curtailed in the months ahead with HomeBuilder ending, the First Home Loan Deposit Scheme tapped out and some states may start to wind back various incentives.
Second, in the absence of an ability to raise interest rates, the RBA and APRA are expected to reach yet again for macro prudential controls to slow housing lending. While they don’t target house prices and are of the view that we have not yet seen a significant deterioration in lending standards on the metrics they look at, past experience indicates that surging house prices leads to a deterioration in lending standards and increasing financial stability risks. And the metrics APRA and the RBA look at are starting to push up in the direction of a deterioration in lending standards with record housing finance pointing to an acceleration in housing debt, an increasing share of lending at high loan to valuation ratios and a rising share of interest only loans albeit from a low base. All of which suggests that it will make sense to start tapping the lending standards brake soon. The first thing to do would be to increase interest rate buffers but limits on high loan to valuation ratio lending and high debt to income ratio lending may make sense too.
Thirdly, the recovery in immigration once the international borders are reopened is likely to be gradual and if so this will allow for years of property undersupply to give way to oversupply which is the best way to take pressure off house prices.
Fourth, it’s likely that the 30 year tailwind for the property market of falling interest rates has now run its course. Four year plus fixed rate mortgage rates look to have bottomed and the RBA seems more determined than ever to see inflation sustained in its target range which will ultimately put an end to the long term downtrend in interest rates.
Fifth, poor affordability will start to become an increasing constraint again if it’s not already.
Finally, government policy should further encourage the shift away from city living as unleashed by the pandemic and working from home as a way to take pressure off capital city property prices. This remains to be seen though. The ending of JobKeeper and the expiration of home loan deferrals may also act as a dampener to the extent that they may boost forced sales but in the absence of a significant new coronavirus driven lockdown the impact is likely to be marginal. Actual net job losses from the ending of JobKeeper are likely to be low and the proportion by value of home mortgages on payment holidays has collapsed from 11% in May to below 2%.
Cromwell Lands Former Flight Centre HQ
Brisbane-based fund manager Cromwell will add the former Flight Centre headquarters at 545 Queen Street in Brisbane to its managed portfolio.
Settlement is imminent for the $117.5 million acquisition being sold by Axis Capital, which bought it in 2017 for $70 million, in a deal that requires Foreign Investment Review Board approval.
The 13,300sq m, A-grade office building is located on a 2735sq m parcel of land at the entrance to the Brisbane CBD’s ‘Golden Triangle’ and has undergone an extensive refurbishment programme.
Hamish Wehl, Cromwell’s head of retail funds management, said the property fit its target profile with 88 per cent of income derived from the federal government, as well as listed or multinational tenant-customers
“The current interest rate environment has made things challenging for investors searching for opportunities that meet their income needs.
“Cromwell is actively seeking additional assets that will help DPF meet its objectives and benefit unitholders even further,” Wehl said.
DPF, which started in 2013, owns seven office and retail assets—in Queensland, New South Wales, Victoria, South Australia and ACT—outright and has exposure to a further three with a total value of just over $1 billion.
Wehl said the fund had been strongly supported by local investors who are paid a monthly dividend averaging 5.8 per cent a year.
The transaction was negotiated by CBRE’s Peter Chapple, Bruce Baker, Flint Davidson and Stuart McCann.
“We have seen a strong increase in buyer demand for high quality, multi-let Brisbane office towers, with long-term investors backing that there will be a flight to quality as tenants seek to upgrade to prime grade CBD and metropolitan office assets,” Baker said.
Brisbane’s renowned Golden Triangle has been subject to a number of high-profile transactions in recent years.
The tower, at 410 Queen Street, sold for $53.5 million to local development and investment group PGA Properties early last year.
Dexus and Canada’s CPP Investment Board also recently sold Brisbane’s 10 Eagle Street office tower for $285 million to Brisbane-based investment manager Marquette Properties.
Article Source: www.theurbandeveloper.com
Speculators back in the game to push up property prices
Investors in residential property have come out of hibernation and were the driving force behind the record 5.5 per cent increase in housing finance in March.
Having kept a low profile during the pandemic, investors and speculators are now returning to the market with gusto. And that suggests only one thing – home prices will continue to be pushed higher.
The colloquial definition of what turns a housing boom to a housing bubble is the increasing participation of investors. Judging by the latest numbers from the Australian Bureau of Statistics (ABS) investors could soon replace first home buyers as key drivers of the red-hot property market.
The 12.7 per cent increase in financing to investors dwarfed the (already strong) 5.2 per cent increase in finance to owner occupiers. And the value of those loan commitments to investors is up 54 per cent on March last year.
And the phoenix-like rise in housing investors has coincided with early signs of a peak in demand for finance by first home buyers whose participation in the housing market appears to be running out of steam. In March first home buyer finance fell by 3.1 per cent (seasonally adjusted), according to the ABS.
The levelling out of first home buyer demand was only ever a matter of time as this group would ultimately come up against the barrier of affordability.
Government assistance and low interest rates spurred demand from first home buyers last year but as prices have moved up the window of opportunity has narrowed. Meanwhile, some of the robust demand from those making their first move into property is thought to have been pulled forward.
Investors deserted the residential property market in response to COVID as rents and returns fell as did values in the early stages of the pandemic. The apartments segment was hit particularly hard as immigration disappeared.
While rents remain at historically low levels, there are clear signs that rental increases are starting to come through – particularly in the outer suburbs of capital cities, the smaller capitals and in regional areas. In March rents rose by 0.6 per cent in Sydney and by 0.2 per cent in Melbourne according to CoreLogic
But the broader enticement for investors is capital gains on offer in the housing market, which is now in full swing. Prices nationally rose by 1.8 per cent in April and by 2.8 per cent in March and careered ahead 6.8 per cent over the past three months.
For big banks lenders the return of the residential property investor could provide them a new source of demand growth in the event the first home owner market continues to run out of puff.
Despite historically low interest rates, the banks say they are not seeing any deterioration in the quality of their loan books. This is despite intense competition among bank and non-bank lenders to capitalise on the demand for housing finance driven by low rates.
Westpac’s accounts for the six months to March, which were released this week ,showed that only 2 per cent of customers were behind on repayments – a level that has remained the same for a year.
For the most part the banks are arguing that there is no need to apply any macroprudential brakes to the housing market.
But history tells us the rise in investor participation also sets off alarm bells within the regulatory agencies, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank.
Both have been disinclined so far to wade into the rapidly heating property market and introduce measures that will hamper first home owners. But regulators have plenty of form in targeting the more speculative investor cohort with macroprudential tools. And the banks will need to avoid the riskier lending that has traditionally been associated with financing investors.
’The resurgence in investor financing and the continuing surge in owner occupiers who are trading up points to further near term strength in home prices,” according to AMP chief economist Shane Oliver.
“It also points to a further acceleration in housing debt, a further rise in the share of interest only loans and increasing lending at high loan to valuation ratios. All of which is increasing pressure on the RBA and APRA to move to tighten lending standards in order to head off increasing risks of financial instability – which we expect to occur sometime in the next six months.”
Article Source: www.brisbanetimes.com.au
Cromwell buys in Brisbane and on the hunt for more properties
Cromwell Property Group has confirmed it is buying the former Flight Centre headquarters at 545 Queen St, Brisbane, for $117.5 million.
Hamish Wehl, Cromwell’s head of retail funds management, said the refurbished office building in the Brisbane CBD’s so-called “Golden Triangle” was purchased for its Direct Property Fund (DPF), a retail investment vehicle.
“We are actively looking for further acquisition opportunities,” he said.
“The fund remains open, we’re seeing attractive investment inflows and it’s all about acquiring the right property that suits the return profile of the investors.”
He said DPF has been strongly supported by “mum and dad investors” who are paid a monthly dividend averaging 5.8 per cent a year.
DPF, which started in 2013, owns seven assets outright and has exposure to a further three with a total value of just over $1 billion . All but one – a Bunnings in South Australia – is an office building.
Mr Wehl said office will remain a focus for DPF though there is scope to invest in other sectors, depending on returns.
“We are cautiously optimistic in the current environment and think the office sector as a whole will always be relevant for white collar employment,” he said.
“It fosters innovation, creates and maintains workplace culture.”
He added: “There’s still a bit to play out from last year’s fallout [and] if we see quality property that is attractively priced within the retail and industrial sectors, the fund has the ability within its investment mandate to acquire those assets.”
Cromwell bought the 13,000sq m building – now 100 per cent leased with average weighted expiry of 4.1 years – from Axis Capital, which paid $70 million in 2017 shortly after Flight Centre moved to other premises and left it mostly empty.
Axis Capital refurbished and repositioned the building, leasing it up before selling to Cromwell on a yield of 5.9 per cent.
The sale required Foreign Investment Review Board approval due to the large stake activist investor, ARA Asset Management, based in Singapore, has in Cromwell.
The transaction was negotiated by CBRE’s Peter Chapple, Bruce Baker, Flint Davidson and Stuart McCann.
Brisbane CBD has sprung back to life after the quiet 2020, with at least four other major properties still on the market. Total transaction value this year is expected to exceed $1 billion over the next two months.
The catalyst for the listings surge has been strong post-COVID-19 prices paid for office towers at 10 Eagle Street, which fetched $285 million, and 310 Ann Street, sold to Ashe Morgan for $210 million.
Article Source: www.afr.com
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