YOU can’t blame people for being confused.
One minute we are told there is an apartment glut and house prices could crash any minute. The next, our leaders are calling for negative gearing changes that will push prices down even further. So are we headed for housing armageddon or not?
PRICES ARE TOO HIGH …
Housing prices have been rising for over a decade and warnings about a property bubble have been brewing for years.
One of the latest warnings came last month from property analyst Louis Christopher, of SQM Research, who said the national property market was overvalued by 22 per cent.
This is being driven by prices in Melbourne, which hit its highest overvaluation level of 40 per cent and Sydney, which was at its second highest level of overvaluation at 40 per cent.
Mr Christopher warned that if changes weren’t made, such as lifting interest rates or tougher restrictions on home lending, prices in Sydney and Melbourne would continue to rise by up to 16 per cent in 2017.
“However it is likely 2017 will be the last year of price falls generated by the mining downturn for these cities,’’ he said.
Mr Christopher said if interest rates were cut again, prices would rise even further, paving the way for a possible correction in 2018.
BUT THERE’S AN APARTMENT GLUT COMING …
At the opposite end of the spectrum, there are fears that construction of new apartments will lead to an oversupply in the next few years.
The construction boom already seems to be impacting Melbourne apartment prices, where there’s been record levels of building in the last two years.
On Thursday, Corelogic’s November Hedonic Home Value Index showed Melbourne dwelling prices had fallen by 1.5 per cent.
Head of research Tim Lawless attributed this to new units coming on to the market. Prices for units fell by 3.2 per cent last month.
Overall, prices for Melbourne units have only grown by 3.9 per cent this year, compared to 12.2 per cent for houses.
But this is where things get really interesting for Sydney.
While Sydney unit prices are not increasing as fast as those for houses, they are still rising.
In November, unit prices increased by 0.9 per cent, which was actually slightly higher than 0.8 increase achieved by houses.
Across the year, unit prices grew by 10.6 per cent compared to 15.3 per cent for houses.
Earlier this year BIS Shrapnel released a report that predicted Melbourne would have an oversupply of more than 20,000 homes by 2017, but managing director Robert Mellor said Sydney was still suffering from an undersupply of housing.
“It’s so severe we won’t see an oversupply in Sydney in the next four years,” Mr Mellor said at the time.
“A downturn in Sydney between 2004 and 2012 was so severe, basically only in the last 12 months we’ve started to see construction move above the level of demand.”
SYDNEY IS DIFFERENT
Prices in Sydney have outstripped those in other areas and it remains Australia’s most expensive city, with a median dwelling price of $845,000, according to the latest statistics released by Corelogic.
Since 2009 dwelling prices in Sydney have risen by a staggering 96 per cent, Corelogic head of research Tim Lawless told news.com.au.
Melbourne is not that far off, with growth of 78 per cent, but the next best performing market after that was Canberra, which has only seen growth of 33 per cent.
The difference was even more stark in Perth, which only grew by 6.5 per cent, and Hobart on 4.5 per cent.
Mr Lawless said Sydney’s astronomical growth had been achieved against the backdrop of record low wages growth of about 2 per cent.
“So the byproduct of strong capital gains (for housing) and relatively low income growth is that affordability is becoming stretched,” he said.
One way of measuring housing affordability is to look at the dwelling price to income ratio.
In Sydney this ratio is 8.4, which means it takes 8.4 times the typical household salary to buy the typical Sydney dwelling.
If you look at houses only, this ratio is closer to 10, while for apartments it is 7.1.
These figures are still higher than in other cities.
Melbourne has a ratio of 7.2 for dwellings, while Brisbane’s ratio is 5.7.
“It highlights that Sydney is becoming increasing unaffordable,” Mr Lawless said.
However, Mr Lawless said there was some confusion in the market because the measure of “serviceability”, the proportion of household income that goes towards paying a mortgage, which has been really flat because of record low interest rates.
“This hides the fact that dwelling prices have risen at a substantially higher rate than incomes in Sydney and to a lesser extent, in Melbourne.”
A TARGET FOR INVESTORS
All the analysts seem to agree on one thing — the Sydney real estate market is different and property prices in other areas are not growing as strongly.
This may be why NSW Planning Minister Rob Stokes, called for reform of negative gearing this week.
His comments were later backed by NSW Premier Mike Baird, who said changes should be considered. But this is in direct conflict with Liberal Party policy.
During the election Prime Minister Malcolm Turnbull said the coalition would not change the measures, and warned Labor’s policy to reform negative gearing and the capital gains tax discount would lead to price falls. Estimates have ranged from between two per cent to as high as six per cent.
Mr Turnbull pointed to the need to increase housing supply to improve affordability.
But in his speech, Mr Stokes said supply alone wouldn’t solve Sydney’s housing affordability problem.
The state is currently building 185,000 homes over the next five years to try and address an undersupply of close to 100,000 homes in NSW.
But with interest rates at record lows and generous federal tax incentives, Mr Stokes said Sydney had become a prime target for investors.
Property investors can use negative gearing to reduce the tax they pay if they make a loss, for example if the rent they collect is less than their mortgage repayments.
Once they sell the property, they only pay tax on half of the profit because of the capital gains tax discount.
Mr Lawless said statistics showed investors currently made up more than half the demand for mortgages in NSW.
States are now trying to wind back incentives for investors.
This year NSW introduced higher taxes on foreign investors buying residential property, following in the footsteps of Victoria and Queensland.
HOUSING MARKET IS STILL HOT
AMP chief economist Shane Oliver said NSW must think there’s still some extra capacity in the property market as the state planning minister probably wouldn’t be talking about negative gearing if the market was weaker.
“They are probably thinking there is still room in the market as it’s not altogether clear that the market has peaked,” he told news.com.au. “They are probably thinking there’s a long way to go.
“I would be more cautious, I think a supply glut could hit next year,” he said.
However, if prices did fall, Mr Oliver said the market could still be propped up by two types of buyers.
Firstly, first home buyers may re-enter the market, especially if prices fell by 20 per cent and interest rates remained low.
Ironically foreign investors could also be lured by lower prices and move to snap up a bargain. Prices in Sydney are still reasonable compared to those overseas, especially because the Australian dollar is quite low at the moment.
Population growth in Sydney also remains strong and this would also cushion the market against a big fall. Mr Oliver said he didn’t think any price falls would go beyond 15-20 per cent.
“You wouldn’t be looking at a fall like what happened in the US or eurozone.”
SO SHOULD THEY CHANGE NEGATIVE GEARING?
By restarting the debate on negative gearing, NSW is basically trying to push some of the responsibility for fixing housing affordability back on the Federal Government.
While Mr Oliver believes supply is more connected to affordability, this doesn’t mean some changes shouldn’t be looked at — especially the capital gains tax discount.
“This is a bit of a distortion and that’s what makes negative gearing so profitable,” Mr Oliver said.
But Treasurer Scott Morrison did not seem to be taking the bait, and said on Friday that abolishing negative gearing would hit mum-and-dad investors in rental properties, pushing rents up and putting immense pressure on the market.
Another tricky thing about changing negative gearing and the capital gains tax discount, is that the measures would impact property markets around Australia, not just Sydney.
Meanwhile, Housing Industry Association chief executive Graham Wolfe pointed to the state taxes and levies charged on the sale of every new home.
“State-based stamp duty on the purchase of a typical new home alone adds a $91 per month burden on household mortgage repayments,” Mr Wolfe said.
Stamp duty is something the NSW Government could change to help first homebuyers but has left untouched.
In his speech, Mr Stokes said if states were to consider getting rid of inefficient state taxes, the Federal Government needed to outline how it would help states raise money for schools and hospitals to cater to a booming population.
Providing investors with generous tax breaks such as the capital gains tax discount, costs the Federal Government billions. In 2014/15, the CGT alone was estimated to have cost the federal Budget more than $6 billion.
And despite all the talk of housing bubbles, apartment gluts and falling rental prices, this hasn’t deterred investors.
ABS housing finance data has shown a consistent rise in finance commitments for investment purposes since May this year.
“Clearly investors are continuing to see housing as the preferred investment option, despite low yields and a mature growth cycle,” Mr Lawless said.
Mr Stokes believes it’s time for a real debate about policies and for the Federal Government to partner with states to address housing affordability.
“Why should you get a tax deduction on the ownership of a multi-million dollar holiday home that does nothing to improve supply where it’s needed?” he said.
“We should not be content to live in a society where it’s easy for one person to reduce their taxable contribution to schools, hospitals and other critical government services — through generous federal tax exemptions and the ownership of multiple properties — while a generation of working Australians find it increasingly difficult to buy one property to call home.”
Originally Published: http://www.goldcoastbulletin.com.au/
Brisbane Prices Could Be Headed For Recovery
Brisbane prices are at their lowest level in the cycle, according to the latest national property clock from Herron Todd White (HTW).
The house values in Brisbane, Bundaberg, Ipswich, Rockhampton, and Toowoomba were at the bottom, according HTW.
Meanwhile, prices in Cairns, Gladstone, Mackay, Townsville, and the Whitsundays are starting to recover, the data showed.
There was momentum for the price growth in Brisbane, given that the capital city had been “bouncing along the bottom for some time now”, HTW Brisbane managing director Gavin Hulcombe told The Courier-Mail.
“I think it will be (a) steady rise, but my suspicion is in a couple of years’ time we might look back and think it (now) probably wasn’t a bad time to buy. Some areas are likely to perform better than others,” he said.
Brisbane units are also at the bottom of the price cycle, along with Bundaberg, Ipswich, Mackay, Rockhampton, Toowoomba, and the Whitsundays, according to HTW.
Apartment prices in Cairns, Emerald, Gladstone, and Townsville are already rising, the figures showed.
Index warns council unit ban will impact boomer downsizers
A new housing index has warned that Brisbane will face a flood of ageing baby boomers with nowhere suitable to live unless it embraces greater density in suburbs where houses dominate.
Property market update: Brisbane, July 2019
Amid the decline experienced by the property markets of Sydney and Melbourne, Brisbane has remained resilient, ultimately becoming increasingly popular among investors. How can they maximise wealth-creation opportunities in the Sunshine State?
Following the conclusion of the federal election, the property market has regained stability as a result of the securing of negative gearing and capital gains tax, the Reserve Bank slashing interest rates to its lowest ever levels and the Australian Prudential Regulation Authority (APRA) removing the serviceability buffer for borrowers.
With consumer confidence rising, experts believe that the worst is over for the Australian property market and, by 2020, property prices are likely to show considerable growth.
Through the turbulence in some major capital city markets, Brisbane managed to power through, remaining slow and steady in terms of property price growth, according to experts.
Patrick Leo’s managing director James Nihill: “(Brisbane’s) affordable housing market allowed the city to bypass the impact of the restrictive lending criteria that other major capital cities felt.”
CoreLogic’s data showed that the capital city’s property market saw dwelling prices rising by 0.3 of a percentage point for the year to November and by 0.1 of a percentage point over the past three months.
Over the next three years, Brisbane could be looking at up to 20 per cent growth as a result of high levels of interstate migration, steady population growth and major infrastructure projects, including the new Queen’s Wharf and the construction of Brisbane’s second airport runway, BIS Oxford Economics predicted.
“The July home value index results provide further confirmation that the housing market has reacted positively to the recent stimulus of lower mortgage rates and improved credit availability; however, the response to date has been relatively mild,” CoreLogic’s head of research Tim Lawless highlighted.
However, the property expert doesn’t foresee a fast recovery for the overall property market. As a result, Brisbane may continue its slow and steady ascent, with significant growth far off in the future.
According to Mr Lawless: “Housing credit policies remain much tougher than they were prior to the [banking] royal commission as lenders continue to move away from the Household Expenditure Measure and examine borrower spending behaviours and expenses more closely.”
“The ongoing tightness in housing credit is expected to keep a rapid rebound in housing values at bay, despite the lowest mortgage rates since the 1950s.”
Over the past year, property markets have collectively shown signs of recovery, with five of the major capital cities showing price jumps, according to CoreLogic.
The home value index showed the dwelling prices rose in Melbourne, Sydney, Brisbane, Darwin and Hobart. Combined, the rise is modest at 0.1 per cent, but nonetheless represents a turnaround to the consecutive months of falls.
Meanwhile, in the past month, Darwin recorded the sharpest monthly increase, with values rising 0.4 per cent. This was followed by Hobart, where values increased 0.3 per cent, then Sydney, Melbourne and Brisbane, each recording monthly spikes of 0.2 per cent.
On the other hand, dwelling values decrease in, Adelaide and Canberra by 0.5 per cent, 0.3 per cent and 0.2 per cent, respectively.
Over the quarter, Brisbane, in particular, continued to fall with a 1.4 per cent drop in median house prices and a 3.1 per cent drop for unit prices.
According to Domain’s latest House Price Report, tighter lending conditions and the apartment construction boom have weighed down on property prices for the city, but strong population growth has meant the correction in unit prices was not as severe as predicted.
The share of Brisbane suburbs with a median house value under $500,000 declined by 12.1 per cent—that is, from 52.4 per cent in 2014 to 40.3 per cent in 2019, based on data from CoreLogic.
Additionally, 12.5 per cent of Brisbane suburbs have a current median unit value in excess of $500,000—up from 8 per cent of suburbs five years prior.
Supply and demand
CoreLogic data showed that, over the second weekend of July, 854 homes were taken to auction across all capital cities over the weekend, returning a preliminary clearance rate figure of 69 per cent.
The weekend result comes after the previous weekend recorded “the highest final clearance rate since April last year” when 953 homes were taken to auction with a final clearance rate sitting at 64 per cent.
However, a state-by-state breakdown showed a mixed result across the country’s capital cities.
Brisbane, in particular, found buyers for only 30 per cent of the 70 houses and 7 units sold at auctions over the said weekend.
Based on the data, the city’s auction clearance rate was recorded as lower than the same weekend in 2018, when 70 properties returned a 37.9 per cent clearance rate.
During that time, the median house price in the Queensland capital sits at $720,000.
Further softening the demand for housing in Brisbane is the losses to internal migration, according to a new analysis from Propertyology.
Based on data from the Australian Bureau of Statistics (ABS), only 10 per cent of all internal migrants to Queensland settled in Brisbane.
Propertyology managing director Simon Pressley suggested that the Brisbane labour market “will need to improve for it to be a major beneficiary of Sydney and Melbourne’s housing affordability squeeze”.
While Mr Pressley believes that examining where Australians are choosing to move and settle is a good indicator for where growth is to be expected, he argued that population growth is not the sole factor that drives growth into property markets.
“Far too much emphasis is placed on the role population mass and population growth plays on property price fluctuations,” he said.
“Even if an individual town or city had zero population growth, there will still be between 3 to 5 per cent of dwelling stock that will change hands within a typical year. Depending on the volume of dwellings listed for sale in that year, property prices may still grow.”
In contrast with capital cities, ‘tier-2 and tier-3 cities’ saw significant boosts to internal migration, including the Gold Coast, theCoast, Geelong, and Port Macquarie—all of which also saw increased median house prices to match the growing demand.
The Sunshine Coast saw a median house price increase of 4.3 per cent in the year ending June 2018, while Geelong saw an increase of 11.9 per cent.
According to Mr Pressley, housing affordability and desirable lifestyle opportunities were key factors in the demand and growth of these areas.
Investors who are keen to take advantage of the housing affordability in Brisbane are encouraged to look into buying units or high-rise apartments in and around the CBD as the Brisbane unit market sits at a ‘point of equilibrium’, according to the director of Right Property Group, Steve Waters.
Simply, areas at a point of equilibrium have enough supply and enough demand, he said.
“We’re starting to see rents increase there – that’s a sure sign of where the demand is, and the supply for that matter.”.
“This has come off the back of being heavily oversupplied,” Mr Waters highlighted.
Apart from studying the level of current supply, the property expert also strongly advised investors to look into ‘what’s in the pipeline’ in order to get an understanding of the growth potential of the property market.
He said: “It’s not just a matter of what’s constructed now but what’s in the pipeline in terms of DAs or just beginning construction and what have you.”
“Investors who can identify those good areas with the right fundamentals and perhaps take advantage of a market now where not everybody is in should be able to set themselves up for the future.”
“But once again, buying in the correct area is paramount.”
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