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A COLOSSAL RISK: Huge danger sign for housing in Australia

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A COLOSSAL RISK Huge danger sign for housing in Australia
There could be far too many apartments for sale in coming years. Picture: Glenn Hunt/The Australian What does a million dollars buy in Aussie capital cities?

IT COULD be a bad year for housing prices if building approvals are anything to go by. With the housing market teetering on the edge of a serious downturn, apartment developers seem to be having a “last blast”.

Building approvals data released last week shows a serious uptick in the number of homes that were approved. November building approvals were up 0.9 per cent compared to October, and are 8.1 per cent higher than November 2016. The source of the lift is mainly apartments, which rose from already high levels.

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

The timing of this big push is fascinating because November is exactly when Australian capital city housing prices started falling. Corelogic shows prices fell by 0.1 per cent in that month as Sydney took a sharp downturn. The developers didn’t know in advance that was going to happen, but they might have sensed it. After all, what could drive such a big uptick in building approvals is the sense that it is now or never.

Builders who have just got their approvals will be racing to get their apartment blocks and new developments done before everyone else. Those who finish early can hope to get in before prices really slump. Any who have delays will be worried they’ll end up selling into a soggy, lifeless market.

TIMING IS EVERYTHING

Markets are supposed to co-ordinate supply and demand. But that’s a hard job when supply takes a long time to come online. If you’re halfway through building a big development when the market falls by 10 per cent, you’re in a bind. The losses involved in finishing the properties and selling them for less than they cost to build will almost certainly be smaller than the losses involved in abandoning the project, so you have to push on to get at least some money back. This is the essence of the boom and bust cycle that characterises property.

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

Some very large developers might finish properties and then sit on them, hoping the market improves over time, but that’s also a risk. Markets can take a very long time to recover.

SOUTH OF THE MURRAY

The really interesting thing about the November building approvals data is where it was focused. All the increase was focused on Victoria. The average number of building approvals in New South Wales, Queensland and South Australia was actually lower than in the previous month, by 2 to 3 per cent. But Victoria saw a whopping 27 per cent rise.

That anomaly becomes especially curious when you consider that Victoria was the market that actually went on to see price appreciation in November (0.5 per cent growth in prices, according to Corelogic). Could it be that developers, sensing Victoria is the only market with price growth left in it, are focusing their attentions there?

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

Another explanation for such a massive jump would be if a single large project came through the pipeline in the month of November. A giant apartment development somewhere in Melbourne, for example. For now, it’s not clear if that’s the case. Whether it is one project or many, the impact on housing markets of a big rush of supply is largely the same – extra supply generally makes prices lower than they would otherwise be.

QUIT WHILE YOU’RE WINNING

Some smart developers have already got out of the property development game, telling the financial press they are sitting out until the market repairs itself. The so-called “pipeline” of new building had been shrinking. The November building approval data shows a different picture. It suggests the pipeline might get fatter again for a little while and there could be one more flurry of cranes going up. The one caveat is this – builders can pay to get a building approval and then not use it. That might be the best case scenario.

The big question hanging over Australia’s high housing prices is whether a housing downturn can happen without also crashing the economy. A gentle and controlled downturn might be a positive – young people can afford to get into the market more, but people don’t feel like the sky is falling.

But a severe sharp downturn could be different. A giant backlog of supply that could be released into an already weakened market is a concern because it could accelerate a modest slide into a hard one.

Originally Published: sunshinecoastdaily.com.au

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Opinion

How good an investment is south-east Queensland

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How good an investment is south-east Queensland

Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.

We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that are already well-positioned in the market.

A significant and growing population

South East Queensland (SEQ) stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred. This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.

A diversified economy poised for growth

Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing, and services. Over the past two decades, its economic growth has consistently exceeded the national average – and in our view this is likely to continue.

The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property.

Investment in infrastructure

A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment, and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.

Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors.  Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2,000 people during construction and an estimated 10,000 once operational.

The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts.

Outlook for commercial office property investment

These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million), with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.

Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression, demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 2017.

With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.

Source: brisbaneinvestor.com.au

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Queensland’s 100,000-property public housing shortfall revealed

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Queensland's 100,000-property public housing shortfall revealed

Queensland has a severe shortage of social and affordable housing, an issue that is projected to get worse by 2036 according to new research.

More than 102,000 additional social houses are currently needed across the state, and 54,700 affordable houses are also needed with nearly 13 per cent of Queenslanders spending more than 30 per cent of their income on rent.

By 2036, Queensland is projected to need 254,300 more social and affordable houses – the second-highest unmet need behind NSW, the report found.

The new figures come from a UNSW City Futures Research Centre report on social housing shortfall across Australia.

Regional social housing shortfalls are higher than in Brisbane, the data shows, but Brisbane residents are slightly more likely to be spending more of their income on rent.

Housing Minister Mick de Brenni said housing affordability was a “big issue” for Queensland.

“Through the Palaszczuk government’s $1.8 billion Queensland Housing Strategy, Labor is driving key reforms and targeted investment across the housing continuum,” he said.

“The Strategy commits us to build more than 1000 affordable homes for Queenslanders, as well as a further 4522 new social homes to help ensure everyone has a safe, secure and stable place to live.”

Lead researcher Laurence Troy said 22.5 per cent of Australia’s entire housing growth must go to social housing to meet demand into the future.

“Our analysis shows that the sheer number of households in rental stress across the country means that if we’re going to meet the need, at least 12 per cent of all our housing by 2036 will need to be social and affordable housing – which is a very reasonable ambition in global terms,” Mr Troy said.

“To cover the backlog of unmet need and future need in Australia two in 10 new homes will need to be for social housing over the next 20 years, and a further one in ten for below-market affordable rental housing.”

Mr Troy said the research’s financial modelling found the “best and cheapest way” for governments to meet the need for social housing was to fund it through upfront grants and low-interest government financing.

“Delivering below market rental housing through the not-for-profit sector, as opposed to the private equity model, will save $3 billion a year by removing developer mark-ups and shareholder returns,” he said.

The financial modelling was commissioned by the NSW community housing sector.

Mr de Brenni said the state government was “listening” through its recent public consultation on rental reform and was committed to investing in affordable housing in partnership with community housing, to provide more subsidied homes for low income earners.

“We heard Queenslanders are struggling to afford rental properties in the suburbs close to where they work,” he said.

“Through our Build-to-Rent pilot project, we are seeking to work with the private sector to increase the number of long-term, affordable rental properties for low to moderate income earners, including key workers in health, early childhood and hospitality.

“Internationally, the Build-to-Rent model is delivering fantastic outcomes and facilities for tenants and we’re looking to see what the market is open to delivering here.

“The pilot, if it proceeds, will see $70 million invested towards delivery of hundreds of affordable rental properties for key workers in inner-city areas where affordability has been identified.”

Mr de Brenni said the registrations of interest for that pilot had seen strong market interest, and the department was considering the responses before calling for expressions of interest.

Source: brisbaneinvestor.com.au

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Opinion

Treasury: Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

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Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ House Prices

Federal Treasury has delivered a serious rebuke to the Coalition for exaggerating the impact of Labor’s negative gearing and capital gains changes.

In emails released under freedom of information, acting treasurer Kelly O’Dwyer requested the department fact check the Coalition’s claims that Labor’s policies would cause house prices to fall.

In response, Treasury issued a correction: “The [s]tatement is not consistent with our advice.”

“We did not say that the proposed policies ‘will’ reduce house prices,” the email reads.

“We said that they ‘could’ put downward pressure on house prices in the short-term depending on what else was going on in the market at the time.

“But in the long-term they were unlikely to have much impact.”

Labor has jumped on the release, with shadow treasurer Chris Bowen saying that the government had been “caught red-handed” misrepresenting Treasury’s advice.

For his part, treasurer Josh Frydenberg denied that the government was misrepresenting Treasury, pointing to the Financial Review’s take on the release that changes “could” put downward pressure on house prices in the short term.

Frydenberg quoted building industry group the Masters Builders Association figures.

“If Labor’s policy is in place you’ll see 32,000 fewer jobs and 42,000 fewer homes being built.”

Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

House prices hit spending

It has been a difficult week in economic policy, with GDP figures released on Wednesday revealing that the economy has slowed significantly, entering a “per capita recession” for the first time in 13 years.

Retail trade figures for the March quarter were also sluggish, with falling house prices impacting wealth and spending.

RBA governor Philip Lowe highlighted the link between the two at the AFR annual business summit on Wednesday.

“The evidence is that a tightening in credit supply has contributed to the slowdown in credit growth,” Lowe said.

“The main story, though, is one of reduced demand for credit, rather than reduced supply.

“When housing prices are falling, investors are less likely to enter the market and to borrow. So too are owner-occupiers for a while.”

Source: brisbaneinvestor.com.au

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