Sydney property market to kick off very strongly in 2014, heading for giant unprecedented boom
Sydney property market to kick off very strongly in 2014, heading for giant unprecedented boom; Highest level of investor activity ever recorded in Australia
Tweet Topic Started: 17 Dec 2013, 08:28 PM (1,553 Views)
Last week’s announcement by Holden to shut down operations in Australia in 2017, although I suspect they will move on well before this date, should not come as a great surprise. Back in the 1960’s the manufacturing industry in Australia employed 26% of the workforce and today it sits at just 8% and getting smaller. Ford and Mitsubishi have already announced previously that they too would be leaving our shore which now leaves Toyota as the sole motor vehicle manufacturer in Australia. Over the years I have read many speeches where a common theme is that by 2020 Australia will cease to have a manufacturing industry.
When I look at the 2012 Australian Securities and Investment Commission’s Annual Report the number of businesses registered reached 1.9 million, which happens to be a new Australian record, but the number of businesses entering external administration is also at the highest level since the Global Financial Crisis. The federal government was never expected to provide financial assistance for these ailing companies so why annually prop up the ailing motor vehicle industry? It no longer makes sense – it’s time to move on. Hence: The failing auto industry gets a final reality check.
Putting all the politics aside history shows with Australian motor vehicle closures: 1992 – Nissan – Keating, 2008 – Mitsubishi – Rudd, 2013 – Ford – Gillard and 2013 – Holden – Abbott.
Labour pains add to the RBA’s challenges with the Australian Bureau of Statistics (ABS) announcing yesterday that the unemployment rate rose to 5.8% in November, from 5.7% in October. The man with the toughest assignment is none other than Glenn Stevens our head teller at the Reserve Bank of Australia (RBA) who warned against hubris; “We are building up this myth of 22 years uninterrupted growth. We shouldn’t do that – sooner or later we’ll have another downturn.”
What remains to be seen is exactly what lessons have been learnt from the GFC.
As 2013 comes to a close it’s always interesting to look back in reflection and let’s look at interest rates which I might add Macquarie Bank called it nearly right saying they would get to 2.00% at the beginning of the year. I predicted they would actually go up so I was completely wrong although Macquarie Bank did predict 2.00% so they were half right. In 2014, at some stage I predict the cash rate will fall to 2.00% as the RBA tries to get its monetary policy back firmly on the front foot.
At RWM our December quarter turned out to be an all-time record which has us clearly of the opinion that the local real estate market will kick-off very strongly in February 2014. Again, the market is easily measured by the number of properties on the market which for the better part of 2013 saw record low numbers of properties on the market.
Interesting observation in 2013 was that we really started to see the Chinese buyers making serious inroads into the Mosman markets especially in the house sector. Chinese buyers tower over Australian real estate – Where China spends its vast US$3.7 trillion foreign reserves is going to dominate asset prices and developments around the world. Right now apartments in Sydney and Melbourne are in favour with the Chinese.
The number of houses keeps diminishing with just 88 houses for sale in Mosman, Cremorne and Neutral Bay which in itself would be another record.
Wishing you a Merry Christmas and a safe and prosperous New Year.
If there was any residual doubt about whether low interest rates would push more investors into Australia's housing markets, well, there isn't now.
I'm not sure I understand all of the reasons why everyday Australians are more inclined to invest in residential property than, say, our counterparts in the US, but regular readers will recall that I was confident that this would be the outcome of lower interest rates (in the face of a chorus of articles and commentators suggesting in no uncertain terms that the housing markets would not respond to monetary policy, and that buyers should 'sit it out' and wait for an inevitable price correction).
It seems to be part of the Australian psyche, as well as a reflection of our tax system. Investors with surplus capital have seemingly been spooked by the share market crash rather than welcoming the wonderful buying opportunities, and instead turn to the property markets to seek returns in the low interest rate environment ("I've always done well in property").
In my opinion, and in that of others, the long-run outcome of this will be iniquitous "cones of wealth" surrounding our major capital city centres - in particular Sydney and Melbourne - just as we have seen unfolding in London and elsewhere over the past few decades. I don't expect that outer suburbs and regional centres, where the percentage of investors is much lower, will be impacted all that much.
Finance data
The Housing Finance data for October from the Australian Bureau of Statistics (ABS) showed a very substantial 4.1% seasonally adjusted increase in total dwellings housing finance.
As you can see above, owner occupied housing finance increased by 1% through October, seasonally adjusted, and the recent data has sent the total number of owner occupied dwelling commitments well above their long run averages.
The total value of dwelling commitments is in a roaring uptrend, the most recent sector of the chart almost vertical.
The real driver and the real story of this release is the level of investor activity, which has increased massively over the month of October (+8%) and over the past year (+29%).
Note that this is easily the highest level of investor activity ever recorded in Australia.
Combined with other data which shows that New South Wales is leading the levels of financing activity, this clearly suggests to me that the types of property which will 'outperform' the national averages will be those favoured by investors, in particular those located in the inner/middle ring suburbs in Sydney.
Meanwhile, there was positive news for the new dwellings sector, with he number of commitments for new dwellings strong.
First home buyer activity
There is little point in analysing first home buyer activity in great detail. We know that the numbers are low, but, in NSW at least, we also know that the numbers are incomplete.
I missed out on a property myself to a first home buyer a fortnight ago, but I'm doubtful that he was recorded as such. Notably, he was somewhat older than first home buyers from generations gone by, a trend we might expect to see continuing.
New dwellings construction
And finally, finance for the construction of new dwellings is definitely moving strongly in the right direction with 11 consecutive monthly increases, but it would be fair to say that there is still a good deal of heavy lifting for low interest rates to do before it could be called a construction boom.
In particular, much of the activity has been in NSW and Western Australia to date, so other states have some way to go.
According to the ABS: "The number of finance commitments for the construction of dwellings for owner occupation (trend) rose 0.7% in October 2013, following a rise of 0.6% in September 2013.
"This is the eleventh consecutive rise since December 2012. The seasonally adjusted series rose 1.0% in October 2013, following a rise of 1.7% in September 2013."
Summary
Housing finance is a useful indicator as to what is coming in the future, and the indicators suggest more of the same in 2014 while interest rates remain low.
Over the past 12 months, Sydney has recorded 14% growth, Perth around 10.5%, and Melbourne 7.5%. Even Adelaide, which was is my least favoured capital city suggestion due to there being a weaker supply/demand dynamic, has scraped together a tiny amount of capital growth, although the city's dwelling prices have comfortably underperformed inflation for years and years now.
In summary, we are heading into a giant and unprecedented investor-led property boom in Sydney. But if you've been a long-term reader of my books (and my blog), you already knew that...years ago.
In your dreams shadow. In very good economic times sure, but not now. The party is over and now we are just floundering our way down a deflationary spiral. What you're seeing in syd is just an abberation, probably driven from the top end of the housing stock. The only reason it has found some growth is that it languished in the wilderness for a decade.
Why didn't syd boom with the rest of Australia through the last decade? Because prices were already too high there to allow still higher prices. If you have another reason I would be happy to hear it.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
The party is over and now we are just floundering our way down a deflationary spiral. What you're seeing in syd is just an abberation, probably driven from the top end of the housing stock. The only reason it has found some growth is that it languished in the wilderness for a decade.
House prices aren't just rising in Sydney - prices are up in all cities over the past year. Sydney just happens to be the strongest so far in this new national up-cycle.
Quote:
Why didn't syd boom with the rest of Australia through the last decade? Because prices were already too high there to allow still higher prices. If you have another reason I would be happy to hear it.
Sydney had a huge boom that ended in 2003, and then Sydney fell back a bit while other cities enjoyed good capital growth. Now it's Sydney's turn again. Just part of the cycle. Cities don't all rise and fall and the same time. Prices in Sydney, relative to incomes, are currently still well below 2003 levels. A Sydney median house price of close to $1M by the end of 2015 would just bring Sydney back up to around 2003 price/income ratio levels.
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