Welcome Guest [Log In] [Register]


Reply
Does Australia really have the most overvalued property in the world?; Propell National Valuers
Topic Started: 2 Sep 2014, 08:45 PM (548 Views)
Admin
Member Avatar
Administrator

Quote:
 
Does Australia really have the most overvalued property in the world?

Linda Phillips | 2 September 2014

Home median prices rose 4.2% over the quarter to 31 August according to RP Data and this is reigniting the debate over whether prices are now too high.

Price movements over the quarter were +5.0% for Sydney, +6.4% for Melbourne, but around +1% for the rest. It was a surprise to see Melbourne outperforming Sydney during the quarter.

More capitals now have a median price within a stones’ throw of $500,000 including Melbourne, Perth, Darwin and Canberra. Brisbane still looks relatively cheap at $445,000, with Adelaide and Hobart lower. Sydney is the most expensive at $650,000.

This was the strongest winter performance since 2007 says RP Data, though it followed a negative result in May so there is an element of bounce back in the numbers.

Over the year to 31 August, Sydney is up 20.9%, Melbourne is up 15.6%, Brisbane 10.4%, Adelaide 10.6%, Darwin 12.0%, Perth 8.0%, Hobart 8.4%, Canberra 6.0%. In the case of Canberra much of that happened in the last quarter.

Melbourne growth has been surprisingly strong, considering the plentiful supply and the level of new unit construction. It also has the lowest rental yield, being 3.2% on houses, 4.2% on units, which the Economist has used to suggest the market is overpriced (see below).

Over five years, Sydney and Melbourne prices have risen by around half.

According to RP Data research director Tim Lawless, Sydney and Melbourne housing markets are driving these two tier conditions. “Over the latest growth cycle we have seen Sydney dwelling values increase by 27.2% and Melbourne values up by 19.5%. Sydney and Melbourne were also the strongest performing cities during the 2009/10 growth cycle. Since the beginning of 2009, we have seen values rise by a cumulative 50.1 per cent and 46.1% respectively in Sydney and Melbourne. Looking at the remaining state capitals over the same time frame, the next best performer was Perth where values are now 15% higher, followed by Adelaide at 9.9%, Brisbane with 5.3%.”

The inevitable question is what prices will do in the next year?

It seems that the pace of growth must slow down. If it doesn’t then the RBA will be considering raising interest rates, assuming that macro prudential tools to curtail lending are not introduced. And this at a time when the RBA would like to reduce rates in order to lower the exchange rate and stimulate the economy. It is between a rock and a hard place.

According to an article in The Economist (30 August, 2014 edition):

Australia has one of the most over priced housing markets in the world. However, this is based on a couple of simplistic measures, being price versus rents, and price versus income.
Measured against rents, they assert that Australia as a whole is 55% overvalued, the only markets exceeding this being New Zealand, Canada, Belgium and Hong Kong.
Measured against income, they assert that Australia is 33% overvalued, the highest figure in the world.

Given the disparity of price growth in our cities, this implies that Sydney and Melbourne are way overvalued, while the other capital cities are a little above fair value.

But is this an accurate way to measure under/overvaluation?

Against income, The Economist says that Australia is 33% overvalued. But at the other end of the scale, they also say that China is 38% undervalued.

So should we be selling our Australian houses and rushing to buy in China instead? Few would agree with that, indeed, Chinese buyers are conspicuous in buying Sydney real estate, but the question gets us to focus on the major driver of prices: supply versus demand.

China may well be undervalued by comparison with incomes, but another factor is at work. The market is considerably oversupplied, with plenty of reports highlighting the amount of constructed yet empty apartment space in and around the major cities. So the excess of supply over demand has kept prices lower by comparison with incomes.

In Australia, we have the opposite equation: supply has not kept up with demand, and excess demand is driving prices up. To the extent that demand is supporting prices, there is a good argument to say that our prices are not too high.

Rising prices should be a signal to increase supply. Indeed, levels of new home construction are improving, but not at the pace that would reduce prices. Supply is relatively inelastic, with impediments to new supply including lack of available land (where it is wanted) and planning limitations.

This can easily explain why Sydney prices have been increasing at the fastest pace. Simplistically, the demand is for inner city housing, while supply is most elastic on the metro fringes.

Melbourne is something of an enigma. It has plentiful supply of new land and home packages, especially in the west, and the level of new apartment construction for inner city locations is high enough to cause a lively debate about whether too many are being constructed. If supply is greater than demand, then Melbourne price growth should be subdued. The fact that it continues at a strong pace suggests that demand is growing faster than supply.

Figures of population growth are always a year out of date, but it suggests that inbound population growth is continuing in Melbourne, despite the risks to employment levels in coming years.

Buyers seem to be assuming, reasonably enough, that interest rates are not going to change in the next year. Everyone likes buying into a trend, so growth tends to become self-fulfilling in the short term. While we expect growth levels to moderate in the coming year, we consider the measures used by The Economist to be rather simplistic and that prices are not as overvalued as they report.

Linda Phillips is national research manager with Propell National Valuers.

Read more: http://www.propertyobserver.com.au/forward-planning/35182-does-australia-really-have-the-most-overvalued-property-in-the-world.html
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Steve99
Default APF Avatar


Yes! :mad:
Profile "REPLY WITH QUOTE" Go to top
 
Lef-tee
Default APF Avatar


The notion of supply and demand is often not so simple. Demand for housing as the basic need for shelter is inherintly different to demand for it as a speculative asset. Demand for shelter is a need that can be fulfilled reasonably readily while demand for investment housing to make me rich is a want that can expand much further, as long as the credit taps stay flowing.

In a nutshell, there is a limit to how many houses a person needs to own for the purpose of shelter - one. But there is no limit to how many extra houses they might want to own for financial gain. It is the latter demand that is now dictating price movements.
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
« Previous Topic · Australian Property Forum · Next Topic »
Reply



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy