An optical illusion they call a “property bubble”

An optical illusion they call a “property bubble”


Spare a thought for those property writers in Australia where it has become increasingly obvious that the pressure of having little to write about is taking its toll. The cash rate together with the inner workings of Australia’s Reserve Bank (RBA) has always remained a fascination for many although with the next rate rise possibly not until sometime in 2016 – a new search for a property headline has begun in earnest.

Enter the rise and rise of the ‘property bubble’ – although I am quite sure in my thirty years of working in the real estate industry I am mystified as I have never seen a ‘property bubble’ although I have seen plenty of booms. When a bubble bursts it simply disappears so what can we then expect with a ‘property bubble’? The simple truth when I advance this line of questioning is ‘’well you know what I mean”. Well, sorry I don’t, because there is no such thing as a ‘property bubble’ and if you knew anything about the intricacies of property machinations you wouldn’t be writing that in the first place.

We need to go back to find where this recent optical illusion otherwise known as a ‘property bubble’ emerged from, although it has made cameo appearances for over a decade now in Australia despite never bursting. Australia’s mortgage market currently sits at around the $1.3 trillion mark with the “Big Four” banks holding approximately 80 per cent of the book value. The Murray financial system inquiry has created plenty of argy bargy between the RBA, the Australian Bankers’ Association and the smaller lending institutions as to exactly what is the best practice that Australia needs to adopt – the final recommendations will be delivered to the federal government in November this year.

WarwickFarm

SYDNEY AERIAL PHOTOGRAPHY

We can’t ignore Lindsay David’s thought ‘bubbles’ either, who recently penned a book Australia: Boom to Bust where he warns that Australia has three shaky pillars which he believes are all in a state of collapse – real estate, resources and our banks.

No housing bubble: The big bank economists’ conclusion which is exactly where I sit given collectively when you have 80 per cent market share their internal data would provide them with the most accurate positioning – over those who are simply speculating. To further this train of thought I looked at Roy Morgan Research who are constantly drilling down and probing the Australian property markets.

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‘’In July the satisfaction level of the personal customers of the banks remained close to the record high of 82.2% set in June, falling only marginally to 82.1%.” If the borrowers were having problems with their lenders the approval ratings would be plummeting not increasing. Although we need to put this into greater perspective – given there are too many property commentators distorting the truth – their anger and resentment is at an unprecedented level.

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Back to Roy Morgan Research – “Over the last four years the number of investment loans in Australia has grown by 37% compared to an increase of only 4% in the number of owner occupier loans. In 2010, just under a million (954,000) Australians 18+ had an investment property loan compared to 1.31 million as at March 2014. This growth represents an increase of 37%. Over the same period the number of Australians with an owner – occupied home loan increased from 4.66 million to 4.83 million, an increase of only 4%.”

Based on this information the ‘property bubble’ must be our Baby Boomers running amok by boosting their Self-Managed Superannuation Funds care of a very generous federal government who encourage investment in Australian properties by offering substantial tax relief via negative gearing. Then of course we must not forget that old chestnut that Australian property holdings can be approximately divided into thirds – one – third rent, then the next third own with a mortgage and the final third own without a mortgage.

As recent sales have clearly proven there is no shortage of people wanting to invest in Australian real estate – both local and overseas. So then apply the KISS Theory (Keep It Simple Stupid) – when you see an oversupply of properties on the market then market conditions are moving from a vendor to a buyers’ market.

RWM Research started recording the number of properties on the market weekly back in mid – 2011 so it’s interesting to see what the highest number of properties on the market since then have been:

  • Mosman Houses – 168 on 10 November 2011. Today 69
  • Mosman Apartments – 138 on 10 November 2011. Today 51
  • Cremorne Houses – 24 on 16 December 2011. Today 8
  • Cremorne Apartments – 44 on 3 November 2011. Today 15
  • Neutral Bay Houses – 22 on 1 March 2012. Today 5
  • Neutral Bay Apartments – 101 on 17 November 2011. Today 31

It is very clear that based on the current numbers the banks should have absolutely no concerns given it is very clear that what we have today is very much a vendors market.

MOSMAN – 2088

• Number of houses on the market this time 2013 – 83
• Number of houses on the market last week – 62
• Number of houses on the market this week – 69
• Number of apartments on the market this time 2013 – 58
• Number of apartments on the market last week – 56
• Number of apartments on the market this week – 51

CREMORNE – 2090

• Number of houses on the market this time 2013 – 8
• Number of houses on the market last week – 5
• Number of houses on the market this week – 7
• Number of apartments on the market this time 2013 – 19
• Number of apartments on the market last week – 12
• Number of apartments on the market this week – 15

NEUTRAL BAY – 2089

• Number of houses on the market this time 2013 – 13
• Number of houses on the market last week – 3
•Number of houses on the market this week – 5
• Number of apartments on the market this time 2013 – 36
• Number of apartments on the market last week – 31
• Number of apartments on the market this week – 31

For this week’s sales in Cremorne real estate, Cremorne Point real estate, Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Neutral Bay real estate, Cammeray real estate

Click Here

For this week’s open for inspections

Click Here

Source: Australian Property Monitors

Cheers ^__^

5 Responses to “An optical illusion they call a “property bubble””

  • Gordon says:

    Rob, an optical illusion is something that can be seen, but isn’t real – like a mirage.

    Given the market is doing what it usually does, namely reflecting supply and demand, we might ask where all this talk of a housing bubble is coming from?

    The answer seems to be: from some junior scribblers, with an entitlement complex which makes them feel that “somebody” should provide them with a home, or from the persistent Jeremiahs who always claim the sky is falling, in the hope that sooner or later they might be right.

    And back in the real world? The market keeps cruising along regardless, as it always does!

  • rsimeon says:

    Gordon precisely – the problem being with the online news medium is that third – party advertising rates are determined by Unique Visitors – so you have to get the eyeball count up. The only way to get that (in their stupid opinion) is hard hitting unsubstantiated headlines.

    Fortunately there are more balanced opinions too 🙂 Such as Property Observer 🙂

  • Mike Stokes says:

    Rob ,
    There are many Japanese Investors AREIT s and ( Big 4 banks at least 0ne of whom nearly went under ) that would suggest that the period of 1985-89 was a buble bursting in 1990 and deporessing markets until 1994-5 which began the next groth cycle which ended with the GFC . That last cycle was 13 years ,perhaps with low inflation and interesrt rates the cycles will get shorter …but they will ALWAYS be there
    M

  • rsimeon says:

    Mike

    I have no doubt about that although I would add that during the last recession in the early 1990’s the banks were in all sorts of trouble. Given we have not had a recession in over 20 years (which is unprecedented) there should be cause for concern.

    Having said that property commentators are getting confused with investor/SMSF’s with the principle place of residence which is not running that hot. Unless you look at out west where both are gridlocked against each other to secure real estate. That is the Number 1 danger area to suffer significant price collapses.

    The east and north are much more relaxed and conservative for houses anyway given apartments keep being snapped up by the investors.

  • Russell says:

    Based on roughly 5% annual inflation on building costs over the last 35 years costs are approximately correct. However the cost of land is way more expensive than it was. In 1980 I paid $14000 for a 900 sqm block. Again using the same inflation figures the land should be around $75000 not $550000 which closer to reality in the southern suburbs.

    I think that shows that land costs are the problem, not building. SO is it a problem with slow release of land or that we all want to live in a very limited number of cities where free land is hard to find and that lack of available land is pushing costs up.

    PS for those interested. The cost of my 1st home was $285 sqm in 1980. for new homes I am told it is $1600 sqm.

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