Love a Property Market with Hypotheticals

Love a Property Market with Hypotheticals

Make no mistake our property markets have been running downwind for too long so it’s now tacking straight into some interesting headwinds albeit hypothetical at this juncture. That being said, the property run – particularly in Sydney and Melbourne needed some economic speed bumps to slow the momentum.

As strange as that may sound the federal government has basked in the unprecedented growth of private debt as this is precisely a significant driver of Australia’s economic growth. Therefore, it would then be fair to say that reduced demand will reduce economic growth which is the last thing that the federal government wants to see or hear for that matter.

This week respected commentator Chris Richardson from Deloitte Access Economics outlined their modelling which unsurprisingly identified that a crisis in China would wipe almost $140 billion from the Australian economy. This would have had Federal Treasurer Scott Morrison scrambling for valium simply because such economic hypotheticals are beyond his control.

Most property commentators have been saying for at least the past decade – why do we gift wrap property for Chinese buyers? Of course, this hypothetical was quickly followed by increased unemployment and of course recession.

Although I have watched with great interest how quiet the Australian Taxation Office (ATO) has become with divestment orders for illegal property purchases. Either they have found very little illegal activity or the problem is a lot worse than first feared. I am of the view that it is a lot worse especially when the ATO has gone so quiet – although it would not be the first time I was wrong with such predictions.

Whilst I agree with Chris Richardson that property values on average are thirty (30) per cent above the market (in some instances this figure would he higher) any correction of say ten (10) per cent would be a positive for property markets as they are long overdue for a re-calibration.

The last correction in Australia’s property market was nine (9) years ago when we inherited that Global Financial Crisis (GFC) which annihilated banking markets with unprecedented industry redundancies. This is what led to a thirty (30) per cent correction in property prices where those unemployed contributed to property markets being oversupplied. A common denominator with the Sydney homeowner property markets (not to be confused with the speculative investor markets) is that supply has been constrained to record low levels thereby reducing exposure.

What many forget is that due to unprecedented exorbitant stamp duty many households increased their private debt to renovate over trading-up to avoid paying stamp duty – a point that identifies why we have record low stock levels. Who knows, depending on how this plays out the state governments stamp duty could very well be a saving grace for seriously impacting supply.

Historically when property markets have tragically crashed the formula has been record high supply with record high supply. This time around we have had record low supply with high demand between local and overseas markets so to some degree the markets have been hedged.

Initially what is needed is for the buyer testosterone to take a break from the markets although that is not happening as auction clearance rates continue to sit in boom-like conditions. Firstly, we need to observe if the latest commentaries impact consumer confidence which it will no doubt do.

One of the great problems with Australia’s property markets is that a best practice simply does not exist. It is very clear that our banking industry learnt next to nothing from the GFC despite experts identifying that interest only loans usually always end in pain. We have no policies in place to slow down property booms nor is there a plan in place for Australia to cope with its high immigration policies.

The federal government has no idea what the states and territories are doing and vice versa. For example, it was revealed last week that the NSW government had once again changed direction where it now wants to focus on potential rail improvements between Sydney and Wollongong. This will slow down ongoing projects into road construction and public transport. Although many commentators have identified for quite some time that rail from Sydney to Newcastle and Wollongong should be a priority. To change direction so suddenly clearly demonstrates how little they know about key infrastructure.

Whilst on the NSW government woes former premier Mike Baird asked the Independent Pricing and Regulatory Tribunal (IPART) in 2016 to examine all rents paid by public housing tenants. The plan being to increase rents so that the government could increase its revenues. IPART came back this week with its findings where it was clear that tenants could not afford to pay more rent as they were presently contributing twenty-five (25) per cent of income to their rent.

The report also found that government housing was significantly run down and had been neglected for the last twenty (20) to thirty (30) years. One would ask just what exactly happens in these departments where there is no maintenance for up to three decades?

As a result, IPART found a funding shortcoming of $950 million per year to ensure that the public housing system eroded no further and a maintenance program be instigated. NSW presently has approximately 60,000 people on the waiting list for public housing.

Wherever one looks all we find are broken systems in governments.

 

MOSMAN – 2088

 

Number of houses on the market this time last year – 43

 

Number of houses on the market last week – 56

 

Number of houses on the market this week –39

 

Number of apartments on the market this time last year – 48

 

Number of apartments on the market last week – 39

 

Number of apartments on the market this week – 41

CREMORNE – 2Number of houses on the market this time last year – 6

 

Number of houses on the market last week – 7

 

Number of houses on the market this week – 5

 

Number of apartments on the market this time last year – 14

 

Number of apartments on the market last week – 14

 

Number of apartments on the market this week – 13

NEUTRAL BAY – 2089

 

Number of houses on the market this time last year – 11

 

Number of houses on the market last week – 4

 

Number of houses on the market this week – 5

 

Number of apartments on the market this time last year – 27

 

Number of apartments on the market last week – 23

 

Number of apartments on the market this week – 19

 

Source – Pricefinder

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