The real reason why property volumes are down

The real reason why property volumes are down

Now there are plenty of conspiracy theories as to why we keep witnessing declining property numbers on the market where like most things the easiest excuse is to blame the global financial crisis. Well, that is true to an extent although one needs to dig a lot deeper to get a more balanced analysis as to what the cause is, although it does depend on which market demographic one is actually analysing.

When you look at the top – end markets the answer to this vexing question delivers a totally different solution and this is what I believe is the reason. There are two parts to this given the analysis applies to apartments and houses. In the case of apartments the predominant answer is that with property investors bombarding the market their modus operandi is a long term hold strategy. The global financial crisis and the subsequent slashing of the cash rate saw investors chasing yields, and property with its generous negative gearing benefits was the perfect fit. The reason why Sydney remains the star performer is due to Sydney having the highest performing rental returns. The Sydney median house rent jumped 3.9 per cent over the past year to an all – time high of $530.00 per week, according to the Domain Group Rental Market Report. The jump comes on the back of a strong June quarter with rents up 1.9 per cent.

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SYDNEY AERIAL PHOTOGRAPHY

Now the housing decline I find much more interesting as that relates directly to the merchant bankers…oops I was advised this week that the term merchant bankers is old hat. All future references should be to investment bankers as that is now how they like to be classified. Prior to the global financial crisis the investment bankers (or merchant bankers as they were then known) were the greatest thing to happen to the property markets since sliced bread. Every year they were rewarded with “cash bonuses” where those rewards were funneled into the local real estate markets.

As a result of the global financial crisis the powers – that – be at the respective investment banks decided that going forward the best way to reward their staff would no longer be in cash rather share scripts. Sadly, for the real estate markets these shares (held in escrow) with a slow feed then directly feed into their respective superannuation funds. The net result of this is significantly less property trading which then explains why we are currently seeing considerably less property on the markets and this won’t be changing anytime soon. By transitioning from the cash bonus system to the share scripts what this done is effectively take billions and billions of dollars from Australia’s circular flow of income which prior to the GFC then flowed through into our property markets. We now have record low property volumes on the market despite a record low cash rate – so there is my analysis on why we have fewer properties on the market. Just remember where you read it first.

This actually smashes the “property bubble” believers given they fail to acknowledge that we have multiple markets – property investors and home owners making up just two. I find it interesting to note that this week David Cameron’s Conservative Party in the United Kingdom brought down a budget that included significant changes to negative gearing to curb the property investors dominating the respective property markets (sound familiar?) The Abbott government has already ruled out any changes to negative gearing.

Even more interesting is that in Australia business leaders have been hounding politicians by stating that Australia’s 30 per cent corporate tax rate is far too high (please refer to current productivity returns). The British corporate tax rate was reduced to 28 per cent in 2010 to 20 per cent in 2015 to boost competitiveness. Now it will drop to 19 per cent in 2017, and then to 18 per cent in 2020. Australian governments should be monitoring very closely (if they are smart) what affects these significant reductions in the British corporate tax rate has on productivity. I must reiterate that I did say – if they are smart.

The “bubble believers” must be on holidays given there has been no mention of another property market in Australia that being the Asian market and how this will affect our markets given the collapse of the Chinese stock market? At this point in time this is impossible to measure although given our markets are so strong we could very well see many Asian investors exiting our property markets to offset their respective share market losses. A point well worth considering as well – will this stock market correction significantly reduce the volumes of Asian investors who have been dominating many Australian property markets?

We can expect to see pressure on the Chinese developers, off – the – plan acquisitions which are still under construction and then you have the Asian buyers who have been active in the house market. Maybe this share market correction will attract more buyers? It will take months and months for the dust to settle on this hot topic of conversation – although we can expect to hear much more on this in coming months.

MOSMAN – 2088

• Number of houses on the market this time last year – 57

• Number of houses on the market last week – 36

• Number of apartments on the market this week – 40

• Number of apartments on the market this week – 43

CREMORNE – 2090

• Number of houses on the market this time last year – 5

• Number of houses on the market last week – 3

• Number of houses on the market this week – 3

• Number of apartments on the market this time last year – 11

• Number of apartments on the market last week – 16

• Number of apartments on the market this week – 16

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 3

• Number of houses on the market last week – 2

•Number of houses on the market this week – 2

• Number of apartments on the market this time last year– 43

• Number of apartments on the market last week – 25

• Number of apartments on the market this week – 24

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.

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For this week’s open for inspections

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Source: APM Price Finder

Well I’m on leave for the next few weeks so there will be no more editions of Virtual Realty News until my return in early – August.

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