The Australian property markets are so misunderstood

The Australian property markets are so misunderstood

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So much so that it’s actually quite embarrassing to read some commentaries given its increasingly difficult to comprehend that some believe a market crash would be a service to the Australian economy. There is a significant problem in that property market commentators are struggling to identify the difference between an investor and a home buyer – for example NSW real estate investors now make – up approximately fifty per cent of the Australian property investor market. This is what happens when you have a record low cash rate and a share market that still has “mum and dad” investors sceptical – hence real estate has become the preferred investment vehicle.

The International Monetary Fund (IMF) recently reported that Australia (based on income ratios) had the third most overvalued property market in Quarter 4, 2013. So we need to analyse much more closely as to the cause, where again it’s very hard to go past negative gearing. A recent IMF report revealed that three countries that strongly favoured negative gearing investment – Australia, New Zealand and Canada – were all ranked in the top four most overvalued real estate markets globally.

For the majority closely watching the property markets the major problem is that we are seeing “auto – pilot investing” where investors simply follow trends and jump straight in without the required due diligence. With so much being written about “that” inevitable crash there very well may be a soft landing as the demographic market under the greatest scrutiny is the investor market – which must not be construed as the home market.

Randwick

SYDNEY AERIAL PHOTOGRAPHY

When Australia introduced its capital gains tax back on September 20, 1985 (yes, thirty years ago next year) there were calls that this would decimate the investment markets, which turned out to be not the case. If you look at the property market now approximately ninety per cent of the market would attract capital gains tax. Any changes to negative gearing legislation would be retrospective (as all previous taxes were) so the current investors would qualify, so that is one redeeming factor.

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With the Murray Financial System Inquiry now all but complete, many will anxiously await the handing down of the tax white paper where it is all but guaranteed that negative gearing and capital gains tax will be front and centre. In fairness most would agree that this white paper is not before time, although we also must remember that investing in Australian real estate is also part of our culture unlike so many other countries where renting is the preferred option.

You can’t keep comparing the Australian real estate markets to the USA given it was well documented that a major contributor to the Global Financial Crisis (GFC) was subprime, where the lenders had absolutely no recourse, as against in Australia where the lenders recover/bankrupt the respective parties in the event of serious default. It should also be remembered that during the GFC Mosman was identified as the number one contender for the highest delinquencies – yet it turned out to record one of Australia’s lowest delinquency rates.

We have also seen (for those bothering to apply) the Foreign Investment Review Board (FIRB) record for the past three quarters to March unprecedented approvals which surged 93 per cent. A problem is this is mistakenly confused with the home markets where the traditional markets would struggle to get a bronze medal (if such an award existed) given the top end markets are still struggling. The Asian buyers have now come to the realisation that they paid over the odds so again we are seeing more caution from that demographic.

If you look closely at the home market over the past two months in the majority of instances the stock levels have been at all-time lows which is hardly a sign of a bubble. We expect this to change as we enter spring where we expect to see a much stronger home market although the definition of strong still remains to be determined.

That being the case we can expect to hear how that little bubble has again evolved into a massive tsunami – where an impending property collapse is just moments away. Of course there is just the one problem with that analogy in that home owners follow their demographic property markets closer than many give them credit for.  Only when you start to see supply reaching unprecedented levels would you have a justifiable reason for concern.

When I hear someone discussing the “tsunami bubble” I always respond as to why this is not reflected with current supply levels? Naturally, the response is that all property owners are on “auto pilot – ignore”. This obviously must be the case although they quickly forget that whenever a real estate agent makes a sale they are letter boxing that demographic market almost immediately – so that destroys that argument.

The only things holding back the home market is that “auto – pilot owners” aren’t that impressed with the prices so they’re staying put (for the moment). What happens next is anyone’s guess.

 

MOSMAN – 2088

• Number of houses on the market this time 2013 – 85

• Number of houses on the market last week – 63

• Number of houses on the market this week – 63

• Number of apartments on the market this time 2013 – 59

• Number of apartments on the market last week – 56

• Number of apartments on the market this week – 59

 

CREMORNE – 2090

• Number of houses on the market this time 2013 – 3

• Number of houses on the market last week – 6

• Number of houses on the market this week – 7

• Number of apartments on the market this time 2013 – 17

• Number of apartments on the market last week – 13

• Number of apartments on the market this week – 14

 

NEUTRAL BAY – 2089

• Number of houses on the market this time 2013 – 11

• Number of houses on the market last week – 4

•Number of houses on the market this week – 4

• Number of apartments on the market this time 2013 – 30

• Number of apartments on the market last week – 36

• Number of apartments on the market this week – 36

Australian Property Monitors

 

Cheers ^__^

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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