WHAT BUBBLE ?

WHAT BUBBLE ?

Finally, the Mosman niche market received that much awaited “buy” recommendation which is better late than never given that we have been stating the obvious for many many months. Louis Christopher, research director of Australian Property Monitors declared in The Sydney Morning Herald on July 9, 2005 ” About six weeks ago we noticed that the market in the upper-cost segments [such as] Mosman, Neutral Bay and all those areas, was moving forward,” he said. “It’s quite clear that we’ve passed the bottom of the market and we are into a new cycle.” Personally, we are of the opinion that this “new cycle” requires further definition as it is highly likely that it could lead to a misrepresentation of our property market. One month ago I wrote, that in 1995, a Mosman home sold on average every seven years. Today, we are seeing anecdotal evidence that houses are now selling every twelve to fourteen years, largely due to the high transaction costs. According to the Bureau of Statistics, in 1995, 434 houses were sold in Mosman. In 2004, just 278 houses were sold (these numbers have continually declined since 1995). In 2005 we expect the number of sales to be closer to 200 so we are not sure what this “new cycle” entails. We do expect the investors to venture back into the apartment market (we put a “buy” recommendation on apartments three weeks ago). This will ease the pressure on the rental markets which is a positive spin for those renting. With investors remaining in the share market, the rental market vacancy rates still continue to decline, which identified the market rents continuing on a upward spiral. All in all, this is nothing new as we have been stating the obvious (and calling the market correctly) all year. Over the past ten years, one thing has remained unchanged – the demand for quality properties has continued to outweigh supply.

The good news continued when figures released this week from the Australian Bureau of Statistics identified that 55,732 housing loans where issued in May. Figures released this week from the Australian Bureau of Statistics show that 55,732 housing loans were issued in May. The loans for the construction of a new home reached 4,658 which represents an increase of 2.3 per cent. Loans for the purchase of a newly built home edged up by 1.7 per cent to 2,270. Given the negative press that the property industry has faced this year, these figures simply prove that the property markets are more than holding their own. This provides a positive spin on the economy.

As we near the next “market on” call with Summer looming, we expect it to be positive and responsive. What will be interesting is to see if the Mosman market will be more receptive to Public Auction again, given that in recent times the Expressions of Interest has gained greater popularity. If we do see a sudden impact of high clearance rates and a greater movement to auction, some vendors (given the reduced stock levels) could well exceed price expectations. Another benefit will be that those vendors who are highly geared can now exit the market knowing that they will not be savaged on price, as we have a much more confident market. One of the most interesting conclusions that we have drawn from these recent comments in the press, is the recognition of niche markets (which is exactly what we have been saying for years). No longer are we reading the entire market in general terms which are not a true reflection of the many niche markets. It just takes some a bit longer to understand the idiosyncrasies of the Sydney property market. Oh well !! Better late than never.

One should give credit where credit is due, and our very own “Governor of Moolah” would be pretty proud of his tactical calls on interest rates. With so many predicting a blood bath with property prices, the flight and landing has been smooth, although those who over-paid have been severely punished. Even more interesting is that elusive bubble (which we claimed never existed) that was not pricked, rather it went on to prove that it too, was nothing more than a modern day myth. There are many economists eating humble pie at the moment, whilst being force-fed so one can only hope that this entire exercise will prove to be a valuable lesson. As we said all along you can’t compare the current property market to that of 1991-1993 as the one big difference was that then, interest rates were regulated which is not the case today. Shock horror !! Today, we are being told that we can expect a rate decrease in 2006.

We do not envisage rapid price increases in the near future, rather a balanced and a more up-beat response from prospective purchasers. In the past, the Summer selling season experienced an over-supply, however this year we are of the opinion that this will not happen (a first in a very long time). Rather, our niche markets will take another twist based on previous sales evidence that volume for houses will continue to decline. It will be interesting to monitor the ratios of investors who buy back into the apartment market. Given that we run the largest Apartment Division north of the bridge you will read it here first.

Well I am off for a few weeks to thaw out, so the highly talented Geoff Grist will be reporting to you on our market movements. It has been a very interesting six months, and the next will be even more absorbing. Cheers ^__^

Leave a Reply

Your email address will not be published. Required fields are marked *