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401/235-237 Carlingford Road Carlingford

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  • General Features
  • Property Type:Apartment
  • Bedrooms:3
  • Bathrooms:2
  • Bond:$2,440
  • Indoor Features
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  • Dishwasher
  • Air Conditioning

( Source: Domain news)

Sydney renters are in for a better time but investors and developers will suffer as the growing supply of apartments in the NSW capital pushes rents down and weakens banks’ willingness to lend for new developments.

The near-halving in the pace of price gain in the Sydney residential market to 9.4 per cent in the 12 months to August from a year earlier has been accompanied by a faster growth in the value of houses than apartments that is likely to continue, valuer WBP Property Group said in its State of the Market Report.

“Amid the current credit environment, Sydney’s deteriorating rental market will drive prices down, particularly those areas in which there is ample supply of apartments – areas like Botany LGA, Auburn, Lane Cove and Ryde,” the report says.

Bad news for investors with apartment rent to fall in Sydney, valuer WBP saysBad news for investors with apartment rent to fall in Sydney, valuer WBP says Photo: istock

“Caution is also advised for investors considering Parramatta, which has the highest vacancy rates in Sydney. Meanwhile, Bondi continues to experience growth, with certain pockets remaining tightly held.”

In contrast to the mid-2000s when rents were surging up to 6 per cent a year, rents in Sydney are already only growing at a basic 1 per cent a year, the UNSW Centre for Applied Economic Research said last month. SQM Research managing director Louis Christopher has said tenants in Sydney’s CBD and inner rings can expect “bargains” in 2018.

The WBP report does not predict how much rents will fall, but says that at a time when Sydney developers are reconsidering their development pipeline amid expectations of large numbers of new apartment completions, areas such as Sutherland, 30km south of the CBD were increasingly seeing permitted development sites being put back into the market.

“Emerging areas like Sutherland are witnessing an increasing number of multi-unit sites now being offered to the market, with some developers facing profit concerns in the long-term – an issue further exacerbated by borrower difficulties obtaining finance for off-plan properties,” the report said.

The latest official approval numbers back up the picture of developers putting on the brakes. In September, new apartment approvals in NSW slumped 20 per cent month on month, the largest fall in more than a year. Total apartment approvals in NSW over the year to September, however, rose to a new record 46,590. There is no indication how many of those approvals will turn into projects on the ground.

A further challenge for developers will come from imminent building design regulations, WBP said.

“Where once a site might have accommodated 80 units, it may now only allow 50,” it said.

HSBC has weighed in on the house price debate, saying the measures the Reserve Bank of Australia used to determine that the property market is cooling are correct.

Despite discrepancies between the four major indicators, the bank says the fact that housing loan approvals and credit growth have slowed point to an overall cooling in what has been a red hot market for some time.

“The bottomline is that the weight of evidence suggests that there has been some cooling in the housing market,” wrote chief economist Paul Bloxham in a note to clients on Monday.

“Compositional shifts in housing turnover are making it difficult to get a clear read on housing price growth but, importantly, housing loan approvals and credit growth have slowed.”

'The bottom line is that the weight of evidence suggests that there has been some cooling in the housing market,' wrote ...

‘The bottom line is that the weight of evidence suggests that there has been some cooling in the housing market,’ wrote HSBC’s Paul Bloxham.  Photo: Supplied

Divergent indicators

There are four bodies that measure the year-on-year growth of house prices and recently they have showed widely diverging figures, prompting investors and analysts to wonder which to believe.

CoreLogic breaks down the particulars of a given property; the number of bedrooms, the block size and location, among other things, and this is referred to as the “compositional” make-up of the property. APM and the Australian Bureau of Statistics use a stratified approach that groups houses into 10 different price levels, then finds an overall average. Lastly, Residex uses a “repeat sales” method, which tracks the turnover for each house over time.

CoreLogic has traditionally been the go-to measure for the RBA, and its data shows the strongest price growth in Sydney and Melbourne but it recently underwent a change in how it gathers and distils data.

The research firm decided to discount extremely high and low priced property sales as they tended to distort the overall picture.

The RBA has no need to switch from its easing bias just yet, SSGA says.

The RBA has no need to switch from its easing bias just yet, SSGA says. Photo: Brook Mitchell

As such, the RBA has become wary of CoreLogic’s accuracy and pointed out in its August official statement that “strong increases reported by CoreLogic were overstated as a result of methodological changes”. Some commentators are up in arms that the RBA might be ignoring rampant property price growth.

Mr Bloxham has looked instead to CoreLogic’s raw median data that does not adjust for compositional changes and found that price growth in Sydney has slowed, contrary to what the adjusted measure indicates.

“One plausible explanation is that a greater amount of lower priced housing has been turned over recently,” Mr Bloxham said.

“This fits with the fact that a lot of newly built apartments have been coming to market and apartments tend to be lower priced than detached houses.”

He also points to auction clearance rates, which have been high in recent months. Auctions tend to be held for more expensive houses, particularly those in Sydney’s east, signalling more higher priced homes are going under the hammer rather than a broad price increase across the board.

“More sales of lower priced dwellings would also be consistent with the fall in housing loan approvals and slowdown in housing credit growth, as access to credit is typically a more important factor for lower priced housing,” Mr Bloxham said.

Tighter lending standards

He also points to the tightening of lending standards since late 2014, which have made it more difficult for investors to fuel housing price growth, particularly in the apartment market.

As such, HSBC believes the central bank is unlikely to cut interest rates in a bid to stifle exuberant property price growth.

“If housing price growth proves to be stronger than most of the measures show, or there is a re-acceleration of housing prices, loan approvals or credit growth, we see this as likely to bolster, rather than challenge, our case that the RBA is unlikely to cut further,” he wrote.

( Source: Sydney Morning Herald)

( Source: Domain news)

Added checks and balances will come info force on Sunday to help tenants become more aware of potentially fatal loose-fill asbestos in their homes, but experts say more could be done to protect them.

Until now, landlords have not been required to disclose in a tenancy agreement whether a house contains the deadly material, but now  changes to tenancy laws will give renters added transparency about homes they are moving into.

Loose-fill asbestos, installed as ceiling insulation in about 1000 ACT homes in the 1960s and 1970s by local company Mr Fluffy, is potentially also present in up to 927 NSW homes, according to an independent investigation by PricewaterhouseCoopers.

From October 30, tenants must be advised within 14 days of property being listed on the Loose-Fill Asbestos Insulation Register.From October 30, tenants must be advised within 14 days of property being listed on the Loose-Fill Asbestos Insulation Register. Photo: Rohan Thomson

Of more than 9000 NSW homes that have undergone free testing since the state government’s Voluntary Purchase and Demolition Program‘s introduction in June 2015, 123 properties have tested positive and been listed on a publicly available NSW Fair Trading register. Just four of the properties were in Sydney.

“It is important for tenants to be aware if a property contains loose-fill asbestos,” said a NSW Fair Trading spokesperson. “Over time, hazardous airborne fibres can move from the ceiling into living spaces … and fibres that are breathed in can pose a risk to health.”

Under recent changes affected homes must display a warning label on the home’s main switchboard, and landlords have to advise tenants within 14 days of their property being added to the register. As of Sunday, it must also be written into the standard Residential Tenancy Agreement given to prospective tenants.

Asbestos workers prepare to remove Mr Fluffy loose-fill asbestos from three homes in the ACT.Asbestos workers prepare to remove Mr Fluffy loose-fill asbestos from three homes in the ACT. Photo: Rohan Thomson

Michael Elkorr, director of asbestos testing and removal company Asbestex, said tenants who don’t carry out renovations, could still be exposed to loose-fill asbestos, found in ceilings but it can also fall into wall cavities.

“A house moves over the years, there’s wind activity in the roof space, you get small expansion cracks in walls … the fibres over time migrate into the house,” he said. “Then you get people going into the roof to fix things … they can bring fibres back down on their clothing.”

The state government has bought 38 of 123 affected properties, with another 70 homes to be bought in coming months. They will be demolished. Registration with Fair Trading for free testing of pre-1980s properties within the 28 identified local government areas closes on Monday.

Loose fill asbestos which was used as ceiling insulation can also be found in wall cavities.Loose fill asbestos which was used as ceiling insulation can also be found in wall cavities. Photo: ACT Asbestos Taskforce

Already, more than 73,000 homes are waiting for free testing, which Fair Trading anticipates will take until June 2017 to complete.

Tenants’ Union of NSW senior policy officer Ned Cutcher said while the changes were a step in the right direction, landlords could easily avoid registering for the free testing.

“They could have allowed tenants to initiate the [free testing] process … given they’re the ones at risk and it appears to me that it’s perhaps a little too easy for landlords to put their head in the sand,” he said. “[The landlord] may or may not want to get testing, as once they find out there is asbestos they have to tell the tenant.”

Mr Cutcher was also disappointed that a positive asbestos test was not grounds for tenants to terminate their lease, without having to give compensation to a landlord. Tenants who don’t want to remain at an affected property had to give 21 days notice outside the fixed-term period or negotiate the termination of their lease if within it.

“If you find out you’re in an affected property, I’d definitely recommend getting some advice from a Tenants Advice and Advocacy Service, on how to end the agreement.”

Tenants who experience difficulty terminating the lease can lodge a complaint with NSW Fair Trading, the spokesperson added.

The state government is also considering introducing legislation requiring all homeowners to guarantee when selling a property, that it does not contain loose-fill asbestos insulation.

Currently, vendors with properties that have tested positive for loose-fill asbestos are supposed to pass on details to their agent, who is now required to disclose this to potential buyers.

Luxury Apartments from $599,000Melbourne’s first six star development

 

( Source: Domain news)

Sydney’s auction clearance rate has strengthened yet again despite having the second highest level of residential property listings this year.

The weekend auction clearance rate hit 81.4 per cent up slightly on last week’s 79 per cent where there were 25 per cent less listings.

The result comes days before the key Melbourne Cup day interest rate decision by the Reserve Bank of Australia which some commentators think is under pressure to balance a slowing economy with rising house prices in the biggest markets of Sydney and Melbourne.

A strong crowd attended the sale of a four bedroom house at 19 Ridge Street in Sydney's northern suburb of Gordon.A strong crowd attended the sale of a four bedroom house at 19 Ridge Street in Sydney’s northern suburb of Gordon. Photo: Supplied

“You only have to look back a year to see just how strong the market is, ” Domain economist Andrew Wilson said.

“We have a debate about affordability because the Sydney market is basically closed to first-home buyers. The level of investors is higher now than it was last year. Its going to be a big decision for the RBA on Tuesday.”

The Sydney market has been steadily rising, with the median house price in Sydney pushing  2.7 per cent higher in the September quarter back above its previous record to $1,068,303.

This six bedroom house at 115 Homebush Rd, Strathfield sold for $5.65 million.This six bedroom house at 115 Homebush Rd, Strathfield sold for $5.65 million. Photo: Jason Hall

The heat in the Sydney market was again on display over the weekend with the most expensive house sold being a six bedroom home at 115 Homebush Rd, Strathfield for $5.65 million. The property sold for more than $300,000 over its reserve through agents Joseph and Sam Georges of Georges Ellis & Co.

“I had to work hard to get that result,” Jospeh Georges said, ” but the auction atmosphere was amazing – we had about 150 people.”

“The prices in this area are up about 30 per cent in the last 12 months and I think that is a combination of low interest rates and people who have made money on property already and are now trading up.”

Agency Savills also reported strong results with more than 80 people attending an auction for a four bedroom house at 19 Ridge Street in Sydney’s northern suburb of Gordon.

Bidding started  at $2.85 million and sold $3.304 million through agents Jill Smith, Euan Lindsay and Craig Marshall as auctioneer.

While Sydney was clearly very strong, Melbourne also maintained clearance results well up on this time last year. With less than half the listings of last week Melbourne recorded a slightly lower 78.3 clearance rate – but still well up on the 62.6 per cent level achieved this time last year.

The most expensive house to sell in Melbourne on the weekend was a four bedroom home in Hawthorn for $2.815 million.

( This story originally appeared on the Australian Financial Review.)

(Source: Domain news)

A significant jump in auction numbers this weekend failed to dampen clearance rates with the Sydney auction market producing yet another boom-time result.

Sydney recorded a clearance rate of 81.4 per cent at the weekend, which although below last weekend’s stunning 84.4 per cent, was another strong result for sellers. The market continues to track well ahead of last spring’s rates when a clearance rate of 66.3 per cent was reported over the same weekend.

Sydney buyers welcomed a surge in auctions on Saturday with 792 homes listed. While it was an improvement on the previous weekend’s 629 auctions, it was well below the 1088 recorded over the same weekend last year.

One of the stronger sales on the weekend was a block of flats at 14 The Crescent Homebush. It sold for $3.85 million through Aaron Papadimatos of Devine Real Estate Strathfield.One of the stronger sales on the weekend was a block of flats at 14 The Crescent Homebush. It sold for $3.85 million through Aaron Papadimatos of Devine Real Estate Strathfield.

Higher auction numbers will be sustained next weekend with well over 800 homes scheduled to go under the hammer.

The spread of regional results was again reasonably consistent over the weekend, although the outer-west areas were clear underperformers.

The upper north shore produced a remarkable performance on Saturday with a clearance rate of 92.8 per cent. Next was the northern beaches with 91.5 per cent, followed by the city and east with 87.3 per cent, the lower north’s 84.5 per cent, the south’s 83.5 per cent and the Central Coast’s 81.3 per cent.

This six bedroom house at 115 Homebush Rd, Strathfield, sold for $5.65 million.This six bedroom house at 115 Homebush Rd, Strathfield, sold for $5.65 million. Photo: Jason Hall

The north-west had a clearance rate of 78.8 per cent, as did the inner-west, while Canterbury Bankstown hit 74.1 per cent, the south-west hit 65.9 per cent and the west just 58.5 per cent.

Notable sales reported at the weekend included:

The most expensive property reported sold at auction at the weekend was a six bedroom home at 115 Homebush Road, Strathfield, which was sold for  $5,650,000 by Georges Ellis and Co. The most affordable property reported sold at the weekend was a one bedroom unit at 4/63-69 President  Avenue, Caringbah, which sold for $424,000 by Belle Property South Hurstville.

The Strathfield home was the most expensive home auctioned on Saturday.The Strathfield home was the most expensive home auctioned on Saturday.

For a list of Sydney auction results click here.

Sydney recorded a median auction price of $1,300,000 on Saturday which was higher than the $1,210,000 recorded the previous weekend. Saturday’s median was 12.6 per cent higher than the $1,154,000 recorded over the same weekend last year. A total of $536.4 million worth of property was reported sold at auction in Sydney at the weekend.

High and rising auction clearance rates are predictably translating into strong prices growth in the Sydney market.

A one bedroom unit in Caringbah, which sold for $424,000, was the cheapest property sold at auction.A one bedroom unit in Caringbah, which sold for $424,000, was the cheapest property sold at auction.

The latest Domain data reports that the Sydney median house price increased by 2.9 per cent over the September quarter to a record high of $1,068,303.  This was the fastest rate of growth recorded by the local market city since the September quarter last year with Sydney house prices now up by 5.3 per cent over this year so far.

Sydney unit prices also increased over the quarter, up by 1.8 per cent to $685,865 for an increase of 2.9 per cent for the year so far.

Lower interest rates and investors have been a key catalyst for rising house prices in the Sydney housing market during winter and into spring. This week the Reserve Bank will meet for its traditional Melbourne Cup Day interest rate decision. Although rates are more likely to remain on hold for the third consecutive month since the August cut, a reduction certainly cannot be ruled out.

This Tamarama home sold by PhillipsPantzer Donnelley went for $5,600,000 at auction.This Tamarama home sold by PhillipsPantzer Donnelley went for $5,600,000 at auction.

The economy continues to send mixed messages – lower jobless rate but sharply falling full-time employment levels, a high dollar and underlying inflation at record low levels.

But then, there are booming house prices in the Sydney and Melbourne housing markets.

(Source: Domain news)

Brad Pitt and Angelina Jolie have sold their home in New Orleans’ French Quarter.

Documents filed with the Land Records Division of the Orleans Parish Clerk of Court’s Office show the property sold for $US4.9 million ($A6.4 million) .

Pitt and Jolie purchased the home in 2007 after Hurricane Katrina for $US3.5 million.

Brad Pitt and Angelina JolieBrad Pitt and Angelina Jolie Photo: AP/Seth Wenig

The couple, who are divorcing, bought it after Pitt established the Make It Right Foundation to fuel development of new housing in New Orleans’ Lower 9th Ward neighborhood.

According to the listing, the three-storey, 1830s-era mansion has 7,645 square feet, five bedrooms, three bathrooms and two half-baths.

Listing agent Nina Killeen confirmed the sale closed on Friday.

The New Orleans residence of the Angelina Jolie and Brad Pitt, which was put on the market last year.The New Orleans residence of the Angelina Jolie and Brad Pitt, which was put on the market last year. Photo: Latter & Blum

“It sold for a very fair price. It’s a good deal for both parties. They’re happy with the outcome,” she said.

The New Orleans home was one of six properties the couple shared.

Their French chateau, the site of their secret wedding in August 2014, is reportedly also on the chopping block.

Next month, one of the country’s top real estate agents is embarking on a journey through Asia with details of nearly $500 million worth of prestige Australian real estate in his briefcase.

He is not alone, as top Australian prestige agents take their messages to the world about the country’s appealing luxury homes.

“There’s now just so much interest from overseas in our property,” says Nicolette van Wijngaarden of Unique Estates, who is the selling agent for a $10 million, six-bedroom home in Port Douglas that she says has great appeal to buyers both in Australia and overseas.

2_grv43m
1 Island Point Road, Port Douglas, QLD Photo: Domain.com.au

“Global issues are seeing buyers looking at Australia as a safe haven – safer than Europe – some people are put off the US by what’s happening politically, and we’re still consistently being voted one of the most livable countries in the world. That lifestyle factor is so important.”

Sydney, Melbourne and upmarket resort towns like Port Douglas in Queensland are also assuming a much more conspicuous position on the global stage, with a great deal more awareness among high net worth individuals in New York, London, Hong Kong, Beijing and Shanghai.

For instance, a spectacular new estate on Towers Road in Toorak owned by entrepreneurs and arts patrons Daniel and Danielle Besen which is said to be worth well over $30 million, is attracting offers from potential buyers in Asia, the Middle East, the US and Britain, as well as from Australia.

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9 Towers Road, Toorak, VIC Photo: Domain.com.au

“We’ve had inquiries coming from everywhere since the word came out that it was going to be on the market,” says Marshall White director Marcus Chiminello.
“These days, 95 per cent of our homes are put on the international market and promoted globally, and the presence of international buyers is increasing, now making up about 10 per cent for us.”

1476251926712

Daniel and Danielle Besen’s stunning Toorak property is raising interest from luxury home buyers around the world. Photo: Domain.com.au

That strength of interest in Australian property overseas convinced Sydney LJ Hooker director Bill Malouf to visit Beijing, Shanghai and Hong Kong in November for a series of one-on-one meetings with prime buyers about a selection of homes, each worth between $38 million to over $100 million.

“I’m meeting buyers face-to-face and making presentations to private clubs of high net worth individuals about a number of estates, penthouses and waterfront homes,” Malouf says.

He is selling a palatial harbourfront Sydney mansion in conjunction with Ken Jacobs the managing director of Christie’s International Real Estate.

 

1476232489708
This Point Piper Mansion is being quietly marketed internationally. Photo: James Alcock

Set over four levels and with 2200-square-metre interiors meticulously built by Aussie Home Loans founder John Symond, it is being marketed with the ultimate discretion.

Jacobs racks up at least four overseas trips a year where he speaks on the Australian property market and taps into a range of events for high net worth individuals.

“Last November, the arts side of Christie’s in Hong Kong had their auctions with a lot of high net worth clients, so the real estate arm had a press conference there to talk about the market and different nuances of the market,” says Jacobs.

“Another time we’ll be asked by Australian banks to go over to a Hong Kong launch to talk about the market and build relationships.

“This year, we also had meetings in Switzerland, and we met a Russian client who was selling there and was looking to invest in various parts of the world.”

Kay & Burton director Ross Savas says with overseas buyers representing 50 per cent of sales, international relationships are key.

“We’ve really ramped it up in the last 20 years and invested very heavily in it, not only in financial terms but in thousands and thousands of man hours too,” Savas says.

“We go half a dozen times a year and visit high net worth and ultra high net worth individuals.”

Ground covered includes Hong Kong, Singapore, New York and London, with both expats and international buyers in mind.

Meanwhile, international agency Sotheby’s looks to its Australian affiliates for properties that are in demand by its clients worldwide.

“Every Australian property we promote is vetted by Sotheby’s in New York and then earmarked for international exposure, which might happen on price, aesthetic or even if the owner might be known internationally,” Pallier says.

“People have a real fascination with Australia.”

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Norman Park’s oldest home “Bronte” was built circa 1884. Photo: Supplied

 

A piece of Brisbane’s history is up for grabs with one suburb’s oldest home heading to auction.

Norman Park’s historic “Bronte” mansion was built circa 1884 and has been tightly-held for 25 years.

Sellers Ian and Kay Johnston bought the colonial Queenslander for $500,000 in 1988 and restored the property between 1994 and 1996.

2_grylwy
The property underwent major renovations in the mid-1990s. Photo: Supplied

Place Estate agent Aaron Woolard said major restorations meant the home was now a far cry from its original condition.

“It was just an old workers’ cottage when they bought it and they really restored it from humble beginnings,” Mr Woolard said.

“It’s gotten a lot bigger over the years and now it’s hard to find something this big on this size land – it’s very rare.”

2_grym2k
A large swimming pool was later added to the six-bedroom home. Photo: Supplied

The six-bedroom Queenslander spans two land titles on 116 and 118 Wynnum Road and has panoramic views of Brisbane City.
Prior to its extensive restorations, the 2352 square-metre property was used as a nursing home.

Mr Woolard said, despite the renovations giving a modern feel to the home, its history could be felt.

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The old property has city views. Photo: Supplied

“It doesn’t feel old at all when you’re inside; it’s like brand new. [But] you can really sense the grandeur and history of the place – it’s got that sense of old money.”

The sellers are looking to downsize from the historic mansion

“The owners have moved into retirement age and are looking to downsize,” Mr Woolard said. “They have places in Brisbane and Kingscliff where they’ll spend their time.”

Records show the property was purchased in 1920 by Melbourne journalist Arthur Barker and stayed in his family until 1950. Earlier owners are not known.

The large home has six bedrooms and bathrooms and an in-ground swimming pool..

The property is on the Brisbane City Council heritage register.

The auction starts 10am, November 12.

Key points
> Expensive housing and high household debt leave Australian housing vulnerable. But without a recession or much higher interest rates a property crash is unlikely.
> However, the surging supply of apartments and the continuing strength of the Sydney and Melbourne property markets pose an increasing risk. Average dwelling prices in these cities are likely to see another cyclical 5-10% price downswing around 2018, with unit prices in oversupplied areas likely to decline 15-20%.
> The combination of high house prices, huge gains in Sydney and Melbourne, low rental yields and a coming surge in the supply of apartments mean property investors need to be careful. Best to focus on undersupplied, less loved parts of the property market.

Introduction

Housing matters a lot in Australia. Having a house on a quarter acre block is part of the “Aussie dream”. Housing is a popular investment destination. And the housing cycle is a key component of the economic cycle and closely connected to interest rate movements. But in the last 15 years or so it has taken on a darker side as a surge in house prices that started in the late 1990s has led to poor affordability and gone hand in hand with surging household debt. Reflecting this, predictions of an imminent property crash bringing down the Australian economy have been repeated ad nauseam since 2003. This note looks at the risks of a property crash, particularly given the rising supply of units, implications from the property cycle for economic growth and how investors should view it.

High house prices and high debt

The big picture view on Australian residential property is well known. First, Australian housing is expensive. According to the 2016 Demographia Housing Affordability Survey the median multiple of house prices in cities over 1 million people to household income is 6.4 times in Australia versus 3.7 in the US and 4.6 in the UK. In Sydney it’s 12.2 times and in Melbourne it’s 9.7 times. The ratios of house price to incomes & rents are at the high end of OECD countries and have been since 2003.

Second, the surge in home prices has gone hand in hand with a surge in household debt, which has taken Australia’s household debt to income ratio from the low end of OECD countries 25 years ago to now around the top. This can be seen in the next chart which shows the deviation in the house price to income ratio against its long term average for Australia against the ratio of household debt to income. The shift to overvaluation and high debt mostly occurred over the 1995-2005 period.

20161012-chart1

Source: OECD, RBA, AMP Capital

How did it come to this?

While it’s common to look for scapegoats to blame for high home prices and debt the basic driver looks to be a combination of the shift from high to low interest rates over the last 20-30 years which has boosted borrowing and buying power and the inadequacy of a supply response (thanks to tight development controls, restrictive land release and lagging infrastructure) to suppress the resultant rise in the ratio of prices to incomes. The following chart shows a cumulative shortfall of over 100,000 dwellings relative to underlying demand had built up by 2014.

20161012-chart2

Source: ABS, AMP Capital

A home price crash remains unlikely…

The surge in prices and debt has led many to conclude a crash is imminent. But we have heard that lots of times over the last 10-15 years. Several considerations suggest a crash is unlikely.

First, we have not seen a generalised oversupply and at the current rate we won’t go into oversupply until around 2017-18.

Second, despite talk of mortgage stress the reality is that debt interest payments relative to income are around 2004 levels.

Third, Australia has still not seen anything like the deterioration in lending standards seen in other countries prior to the GFC. In fact in recent years there has been a decline in low-doc loans and a reduction in loans with high loan to valuation ratios.

201610112-chart3

Source: APRA, AMP Capital

Finally, it is dangerous to generalise. While property prices have surged 60% and 40% over the last four years in Sydney and Melbourne, they have fallen in Perth to 2007 levels and have seen only moderate growth in the other capital cities.

…but the risks on the unit supply front are a concern

To see a property crash – say a 20% plus average price fall – we probably need to see one or more of the following:
– A recession – much higher unemployment could clearly cause debt servicing problems. This looks unlikely though.
– A surge in interest rates – but rate hikes are unlikely until 2018 and the RBA knows households are more sensitive to higher rates so it’s very unlikely rates will reach past highs.
– Property oversupply – as noted above this would require the current construction boom to continue for several years.

However, the risks on the supply front are clearly rising in relation to apartments where approvals to build more apartments are running at more than double normal levels.

20161012-chart4

Source: ABS, AMP Capital

Due to the rising supply of units, vacancy rates are trending up & rents are stalling, making property investment less attractive.

Outlook

Nationwide price falls are unlikely until the RBA starts to raise interest rates again and this is unlikely before 2018 at which point we are likely to see a 5% or so pullback in property prices as was seen in the 2009 & 2011 down cycles. Anything worse would likely require much higher interest rates or recession both of which are unlikely. However, it’s dangerous to generalise:
– Sydney and Melbourne having seen the biggest gains are more at risk and so could fall 5-10% around 2018.

20161012-chart5

Source: CoreLogic, AMP Capital

– Price growth is likely to remain negative in Perth and Darwin as the mining boom continues to unwind but this should start to abate next year.
– The other capitals are likely to see continued moderate growth and a less severe down cycle in or around 2018.
– But units are at much greater risk given surging supply and this could see unit prices in parts of Sydney and Melbourne fall by 15-20% as investor interest fades as rents fall.

The property cycle and the economy

Slowing momentum in building approvals points to a slowdown in the dwelling construction cycle ahead. While this might be delayed into 2017 as the huge pipeline of work yet to be done is worked through, slowing dwelling investment combined with a slowing wealth affect from rising home prices mean that contribution to growth from the housing sector is likely to slow. However, as this is likely to coincide with a fading in the detraction from growth due to falling mining investment and commodity prices it’s unlikely to drive a slowing in the economy.

20161012-chart6

Source: ABS, AMP Capital

However, a likely decline in rents (as the supply of units hits) will constraint inflation helping keep interest rates low for longer.

Implications for investors

There are several implications for investors:
– Firstly, over the very long term residential property adjusted for costs has provided a similar return to Australian shares. Its low correlation with shares, lower volatility but lower liquidity makes it a good portfolio diversifier with shares. So there is clearly a role for property in investors’ portfolios.

20161012-chart7

Source: ABS, REIA, Global Financial Data, AMP Capital

– Secondly, there remains a case to be cautious regarding housing as an investment destination for now. It is expensive on all metrics and offers very low income (rental) yields compared to other growth assets. This means a housing investor is more dependent on capital growth.
–  Thirdly, these comments relate to housing in aggregate and right now it’s dangerous to generalise. Apartments in parts of Sydney & Melbourne are probably least attractive but for those who want to look around there are pockets of value.
– Finally, investors need to allow for the fact that they likely already have a high exposure to Australian housing. As a share of household wealth its nearly 60%. Once allowance is made for exposure via Australian shares it’s even higher.