Sydney Property Bubble

   

If you look at the graphs carefully, there is no doubt that asset inflation has made housing a no brainer investment since the ratio of house price to income ratio is significantly higher now than in the early 80s. Can't help but worry for next generation with jobs now less stable and asset prices so much higher...

‘Stress tests’ finds home prices are fair
• SARAH DANCKERT
• THE AUSTRALIAN
• MARCH 19, 2014 12:00AM

Houses in Western Australia and South Australia appear undervalued, according to the report by research group Moody’s Analytics. Source: TheAustralian
AUSTRALIA’S property markets might be a hot topic for discussion, but house prices on a state-by-state basis are not as overheated as many think, according to new research.
While much heed has been paid to the rate at which prices are rising in Sydney and the expensiveness of property in Perth, it appears those in Victoria are the most overvalued and susceptible to domestic economic events, interest rate increases and the rate at which new housing becomes available.
Conversely, houses in Western Australia and South Australia appear undervalued, according to the report by research group Moody’s Analytics.
Using a range of metrics to “stress test” state markets, including house price to household income ratios, the researchers found that prices in NSW, Queensland, the ACT, Tasmania and the Northern Territory appeared close to fair value.
Previous reports had focused on Australian house prices at a national level and what might happen to the overall market in response to a global economic slowdown, Moody’s Analytics senior economist Glenn Levine said. But the new report reviewed the housing market of each state and looked at economic occurrences such as interest rate rises, changes in commodity prices and domestic “shocks”, as recently witnessed in Victoria following large-scale factory closures and the impending exit of the car industry.
“This suggests that state-specific housing policies could be beneficial, particularly when the market is overheated,” Mr Levine said.
According to the researchers, a healthy housing market is one with a stable price-to-income ratio. The report found that, aside from a blip in the late 1980s, that ratio has trended steadily higher across most states since 1980. From the mid to late 1990s, the ratio had risen sharply, Mr Levine said.
At the same time, data shows the amount of debt households around Australia owned had risen significantly over the period from 1990 to 2007, before flatlining.
“Yet international comparisons confirm that Australian household debt ratio remains elevated.”

'Lots more' to come from China
Nick Lenaghan
396 words
20 Mar 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
A new wave of institutional investment from China has begun flowing into the Australian commercial property sector to compete with other regional investors already active in the local market.

The next phase of Chinese investment in property has been long anticipated, after initial forays in recent years by wealthy private investors and their families.

Giant Chinese property developer Greenland Holding Group, which is controlled by the Shanghai municipal government, now has $1 billion worth of work in two projects.

One is a Sydney residential tower and the other is a ­residential development on land acquired from the ­Victorian Racing Club at Flemington in Melbourne.

The move by Sino-Ocean Land Holdings to back a $300 million joint venture in Melbourne represents the next step.

Listed in Hong Kong, Sino Ocean Land's largest single shareholder is China Life Insurance, one of the world's largest insurers.

With a massive workbook in China, Sino Ocean Land's 2013 profit surged 21 per cent to about $550 million.

Savills Australia head of research Tony Crabb said his firm had long expected the amount of direct investment coming out of China would eventually exceed foreign investment going into that country.

"We've seen just the beginning of it," Mr Crabb said.

"Some markets such Hong Kong and Singapore have been receiving the lion's of share of it.

"Now that capital is moving further afield.

"How much more is there to come? Lots, is the short answer," Mr Crabb said.

"The sheer size of the institutions in China, whether they be ­state-owned or private enterprises, is beyond most ­people's reckoning in Australia."

In late 2012, Chinese authorities eased restrictions on Chinese insurance firms investing in offshore property.

That change, combined with separate restraints on property investment within China, have helped fuel the institutional push into offshore markets, Mr Crabb said.

"The Chinese are slow and careful in moving.

"They are conservative. This is the beginning of a much broader reach of investment."

China is the largest source of foreign demand for ­Australian real estate, with the Foreign Investment Review Board granting approval for $5.9 billion in ­purchases in 2012-13.

Chinese property investment rose 44 per cent in the year to replace the United States and Singapore as the top origin of foreign investment in the sector.

Even local apartment king Meriton also no match for Red Army $

China's Greenland Holdings snap up Sydney city apartment site
GREG BROWN THE AUSTRALIAN MARCH 25, 2014 12:00AM

Chinese snap up city apartment site
Sherwood Luo, managing director of Greenland Holdings Group, which has paid about $58m for a prime site at North Sydney. Picture: Renee Nowytarger Source: TheAustralian

CHINESE investment into the local residential market is not likely to slow down anytime soon, as the state-owned Greenland Holdings Group has snapped up a North Sydney site for an apartment development worth more than $200 million.

The Chinese behemoth -- which last year had global revenue of $55 billion -- beat Harry Triguboff's Meriton Apartments, which also made an aggressive play for the site.

Greenland also outbid Meriton for a site with residential development at Leichhardt in Sydney's inner west that The Australian reported last week was purchased for about $47.5m.

Greenland managing director Sherwood Luo last year said the group planned to invest $1.5 billion in Australian property this year.

It is understood that the North Sydney property, which was previously an industrial site at 225-235 Pacific Highway, was sold to Greenland for about $58m. The site has approval for the construction of 190 residential apartments as well as a retail component. It was sold by industrial investment group Ford Land Company.

The agents involved, Knight Frank's Andrew Drury, Peter Krieg, Brett Burridge and Dominic Ong, declined to comment.

The move comes as a federal parliamentary inquiry into the amount of foreign investment into Australian residential real estate was launched this month to investigate whether foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers.

China is the largest foreign investor in Australian residential property, with buyers spending $5.4bn last financial year, according to Credit Suisse. Last year, 18 per cent of Sydney's new apartments and 12 per cent in Melbourne's were purchased by Chinese buyers, Credit Suisse said.

The head of the parliamentary inquiry, Liberal MP Kelly O'Dwyer, has been forced to deny that the inquiry is anti-Chinese.

Asian developers have been particularly active this year as they cash in on the high demand for residential property. Prices grew nationally last year by close to 10 per cent, with Sydney leading the way with 14.5 per cent growth.

Singapore developer Far East Organisation has purchased two Sydney CBD office buildings, 54 Park Street and 227 Elizabeth Street. Both have the potential to be converted to apartments.

Chinese-backed group Auswin TWT bought the headquarters of gaming company Tabcorp, in the inner city, with a plan to build 250 apartments on the site. Greenland last year purchased the former headquarters of Sydney Water. It has plans to build a $600m residential tower and hotel.

A Chinese group associated with the Visionary Investment Group has approached the owners of a block at the southern end of Sydney's CBD in the hope of acquiring a residential site.

A very comprehensive interview for the Australian capital cities apartment market from Australand apartment division head:

http://www.afr.com/videos/business/melbo...kbav0wy4hc

Chinese keen on Meriton
TURI CONDON THE AUSTRALIAN MARCH 27, 2014 12:00AM

Harry Triguboff, head of Meriton, on the 73rd floor of the Infinity building, which will be the tallest building in Brisbane. Picture: Lyndon Mechielsen Source: News Limited
BILLIONAIRE Harry Triguboff has been approached by large Chinese building groups interested in buying his prolific apartment developer Meriton, as the wave of Chinese interest in Australian property deepens.

Mr Triguboff will be in Guang­zhou next week and will meet with Chinese builders there. He declined to name the companies.

“(The builders) are bound to want Meriton,” Mr Triguboff told The Australian. “We have the stock, we have the land and the know-how.”

“Its not simple to be a builder in a foreign country.”

However, Mr Triguboff said he was not that interested in selling the profitable company.

“As long as I am useful, I would like to be there,” he said.

He also noted that his 24-year-old grandson Daniel was working in the business.

Mr Triguboff said Meriton was worth about $6.25 billion. The company produces about 2000 apartments a year and earns about $350 million annually in rents from apartments that have been kept as investments.

Meriton plans to start work on 3000 units over the next year, including 600 at Southport on the Gold Coast.

“We have bought a lot (of sites), we need to develop fast,” Mr Triguboff said.

Meriton has looked at expanding into Melbourne, with Mr Triguboff saying the site it had been eyeing was snapped up by another developer.

“I will have to think if it’s worthwhile (developing in Melbourne). The profits are not as much as in Sydney,’’ he said.

Mr Triguboff said he was still bullish on the apartment market and on buying sites, saying he did not expect an oversupply on the back of heavy investment by Asian developers.

“It’s one thing to buy the land, and it’s another to build,” he said.

The wave of Chinese developers and apartment buyers provided momentum to the market, he said.

“Take them away and if we have to depend on our buyers and our bureaucrats, then our building industry will grind to a halt,” he said, estimating unit ­prices would drop 10-15 per cent in a number of areas if Chinese investment halted.

Mr Triguboff, who was born in the Chinese city of Dalian, said rents would rise if Chinese developers withdrew, as stock levels would drop.

Chinese businesses and unit buyers were long-term investors who were unlikely to retreat from the Australian real estate market in the way Japanese and US investors had in the past. “The Chinese are conservative, they will be here forever if we let them,” Mr Triguboff said.

Mr Triguboff’s comments came after the parliamentary inquiry into foreign investment in residential real estate released its terms of reference.

The inquiry, headed by Liberal MP Kelly O’Dwyer, will ­investigate whether foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers; and how Australia’s foreign investment framework compares with international experience. The committee has denied targeting Chinese investment.

Mr Triguboff also called on state and federal governments to reassess the first-home owners grants to enable first-time buyers back into the housing market.

“Although the NSW government doubled the grant amount in 2012, it really needed to look at lifting the threshold from $650,000 to at least $850,000, so first-home buyers can compete with their grants in hand.”

Mr Triguboff noted that the Queensland apartment market had finally begun to improve, with better sales over the past month. Queensland was seeing the start of Chinese buyers, he said, with the universities in Brisbane and on the Gold Coast becoming a drawcard to Chinese students, similar to the patterns in Melbourne and Sydney.

Housing bubble fears: property prices could fall 10 to 20 per cent
March 31, 2014 - 9:02AM
Christopher Joye

Read more: http://www.smh.com.au/business/the-econo...z2xUxZflvk

There is always 2 sides to a coin - these types of reports are very common and so far have failed to deter the strong appetite by local well off Australians, hardworking class Australians (taking advantage of negative gearing - a phenomenon only pertaining to Australia) and more recently hot $ inflow from overseas that have stoked the uptrend in Aussie property prices that has become more evident last year.

Last but not least with interest rates at the lowest levels since 1960s, there is really a lack of understandable investments for common Australians and hence the result of "fear" reports in "hope" that prices may correct to reasonable entry levels.

That's my 1 cent worth

(31-03-2014, 09:13 AM)Boon Wrote: Housing bubble fears: property prices could fall 10 to 20 per cent
March 31, 2014 - 9:02AM
Christopher Joye

Read more: http://www.smh.com.au/business/the-econo...z2xUxZflvk

(31-03-2014, 09:23 AM)greengiraffe Wrote: There is always 2 sides to a coin - these types of reports are very common and so far have failed to deter the strong appetite by local well off Australians, hardworking class Australians (taking advantage of negative gearing - a phenomenon only pertaining to Australia) and more recently hot $ inflow from overseas that have stoked the uptrend in Aussie property prices that has become more evident last year.

Last but not least with interest rates at the lowest levels since 1960s, there is really a lack of understandable investments for common Australians and hence the result of "fear" reports in "hope" that prices may correct to reasonable entry levels.

That's my 1 cent worth

(31-03-2014, 09:13 AM)Boon Wrote: Housing bubble fears: property prices could fall 10 to 20 per cent
March 31, 2014 - 9:02AM
Christopher Joye

Read more: http://www.smh.com.au/business/the-econo...z2xUxZflvk

According to the report, home value fell 6.1% in 2008 (following peaking of valuation benchmark in 2006) and 6.6% in 2011-2012 (following peaking of valuation benchmark in 2010), as per RP Data

In Sydney, prices had gone up around 20% over the TWO year period of 2012 and 2013, and it looks like prices are still trending up this year.

How long would prices continue to increase is anybody’s guess – but ultimately it is governs by the dynamics of Supply and Demand.

High dwelling price to disposable income and “normalized” interest rate would definitely dampen demand from the local Australians - but would these be enough to tilt the imbalances of “under-supply” and “overseas demand" to the extent that prices will fall 10 to 20% ? Only time will tell.

"there is really a lack of understandable investments for common Australians" - I bet the Aussies would disagree on this

In Negative Gearing one can get a tax deduction only if one has a loss on his/her investment - but remember, a loss is still a loss - If one does not make enough Capital Gain down the road to offset accumulated losses - it would be a loss making investment.

(31-03-2014, 09:56 PM)Boon Wrote:

(31-03-2014, 09:23 AM)greengiraffe Wrote: There is always 2 sides to a coin - these types of reports are very common and so far have failed to deter the strong appetite by local well off Australians, hardworking class Australians (taking advantage of negative gearing - a phenomenon only pertaining to Australia) and more recently hot $ inflow from overseas that have stoked the uptrend in Aussie property prices that has become more evident last year.

Last but not least with interest rates at the lowest levels since 1960s, there is really a lack of understandable investments for common Australians and hence the result of "fear" reports in "hope" that prices may correct to reasonable entry levels.

That's my 1 cent worth

(31-03-2014, 09:13 AM)Boon Wrote: Housing bubble fears: property prices could fall 10 to 20 per cent
March 31, 2014 - 9:02AM
Christopher Joye

Read more: http://www.smh.com.au/business/the-econo...z2xUxZflvk

According to the report, home value fell 6.1% in 2008 (following peaking of valuation benchmark in 2006) and 6.6% in 2011-2012 (following peaking of valuation benchmark in 2010), as per RP Data

In Sydney, prices had gone up around 20% over the TWO year period of 2012 and 2013, and it looks like prices are still trending up this year.

How long would prices continue to increase is anybody’s guess – but ultimately it is governs by the dynamics of Supply and Demand.

High dwelling price to disposable income and “normalized” interest rate would definitely dampen demand from the local Australians - but would these be enough to tilt the imbalances of “under-supply” and “overseas demand" to the extent that prices will fall 10 to 20% ? Only time will tell.

"there is really a lack of understandable investments for common Australians" - I bet the Aussies would disagree on this

In Negative Gearing one can get a tax deduction only if one has a loss on his/her investment - but remember, a loss is still a loss - If one does not make enough Capital Gain down the road to offset accumulated losses - it would be a loss making investment.

Negative Gearing in simple terms - suffer losses on investment properties to reduce taxable income. Losses are not accumulated.

For example someone made A$100,000 in income before losses on investment properties. Investment properties made a losses of A$30000 (rental income insufficient to cover outgoings - interest expenses and management fees plus non cash depreciation). So as long as you have earned income, losses on investment properties will reduced taxable income. For high tax paying countries like Australia, it is the most popular tool for legal tax reduction. In addition, the ownership of properties at a right gearing will have capital appreciation potential.

Over the last 25 years, Australians have enjoyed steady capital appreciation from properties and for the daring, it has became a sure rich model for many. While it may be a stack of cards to many conservative people, there are many that aspire to be landlords at some point in the future in hope of securing a retirement. I personally never believe in gearing but really a sizable correction of any sorts is not within my ability to predict.

If you refer back to a chart on the housing affordability rates on 19 Mar 14 in this same thread, you would have a better idea not to bet against the facts since 1980s.

Not vested interests
GG

(31-03-2014, 10:14 PM)greengiraffe Wrote:

(31-03-2014, 09:56 PM)Boon Wrote:

(31-03-2014, 09:23 AM)greengiraffe Wrote: There is always 2 sides to a coin - these types of reports are very common and so far have failed to deter the strong appetite by local well off Australians, hardworking class Australians (taking advantage of negative gearing - a phenomenon only pertaining to Australia) and more recently hot $ inflow from overseas that have stoked the uptrend in Aussie property prices that has become more evident last year.

Last but not least with interest rates at the lowest levels since 1960s, there is really a lack of understandable investments for common Australians and hence the result of "fear" reports in "hope" that prices may correct to reasonable entry levels.

That's my 1 cent worth

(31-03-2014, 09:13 AM)Boon Wrote: Housing bubble fears: property prices could fall 10 to 20 per cent
March 31, 2014 - 9:02AM
Christopher Joye

Read more: http://www.smh.com.au/business/the-econo...z2xUxZflvk

According to the report, home value fell 6.1% in 2008 (following peaking of valuation benchmark in 2006) and 6.6% in 2011-2012 (following peaking of valuation benchmark in 2010), as per RP Data

In Sydney, prices had gone up around 20% over the TWO year period of 2012 and 2013, and it looks like prices are still trending up this year.

How long would prices continue to increase is anybody’s guess – but ultimately it is governs by the dynamics of Supply and Demand.

High dwelling price to disposable income and “normalized” interest rate would definitely dampen demand from the local Australians - but would these be enough to tilt the imbalances of “under-supply” and “overseas demand" to the extent that prices will fall 10 to 20% ? Only time will tell.

"there is really a lack of understandable investments for common Australians" - I bet the Aussies would disagree on this

In Negative Gearing one can get a tax deduction only if one has a loss on his/her investment - but remember, a loss is still a loss - If one does not make enough Capital Gain down the road to offset accumulated losses - it would be a loss making investment.

Negative Gearing in simple terms - suffer losses on investment properties to reduce taxable income. Losses are not accumulated.

For example someone made A$100,000 in income before losses on investment properties. Investment properties made a losses of A$30000 (rental income insufficient to cover outgoings - interest expenses and management fees plus non cash depreciation). So as long as you have earned income, losses on investment properties will reduced taxable income. For high tax paying countries like Australia, it is the most popular tool for legal tax reduction. In addition, the ownership of properties at a right gearing will have capital appreciation potential.

Over the last 25 years, Australians have enjoyed steady capital appreciation from properties and for the daring, it has became a sure rich model for many. While it may be a stack of cards to many conservative people, there are many that aspire to be landlords at some point in the future in hope of securing a retirement. I personally never believe in gearing but really a sizable correction of any sorts is not within my ability to predict.

If you refer back to a chart on the housing affordability rates on 19 Mar 14 in this same thread, you would have a better idea not to bet against the facts since 1980s.

Not vested interests
GG

Negative Gearing is not as simple as offsetting income losses against tax liability from other taxable income.

Rental income is insufficient to cover outgoing ( loan interest – asset related expenses) => resulting in negative cash flow = suffer income losses.

These income losses are tax deductible – one can offset the losses against one’s tax liability from other taxable income.

When there is not enough deductible tax (or tax liability from other income) to cover income losses – one has to make up the losses with one’s own money.

When income become cash flow positive – one has to pay tax on profit at one’s marginal tax rate.

Assets are subject to Capital Gains Tax if there are capital gains made on sales.

Capital losses cannot be offset against taxable income but only against capital gains.

For a person on a high rate of marginal tax, negative gearing is highly attractive as losses one sustains are only marginally higher than if one had paid the tax on that income.

However, as no bank will lent 100% on asset value - one still has to come out with an initial outlay as Capital which has an opportunity cost – one has to make enough gain to compensate for this
.
Therefore, to negatively geared, one is betting that over the time that one holds the asset - it will increase in value both in income streams and capital growth to counter the above and still make a profit.

Also, timing is critical:

Worst time to gear: asset valuations are high; interest rate is going to rise.

Like any other gearing, it is a high risks undertaking.

Among my Aussie friends, there are some who have gained from NG and there are some who have suffered losses.