Sydney Property Bubble

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Aug 4 2015 at 6:45 PM Updated Aug 4 2015 at 8:34 PM

CBRE's Ray Pittman is over the costs of Sydney and building his teams

CBRE's new Australasian head Ray Pittman.

by Robert Harley
Ray Pittman, the new Australian head of global real estate giant, CBRE, has discovered one characteristic of his new bailiwick: Sydney is an expensive city, especially for housing and cars.

​"The cost of living and the cost of doing business is a wow factor," he says. "The big global entrepreneurs are looking for talent. Australia has the lifestyle to attract them, but it comes at a cost."

Pittman, now the president and chief executive of CBRE's Australian and New Zealand business, stepped into the job in March and is now a resident of Sydney's inner east.

He describes himself not as a high powered broker but as a leader of teams. The words he uses are "team oriented" and "collaborative", and "very much about growing the business through client service".

In a wide-ranging interview he explains what that will mean for the business in Australia and New Zealand – a business that has grown strongly under now executive chairman, Tom Southern, to employ 2100 staff and earn about 4 per cent of CBRE's global revenue.

In essence, its not about adding new business lines but making the existing businesses work better together to better service clients.

Pittman was handpicked for the job as senior managing director and market leader for CBRE in Colorado.

He first joined CBRE in 1985, working in brokerage and management until 1999, when he was lured into commercial property development, first as a senior vice president for Catellus Development in Colorado and then at his own Pittman Development Group, before rejoining CBRE in 2011.

"You learn a lot more as a client than as an employee," he says.

Pittman recognises that the real estate industry used to be the gatekeepers, and had the power of market knowledge. No longer: market information is widely available.

"Now we have to add value to the transaction," Pittman says."We become strategic advisors; we have to help our clients do better."

TECHNOLOGY'S DICTATE

"It is a challenge for our company globally. Technology is forcing us to add more value. We do that by providing better service integration."

Done well, it is a strong business model. "Strategic advice back by integrated service is extremely powerful for our clients," Pittman says

Mr PIttman says that all the CBRE businesses in Australia and New Zealand are strong. Some, like the residential marketing operation, are unique across the globe.

The focus now is putting teams together to service the key clients. Pittman wants to break down the silos and offer those clients a full range of services.

"We are looking not so much at the size of the clients. We are looking for clients with large complex assignments that span geographies and service lines," he says. And clients expected to grow.

Such clients are like the Chinese giant Dalian Wanda which bought Goldfields House at Circular Quay. (CBRE was one of the agents on the sale). Or corporate giants like Microsoft which have real estate needs around the world.

Of course servicing global clients may not be as easy as it sounds.

"The downside is that if we make a mistake for them in New York or London, we could pay for it in Sydney,"Pittman says.

Even for the best national clients, like the DEXUS Property Group, there is a challenge. "Sales, leasing, property management, we have to be good at it all," Pittman says.

"We have to be able to play at both the global and the local level."

The number of real estate groups able to provide that global service is limited. Pittman acknowledges that Cushman & Wakefield, recently acquired by the private equity controlled DTZ, is "trying to be" a full service third competitor. He rates Cushman's president, the former head of CBRE, Brett White, as "very talented" but with a significant integration challenge ahead.

More importantly, Cushman will be a "traditional, not a transformative" competitor.

CBRE is watching closely for the emergence of that transformative or disruptive force in commercial real estate.

So far it has not happened. In the US, there is more information available to commercial property buyers and sellers, owners and tenants. "But it has not touched the way the brokers operate," he says.

'We are investing a large amount in technology, in infrastructure to run faster and smarter, in customer relationship management, on information systems and on our research."

Pittman acknowledges the strong investor demand for property across the globe. "It feels very heated to me. Global pricing, at least in the gateway cities, is tremendous," he says.

"'The nice thing about Australia is that global capital wants to be in the key cities...For a relatively small country, it is number three for Chinese investment worldwide."

"Australia looks an attractive place to live. My only question is about the growth." And that comes back to the cost of living.

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John McGrath: Sydney property 'close to peak', Melbourne similar
Date
August 11, 2015 - 7:58AM
66 reading now
Su-Lin Tan and Nick Lenghan

There is some speculation that the two-horse race could be slowing and prices on their way down. Photo: Rob Homer

McGrath Real Estate's chief executive, John McGrath has declared the Sydney property market "close to peak".

McGrath's Monday report for its Sydney's weekend clearance rate was 80 per cent and while this was a "stronger property market" indicator, Mr McGrath said the Sydney and Melbourne markets were 80 to 90 per cent through their cycle.

"I'd be concerned if Sydney sees another double-digit growth. I'm predicting 3 to 5 per cent more and then I think it's going to be plateau-ing. Melbourne is probably about the same," he said at the Aussie Home Loans conference in Melbourne on Monday.

"The rest of Australia...much of its is preparing for its next growth cycle. Southeast Queensland is going to be the hottest market for the next three years. Perth is just totally depending on resources."

"I wouldn't panic about the market. Sydney has got a few per cent more, then it might come back a few per cent and then it will go to a steady state and ditto for Melbourne."

Aussie Home Loans' John Symond backed the same outlook.

"I think it will fall out over the next six to 12 months where you might see 4 to 5 per cent (rise) in some areas, no increase in other areas.

"And then it will just flatten out for a few years. That's Melbourne. I think Sydney is heading to the same place," he said.

'Cooling premature'
But other agents and marketers have responded to the possible slowdown of the Sydney and Melbourne property markets with a resounding: "what cooling?"

They said auction clearance rates alone should not be used as a "barometer" to gauge where the market is at.

"Calling the demise of the property is premature. It still has a long long way to go," west Sydney agents, Starr Partners' Douglas Driscoll said.

"Sure, the "herd mentality" from six to twelve months ago has diminished, but let's look at clearance rates in perspective," he says.

"If you go back three weeks, 280 properties being sold, last week was nearly twice as much. It is simple maths, the more properties for sale, there will be slightly lower clearance rates. And don't forget those properties sold privately - there are a numerous such transactions taking place."

The 'greed stage'
Century 21 Australia chairman Charles Tarbey said "a lot of people are at the greed stage".

"They are testing market and many have passed in. Clearance rates for the major cities for example is 10 per cent than this time last year. And last year they were calling it a boom."

National auction volumes had risen to 2378 last weekend, up from 1903 the previous week, the largest of capital city auctions held since 10 weeks ago, CoreLogic RP Data said.

This has prompted a lot of speculation that the two-horse race could be slowing and prices on their way down.

One lacklustre auction on the weekend was a small entry-level deceased estate terrace in the heart of inner city Paddington, Sydney.

'It's not time to ring the bell'
The two bedroom terrace, which needed work, was advertised with a price guide of $1.4 million. Two bidders fronted the auction, opening the bidding at $1.3 million and moving casually to $1.38 million.

McGrath Real Estate auctioneer, Adrian Bo, put in a vendor bid of $1.4 million and there it finished with neither bidder wanting to go further. The home is now up for sale at a price guide of "over $1.46 million."

Two McGrath auctions in Mosman and Neutral Bay in Sydney's popular lower north shore were also withdrawn.

"But it's not time to ring the bell and say it's over," Australian Property Institute's national president Tyrone Hodge said.

"There is a lot of chatter in the industry and in the media which can be a self-fulfilling prophecy."

"If you look at the fundamentals, we still have lack of supply and growing economy. The only real change is banks increasing the hurdle rate for lending and that takes out more supply which puts more pressure on prices."

"Very high expectations causes a lot of auctions to pass in. These are not fundamentals."

New projects steam ahead
Mr Hodge who deals directly with developers said new projects were still streaming in.

Another big seller of off-the-plan apartments, CBRE's David Milton said he has seen similar rates of sale all year.

"Sure the market is not rising at the rapid rate from about 12 to14 months ago but this is not feeding into the apartment market," he said.

ACProperty.com.au's director, Esther Yong who advertises to Asian local and foreign buyers has instead seen a rise in demand this month versus last month.

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CBA's Ian Narev says house prices have further to run
Date
August 12, 2015 - 9:36PM

James Eyers and Clancy Yeates

Head of the CBA, Ian Narev, announces the full year results for the CBA on August 12. Photo: Jessica Hromas

Commonwealth Bank of Australia chief executive Ian Narev says the forces of supply and demand that are propelling house prices in Sydney and Melbourne are likely to persist for "quite some period of time," despite recent bank moves to rein in lending to property investors.

The nation's largest lender for housing said on Wednesday its home loans balances rose 6 per cent on the year to $423 billion, from $400 billion.

Net interest income and very low levels of defaults on these loans helped propel the bank to a full-year cash profit of $9.14 billion, up 5 per cent and the largest-ever profit by an Australian bank.

With the Reserve Bank of Australia previously branding the current investor-led surge in house prices "unbalanced" and governor Glenn Stevens describing Sydney's market as "crazy", Mr Narev said actions from the Australian Prudential Regulation Authority to cap the lending growth to housing investors would in the short term have a moderating effect on immediate investor demand, but the popularity of Sydney and Melbourne as places to live combined with limited supply suggested prices have further to run over the longer term.

"On the one hand, if you look year on year, the run-up in property prices in [parts of Sydney and Melbourne] feels like it's going to have to come off. But on the other hand, when you again look back on these fundamental forces of supply of demand, some of them might be around for quite some period of time yet," Mr Narev said in an interview.

Mr Narev revealed CBA had lifted rates on investors loans by 27 basis point last month to avoid being flooded by borrowers fleeing competitors, which would have pushed CBA above APRA's 10 per cent growth limit.

"When others are taking action there is a flow effect of extra activity, you have got to be very careful that even without changing your own settings, you don't suddenly get to the point that by the virtue of others doing less, you get to the 10 per cent barrier," he said. "The pricing was a direct response to that risk and that is why we made that decision."

CBA's net interest margin decreased 5 basis points to 2.09 per cent year-on-year, which the bank said was driven by the falling cash rate, which has pushed lending rates down in an environment of increased competition.

CBA's group executive, for retail banking services, Matt Comyn, said discounting across the sector had been reduced for investor lending but competition remained intense for owner-occupier loans. "It is reasonable to anticipate there will be heightened levels of competition there," he said.

With the market for bank stocks highly volatile since ANZ Banking Group last Thursday increased its provisioning for impaired loans, CBA said its ratio of loan impairments to gross loans remained unchanged at 16 basis points. Chief financial officer David Craig described CBA's level of loan impairments as "pretty benign".

"Troublesome and impaired assets are going down and the majority of our leading indicators are also improving with arrears in general at very low levels," he said.

Outside its housing book, CBA pointed to a tick-up in arrears in personal lending, especially its 90-day book in Western Australia and Queensland. "Personal lending arrears have ticked up a bit and that is directly related to unemployment," Mr Craig said. "The question we have to ask ourselves is where is unemployment going from here?"

CBA's full-year result show a slowing in the second half, after the bank's third-quarter trading update in May disappointed. All the major divisions reported lower profits in the second half. In the retail bank and the institutional bank and markets division, net profit fell 6 per cent. Second-half profit was down 4 per cent in the business bank and 13 per cent in the wealth management division for the second half. There was a slight increase in impairments in the retail bank.

'Negative JAWS'
CBA also delivered "negative JAWs" in the second half, which income up by 1 per cent while expenses grew by 3 per cent.

The cost-to-income ratio improved 10 basis points to 42.8 per cent, driven by productivity initiatives that delivered savings of $260 million in the year.

With CBA raising $5 billion via a rights issue to boost regulatory capital, the stock will not trade until Monday, meaning the market was not able to gauge the strength of the result on Wednesday. Credit Suisse analyst Jarrod Martin said he liked the resilient margin, the lower impaired ratio, and the reiteration of the bank's dividend policy after the capital raising. But on the negative side of the ledger was the negative "jaws" in the second half, the softer composition of non-interest income and a lower common equity tier 1 capital ratio in the second half, which at 9.1 per cent at the year-end was down slightly.

"The sector has now raised just over half our estimated $28 billion in additional capital and now, with a much clearer line of sight to accumulating the residual amount just organically, we reiterate our positive view on the sector," he said.

CBA will pay a fully franked final dividend of $2.22 per share. The total dividend for the year is $4.20, up 5 per cent on the prior year. It will be paid on October 1.

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Mirvac says Sydney house prices peaking as pre-sales skyrocket
THE AUSTRALIAN AUGUST 14, 2015 12:00AM

Samantha Hutchinson

Property Writer
Mirvac says Sydney prices peakingCEO Susan Lloyd-Hurwitz before the results announcement. Source: News Corp Australia < PrevNext >
••
Sydney house prices could be approaching their peak, one of the country’s biggest residential developers has warned.

Mirvac Group yesterday revealed it had hit a record $2 billion in home and apartment pre-sales.

The $6.7bn commercial property owner and residential developer has turned its attention to a near $450 million play for Investa Property Group’s $8.9bn office funds management business as the prospect of slowing volumes emerges.

“It does seem the Sydney market is close to the point at which that strong upward trajectory will end,” Mirvac chief executive Susan Lloyd-Hurwitz said.

“Previous cycles would suggest that activity and the volume of sales should moderate over the next year or two by 15 per cent.”

The comments from the developer came as it revealed full-year results including a 36 per cent jump in net profit to $609.9m, fuelled by 2271 residential lot settlements.

Mirvac has repositioned its residential arm to target surging demand for apartments in inner city areas of Sydney and Melbourne, with projects in Glebe and Melbourne’s Docklands under way.

But market conditions could be turning, and the prospect of macroprudential measures hitting at a time buyers are less willing to buy could have unintended consequences.

“We think (the market is) close to an inflection point where we’ll start to see growth really moderate from its high double-digit numbers,” Ms Lloyd-Hurwitz said.

“And implementing tough macroprudential measures when the market could already be regulating ... it’s something we need to watch.”

The chief executive noted that higher rental vacancies and lower clearance rates were early warning signs the home market could be headed for a slowdown, with recent Westpac surveys that gauge willingness to buy also trending down.

Strong housing pre-sales have already enabled the group to lock in 67 per cent of development earnings for fiscal 2016 and 57 per cent for 2017, with the group expecting another 2800 settlements during the current financial year.

The company’s main focus is staying well-capitalised with gearing between 20 and 30 per cent, and keeping a tight rein on costs, after a recent strategic review.

“We are extremely well positioned to deliver earnings growth in (fiscal 2016), and we continue to focus on maintaining strong metrics in our office, retail and industrial portfolios,” Ms Lloyd-Hurwitz said.

Operating profit grew at a steadier pace of 4 per cent to $454.8m, representing earnings of 12.3c per share, which was at the top end of guidance.

The company said occupancy in its industrial portfolio was almost 97 per cent, with an average lease expiry of 4.5 years. It had also sold five office assets for $248m, which brought total disposals for the year to $406.7m.

Ms Lloyd-Hurwitz confirmed Mirvac is in exclusive due diligence with Morgan Stanley Real Estate Investing to acquire the Investa Office Management platform, as it seeks to grow its funds management business.

Confidentiality agreements prevented the group from discussing the value and composition of the deal, but it confirmed an agreement would include co-investments in the unlisted Investa Commercial Property Fund, the CIC-controlled Investa Property Trust and the listed Investa Office Fund. Mirvac wants to grow its funds management arm in a bid to expand its development pipeline without stretching its balance sheet.

“It would be very strategic for us to have more of a wholesale capability within the business,” Ms Lloyd-Hurwitz told The Australian.

“It’s very important for a business like Mirvac to have strong and deep access to third-party capital as an additional way of being able to grow the business.

“We have a firm split between passive and active investments — 80 per cent is passive and 20 per cent is active — and we could probably do more active development if we weren’t constrained with how we can position our capital.” The group has given no guidance on how it will fund the transaction and offered no comment on speculation it would embark on an equity-raising to source the funds.

Ms Lloyd-Hurwitz has given early indications that the funds are likely to come from outside the business and assets sales are an option.

“We’ve very disciplined about how we source and use capital, and we look for ways we can self-fund all the time so we don’t have to go back to the equity markets,” she said. “We’re very committed to our gearing range of 20 to 30 per cent.”

“It's a good result,” UBS analysts said, noting strong pre-sales in the residential division, reasonable results from the property trust and the fact that the development division had made progress on leasing.

CLSA analyst Sholto Maconochie agreed. “It’s a strong result in terms of pre-sales — $2bn is huge — but they’ve also shown strong margins, and a good return on capital. The metrics are looking good.”

The share price closed flat on Thursday at $1.83, with analysts speculating that a cautious outlook for residential markets might have rattled some investors.

“Maybe people are still cautious about residential, or maybe people think there should be higher growth, considering the conditions,” Mr Maconochie said.

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Collective sale fever hits Sydney home owners

   Sydney resident Ron Buxton and his neighbours have clubbed together to offer their homes in the suburb of Castle Hill as a development block for apartments. The trend has surged in the past year with home owners increasingly taking the initiative themselves rather than waiting for approaches from developers.PHOTO: REUTERS


Neighbours band together to sell their homes to developers amid housing crunch
SYDNEY • When Mr Ron Buxton bought his sprawling five-bedroom property in Sydney's Castle Hill for A$87,000 in 1979, his was one of only two houses on a dead-end street, ringed by orange groves.
With Castle Hill now a bustling commuter suburb earmarked for rezoning, Mr Buxton and his neighbours have clubbed together to offer their homes as a development block for apartments, banking on a multimillion-dollar payday thanks to a surge in Sydney house prices and an acute housing shortage.
"We started getting phone calls from agents and developers to help us sell the property but we decided we'd help ourselves," Mr Buxton, 73, said. "We'll certainly get better than open market individual sale."


The trend has surged in the past year with home owners increasingly taking the initiative themselves rather than waiting for approaches from developers, real estate agents say. Developers such as Stockland and Mirvac are also reaping the rewards, boosting profits as new apartments are snapped up.
Sydney's population of 4.5 million people already spreads over 1,600 sq km, twice the size of New York City. With the population expected to rise by 100,000 a year for the next 20 years, urban planners say higher-density living is key to providing enough housing.
"There is an affordability challenge and the only way to address that is supply. This is one of the ways that supply is starting to get freed up," Stockland chief executive Mark Steinert said. "I think there will be more of this," he said, expecting the residential business to drive further earnings growth over the next five to six years.
Approvals for multi-unit projects nationally climbed 28 per cent in the past year to record highs, raising hopes that the extra supply will help dampen potentially dangerous house price rises. Developers need at least 4,000 sq m of land for an apartment building, so owners who can club together can command significant premiums.
Mr Keiron Stedman, project marketing specialist at Ray White Castle Hill, is grouping about 47 home owners in Sydney's Hills District, one of the western suburbs popular with commuting workers and now developers. "If you sell together as one development parcel you can generally get a higher price... Ultimately you can get double, triple or sometimes even five times your residential value by taking this approach," Mr Stedman said.
Last December, five mostly older standalone brick homes in the same suburb sold for a record A$20.5 million (S$21 million), which at A$4 million each was almost four times what the owners could have expected from individual sales.
Record house prices have worried regulators who fear the market may be entering a bubble and could potentially hurt the country's banking system - heavily reliant on mortgages - and, in turn, the economy, if it bursts.
Australia's banking regulator is forcing banks to slow down lending to home investors to an annual growth of under 10 per cent.
"Sydney can keep building for a couple of years without going into oversupply," said BIS Shrapnel associate director Kim Hawtrey. "But developers should be careful not to follow that strategy too far and not to pay too high a price and find that they get caught."
REUTERS

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• Aug 30 2015 at 3:56 PM 
   
  
  
•  Updated Aug 30 2015 at 4:21 PM 
  

Property scramble at Crown Group's Infinity as spring blooms

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[img=620x0]http://www.afr.com/content/dam/images/g/j/a/k/2/3/image.related.afrArticleLead.620x350.gjaw7t.png/1440917650675.jpg[/img]Crowds line up at Market Steet to buy Crown Group's Infinity apartments. Simon Alekna
[Image: 1425598457909.png]

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by Su-Lin Tan
Tired shoppers on Market Street in Sydney would normally have had a day scrambling at a shoe sale at Myers or David Jones. On Saturday, it was a scramble for real estate. 
A Boxing Day sale-like aftermath – lethargic bargain-hunters and empty sale racks – was seen on level 29, 1 Market Street where Crown Group was launching its Green Square Infinity Apartments. 
Buyers waited for their names to be called so they could exchange e-contracts on an iPad for one-bedroom units to penthouses worth $590,000 to $3.5 million.
The group's entire project of 326 apartments, which also launched in Singapore and Indonesia simultaneously, was 98 per cent sold by the end of Saturday topping $350 million. 
[img=620x0]http://www.afr.com/content/dam/images/g/j/a/j/f/a/image.imgtype.afrArticleInline.620x0.png/1440841439149.jpg[/img]Lucy Lu, a buyer at the Infinity by Crown launch on Saturday. domain.com.au
Not all buyers went home happy; some were turned away in queues which started at 7.30am. 
"We've been inundated with buyers here today. There was a queue of more than 300 people by 10am," Crown Group chief executive Iwan Sunito said.
"After years of planning and hard work it's immensely satisfying to see hundreds of buyers leaving here happy today. It's great to see so many people proud and excited to own their own piece of Infinity by Crown Group." 
Some 60 per cent of the buyers were investors and the rest owner-occupiers. Most of them were local buyers.

[img=620x0]http://www.afr.com/content/dam/images/g/i/o/u/4/h/image.imgtype.afrArticleInline.620x0.png/1438318419297.jpg[/img]Clover Moore and Iwan Sunito CEO of Crown Group at launch of Infinity by Crown Group domain.com.au
The Infinity apartments, which had a $450,000 promotional launch in July featuring celebrities such as Megan Gale, will reside in Sydney City Council's $8 billion Green Square project. The project will transform the former industrial inner-south suburb into a new town centre.
"For so many years, Green Square was promised but didn't come to fruition. But now with council and developers backing it, it has become one of Sydney's largest project," McGrath agent, Ben Forsyth, said. 
"The Green Square project will take seven to eight years to complete and so value will not peak overnight. There will provide steady growth. There is definitely value in the area and it is worth getting into it in the next 12 months."
Mr Forsyth's $2 million sale of 92 Portman Street in nearby Zetland with fellow agent Mark Lauzon scaled a new residential sale record for the suburb. 

A local family purchased the four-bedroom home to take advantage of the Green Square amenities.
SYDNEY CLEARS 78.1 PER CENT
The last week of winter prefaced what would be a strong spring. 
Auction clearance rates was 75.4 per cent across the capital cities higher than 72.9 last week. CoreLogic RP Data expects auction activity to ramp up into spring.

Interest rates – a major driver for high property demand – is unlikely to fall with the ANU CAMA Reserve Bank of Australia Shadow Board confident of a cash rate hold as global sharemarkets tremble and private investment plummets. 
"Recent global gyrations should make the RBA hold rates this month, and with a recovery in equity markets outside of China there seems little reason to cut rate," board member Mark Crosby said. 
"The longer-term outlook is still uncertain, with global trade falls the most recent worrying data in the global economy and far more consequential than falls in Chinese equity markets."
Sydney's preliminary rate was 78.1 per cent up from 76.2 per cent last week but for the first time this year, it was lower than the same time last year of 79.9 per cent. The city and inner south which includes Green Square cleared 82.8 per cent. 
Brisbane achieved 58.2 per cent against last week's 54.5 per cent. Tasmania had a surprising 75 per cent. 
Melbourne improved to 77 per cent versus its year-low of 74.3 per cent last week.
"Melbourne is an interesting market. A-grade properties get A-grade results. But there could be softening from secondary units. There will be some oversupply in certain areas," Jellis Craig's Richard Earle said. 
"I hear there are 1000 new people coming into Australia each week but they are all vying for key areas which are close to schools such as in Boroondara."
Jellis Craig auctions cleared 82 per cent on Saturday. 

[greengiraffe]

• Sep 7 2015 at 4:19 PM 
   
  
  
• Updated 12 mins ago 
  

Sydney property market in 'bubble territory' since December

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/f/v/3/0/image.related.afrArticleLead.620x350.gjgwe7.png/1441607311004.jpg[/img]A huge turnout for the auction of 93 Hill St in Sydney's Leichhardt on the weekend. Michele Mossop
[Image: 1437396900123.jpg]

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by Misa Han
The Sydney housing market has been in the bubble territory since December 2014, according to new economic modelling, and there is no sign of a slowdown yet.
UNSW Business School professor Glenn Otto has examined the house price to rent ratio across all capital cities since 1984 to detect any explosive growth in asset prices.
"There's also some evidence we've got a bubble currently for Sydney since December 2014, but not for any other capital cities," Professor Otto told The Australian Financial Review, ahead of UNSW's Real Estate Symposium on Tuesday. 
"Sydney and Perth both had episodes of bubbles and Sydney had a clear episode of bubble from December 2001 to June 2004."
[img=620x0]http://www.afr.com/content/dam/images/g/j/9/4/h/e/image.imgtype.afrArticleInline.620x0.png/1440795581455.jpg[/img]CBRE data shows the price for a new Melbourne residential property is more than 6 per cent higher than the price for a Melbourne property in the resale market.
Treasurer Joe Hockey has previously dismissed concerns about a housing bubble forming in Sydney, while the Reserve Bank of Australia governor Glenn Stevens hasdescribed parts of Sydney's property market as "crazy".
Professor Otto said prices generally "wander along in a reasonably random fashion, but there are episodes where you have a really high, really rapid explosive growth in house prices.
"This definition picks up a house price bubble based on the rate of the growth of house prices in relation to rent."
He said by measuring how fast the asset price grows, the modelling detects any "short-term, explosive behaviour" on the part of buyers. 


"The rapid growth suggests they are expecting return over and above the normal rate of return, which compensates for the uncertainty that the bubble will burst. It also suggests buyers don't do due diligence on what the place might be worth.
"Another advantage of the technique is it potentially gives you an early warning signal and you can see the beginning of a bubble so if you're the central bank and this is something you're concerned about, at least you know you're in the bubble territory."
'TWO-TIER PROPERTY MARKET'
The latest data from CBRE also suggests foreign investment may be creating a 'two-tiered' residential market in Melbourne, where the price in the new residential property market is significantly above the price in the resale market due to foreign investment.

CBRE data shows the price for a new Melbourne residential property is more than 6 per cent higher than the price for a Melbourne property in the resale market.
The 'two-tier' property market phenomenon is expected to get worse as the lower Australian dollar brings more foreign investment into Sydney and Melbourne housing markets.
CBRE head of research Stephen McNabb said: "There is more demand in the market from foreign investors than we've seen in other markets."
He said the price differential is also reflective of the supply coming onto the Melbourne market in the past five to six years.

"It suggests that you're moving towards a peak in the pricing cycle," he said.
The price differential was also reflecting foreign buyers' expectation of lower return in the property market, he said.
"Across the real estate market we have seen foreign investors having lower return expectations because they're coming from a market of lower interest or lower return, or in the case of China, markets with higher risks," he said.
The data shows that approved foreign investment makes up over 18 per cent of residential property purchase in Victoria, and over 10 per cent in NSW.
Valuer Herron Todd White's latest red-flag report last week warned some apartment buyers in Sydney and Melbourne were paying too much for properties in competition with foreign buyers, leaving owners and lenders exposed if the market suddenly turned.

[greengiraffe]

• Sep 20 2015 at 2:38 PM 
   
  
  
•  Updated Sep 21 2015 at 5:31 AM 
  

Sydney auction clearances set for 70% as boom ends

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/q/g/q/f/image.related.afrArticleLead.620x350.gjqmw6.png/1442777483302.jpg[/img]60 Clayton St in Balmain sold for $2.4 million, $200,000 above reserve. Mind The Gap
[Image: 1426054187157.png]

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by Mercedes Ruehl
Sydney has seen the lowest spring clearance rates in three years, and more agents are saying the peak of the property boom has probably passed.
Sydney, which recorded a 73 per cent preliminary clearance rate at the weekend according to RP Data, may soon move below 70 per cent  Domain Group senior economist Dr Andrew Wilson said. 
"Sydney is plunging," Dr Wilson said. "September has seen the lowest spring clearance rates in three years and it's no spike, it's consistent. We may be looking at a clearance rate below 70 per cent before year's end. That could even happen at next weekend's Super Saturday."
One two-bedroom apartment at 8/127 Albion Street in the inner Sydney suburb of Surry Hills sold through Bresic Whitney for $1.1 million – ahead of the suggested price of over $1.05 million – but not without some intense negotiation.
[img=620x0]http://www.afr.com/content/dam/images/g/j/q/q/d/w/image.imgtype.afrArticleInline.620x0.png/1442745835601.jpg[/img]Starryland Australia had it's second launch of its Promenade project in Parramatta, selling more than 100 units.Supplied.
Bidding had stalled so the auctioneer raised the stakes with a vendor bid of $1.1 million. After some negotiation, the vendor bid was withdrawn and replaced with a $1.1 million offer from the highest bidder. The apartment then went on the market at $1.1 million and was sold without a further offer.
There were more than 2000 auctions scheduled across capital cities for the seventh straight week according to RP Data. Frustration from buyers is starting to show, said Damien Cooley of Cooley Auctions. The firm had a clearance rate of 74 per cent across 86 auctions in Sydney. 
"Like any boom, people wonder when you're at the top and we have probably passed the peak," Mr Cooley said.
"There is a real sense of urgency among buyers about selling before the end of the year. But money is cheap and prices will still rise and there will continue to be good sales results."


In some areas homes are still fetching as much as $200,000 above reserve, such as a four-bedroom home in Balmain on Saturday. The 60 Clayton Street property sold for $2.4 million through Belle Property.
In Parramatta on Saturday buyers queued up from 6.30am for Chinese-backed developer Starryland's second release of its Promenade project.  First home buyers, Douglas Tran and Catherine Nguyen  bought a top floor two-bedder for $750k through CBRE.
"We looked around Top Ryde and Strathfield and couldn't get that price for a two-bedder," Mr Tran said. 
Melbourne's preliminary auction clearance rate was 73 per cent, which is higher than a year ago. But there is softening demand for units in the inner-city, Wakelin Property Advisory director Richard Wakelin said. 

"I attended two two-bedroom-unit auctions in South Yarra on Saturday and there is a noticeable shift from a year ago. Attendance has thinned out considerably and bidding is lukewarm."
But a six-bedroom trophy home in Camberwell attracted a crowd of nearly 300 people and five bidders. The property at 27-29 Kintore Street sold for $7.7 million – versus a price guide of $7.5 million-plus. 
"There's still considerable demand in the high-end sector and for trophy homes," said Mr Wakelin, who advised the vendors.

With Robert Harley and Su-Lin Tan

[fundamentalman]

New Home ‘Tsunami’ May Snap Sydney Romance With Exuberant Prices
Narayanan Somasundaram
September 20, 2015 — 1:00 PM PDT Updated on September 20, 2015 — 8:20 PM PDT
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Record 213,000 home starts across Australia to boost supply
Goldman Sachs says Sydney prices 20% overvalued, glut likely
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A home-building frenzy that is shoring up Australia’s economy as the mining boom ends may also be what finally takes the steam out of one of the world’s most expensive property markets.
The case in point: Green Square. Nearly 10,000 apartments will be built in one of Sydney’s newest suburbs in the next four years to satisfy investor demand, which has already sent property prices in the city to the highest ever. It will also add to the record 213,000 new home starts across the country amid slowing population and economic growth, prompting Goldman Sachs Group Inc. to warn of a supply glut by 2017.
“There is a tsunami of home supply coming,” said Nigel Stapledon, head of real estate research at the University of New South Wales Business School and former chief economist at Westpac Banking Corp. “The market is going to be tested in accepting this sort of supply. It’s not like there is economic growth to support it. Income growth has gone from boom time to the lowest in a number of years and population growth has eased back.”
Housing and home prices have been the biggest beneficiaries of the central bank’s 10 interest-rate cuts since November 2011 to a record low that made mortgages the cheapest they have been in five decades. Economic growth has remained below historical rates and capital spending and confidence have sagged.

Some cracks are starting to appear. Auction clearance rates in Sydney dropped to about 73 percent for the week ending Sept. 20, from a peak of over 90 percent in April, as buyers’ tolerance for some of the most expensive property in the world and a median price that touched a record A$773,000 ($561,000) cooled. The measure is at the lowest since November last year, according to the data. Nationally, auction clearance rates, used to gauge buyers’ demand, have dropped to just over 70 percent from a high of more than 80 percent in April.
At the same time, demand from investors, responsible for more than half the mortgage commitments since August 2014, a record, is being choked by tighter lending requirements to landlords. Investor loan growth dropped from 29.6 percent in April to 16.5 percent in July, the latest government data showed.
Homes are 20 percent overvalued, according to Goldman Sachs, which is seeing a one in three chance of a recession in Australia in the coming year, according to a note this month, while Barclays Plc puts the overvaluation at 14 percent.
Dwelling prices have climbed 24 percent across the country in three years to Sept. 1, with Sydney leading with a 46 percent increase, according to CoreLogic. Reserve Bank of Australia Governor Glenn Stevens said in June that Sydney home prices were “crazy,” while Treasury Secretary John Fraser has called it a “bubble.”

A surge in supply as economic growth sputters may temper those gains. The economy, trying to navigate a transition from a mining boom, expanded 0.2 percent in the June quarter, the slowest pace since 2013, while wages climbed 2.3 percent from a year earlier, matching the weakest pace ever.
In the short-term “strong supply growth can create some negative impact on prices,” David Cannington, a senior economist at Australia & New Zealand Banking Group Ltd., said. “With the current headwinds facing the Australian economy and the lack of consumer confidence in particular, a further step up in supply would likely test the depth of demand and face significant challenges in some markets.”
Green Square, about 3.5 kilometers (2.2 miles) south of the Sydney business district, is on course to be the densest suburb in the country. Sprawled across 278 hectares, it will see about 10,000 apartments completed in the next four years, according to the City of Sydney website. They will join almost 59,000 homes across New South Wales state that will begin construction this year, according to the Housing Industry Association.
While new-home starts are forecast to decrease from 2016, they will remain above pre-2013 levels, HIA data show. It estimates there will be almost 720,000 housing starts across the country in the four years to 2019 with more than half of that in Sydney and Melbourne.
Goldman Sachs economists led by Tim Toohey expect an excess of 75,000 dwellings by 2017 rather than a previously forecast shortfall of 140,000.
Besides tighter lending, landlords are facing falling rental yields as the number of homes for rent rises, values increase and population growth slows. Gross rental yields were at a record low in both Sydney and Melbourne in August with a typical dwelling attracting a yield of just over 3 percent in Australia’s two largest cities, according to CoreLogic. Population growth slowed to 1.4 percent in 2014 and is on course for the slowest growth in nine years, according to Macquarie Group Ltd.
“We may be approaching a broad peak in home prices,” Kieran Davies, chief economist at Barclays said by phone. “The main uncertainty about the market is tougher regulatory steps to curb investor demand. It’s been the driving force lately and there are some signs it is slowing.”

[BlueKelah]

Agents and auctioneers sound warning ahead of big spring auction day

Sydney’s real estate agents and auctioneers are calling on vendors to set realistic reserve prices in the lead-up to the biggest auction day so far this spring.
About 1000 homes are expected to go under the hammer this weekend on the first “super” Saturday. But some fear a bloodbath since auction clearance rates have plummeted from near 90 per cent four months ago to 71.3 per cent on Saturday.
“It’s the weakest spring market for three years,” Domain Group senior economist Dr Andrew Wilson said.
“Parts of the city are showing signs of fatigue.”
Auction volumes are up almost 50 per cent this September, with almost 2500 homes going under the hammer so far this month. Auction numbers were also well up over July and August, with 800 auctions most Saturdays – unheard of for winter.
But the high volumes are now taking their toll. The north-west of the city has gone from one of the best-performing regions to one of the weakest. On Saturday, just 54.3 per cent of homes up for auction sold.
Real estate agent Peter Grover of Century 21 Castle Hill says there’s an oversupply of homes coming to the market in his area. “There’s a lot more come on in the last four weeks,” Mr Grover says.
“And a lot of investors are turning away from your traditional 30-year-old dwelling to an off-the-plan purchase – your typical house at $1.2 million is a bit of a stretch for an investor.”
He says banks charging higher interest rates for investors is also starting to discourage many.
“It’s not a catastrophe – if you set a realistic reserve you will probably sell.”
Agents in the Canterbury Bankstown area have also been finding it tough going. The principal of David Kay First National Belmore,  Phil Madirazza, admitted to being a bit nervous about his super Saturday auctions.
“We’ve got three auctions ourselves and they’re all going to be touch and go,” Mr Madirazza said.
“Vendor expectations are too high and they’re just not listening to what the [buyer] feedback is.
”I think there will be quite a few pass-ins to be honest.”
He said auctions in his area are tough. “There’s been a noticeable change in the amount of registrations and we have to work the floor a bit harder than before.”
Auctioneer Damien Cooley says he has more than 100 auctions scheduled in Sydney on Saturday.
“There’s no doubt that there’s a little bit of panic coming across the industry, with some vendors and some agents,” Mr Cooley said.
“They don’t want to miss the boat but i don’t see any reason to panic, i think the market will continue to grow albeit at a much more calmer pace.
“I’m expecting a clearance rate similar or perhaps slightly down on the week we’ve just had.”
Given the high numbers, he said many agents were trying to sell their properties before the auction. “They’re thinking perhaps we should wrap it up now rather than risk not getting it across the line.”
He, too, said vendors needed to be realistic. “I’ve had cases of where it’s got to $690,000, and the owner wants to hold out for $700,000.
“It’s 10 grand.
“Let’s be realistic as to where the market’s at, let’s listen to what the buyers are saying.
“It’s easy to say that when an owner has seen a recent sale down the road, and they feel their property is better than that.
“A lot of vendors don’t realise that the market is different from even three months ago.”
Many regions are holding up better than others.
“Higher-priced inner and middle suburban areas continue to report reasonably healthy early spring results,” Dr Wilson said.
The city and east recorded the highest clearance rate at the weekend with a strong 84.1 per cent followed by the northern beaches with 82.9 per cent, the inner west 77.9 per cent, the south 76.9 per cent, the lower north 74.2 per cent, the upper north shore 72.7 per cent and Canterbury Bankstown 70 per cent. The west had a clearance rate of just 50 per cent.