Sydney Property Bubble

[BlueKelah]

Australia can always choose to open its gate for immigrants. They still have vast land undeveloped to cater for much higher population. Of course, the government has to make the right decision when the day comes.

If small Singapore can host millions of people, Australia can host 100 million without a problem. how many new apartments are required for it?

Unfortunately AUS is still a welfare state and as such, so long as there is no mining investment boom, AUS will find it hard to support growing population with its liberal welfare policy. Healthcare here is also very expensive but for PR and citizens it is also totally free except for long term out of hospital medications which are subsidized 85%.

Resources wise, yes land is plentiful, but mostly are zoned farmland and government is slow to rezone as there is a mountain of red tape and politics attached.

The main problem to host 100million is similiar to Singapore and one most people miss. Australia is very dry and water is a big big problem. Such a big problem that major cities sydney, brisbane, perth, melbourne, adelaide all have DESALINATION plants to supplement water though they haven't gone the new water way yet. Australia not as lucky as SG to have a "dependable source of cheap water" from MY

Can you imagine what would happen if there was ever a drought to happen in JB or water contamination such that the MY authorities are forced to stop sending water into SG? not only threat of SARS and haze, water is a ever present threat for 5.3++million ppl.

thinking australia will just let its population swell to 100million because it has land and can build apartments is just too simplistic.

[freedom]

100 million is just figure of speech. Australia does not require that much a change to absorb its oversupply of housing. I don't think water is a problem. Australia still has floods occasionally. I am sure that with proper investment, Australia can have better water supply.

Unless Australia wants to depend on mining and export forever, it has to develop a better economy model based on population.

What I am trying to say is that housing could be a problem in Australia, but it is not unsolvable. Just like China, everyone knows that there is a problem. But it is not unsolvable.

[BlueKelah]

Yes that is true. Indeed it will be very entertaining to see what happens in the near future both for China and Australia.

[specuvestor]

If the solution is so simple, there wouldn't be property busts. Again the view is so single-faceted.

And I thought Singapore is having issues with immigrations, or is that just uniquely Singapore?

End of the day the issue is more than just tweaking simple demand and supply. There are structural limits, demographics, strategic, socio-political considerations.

Australia's main mining sector is declining from 2011 peak. Rio and BHP had been tightening their belt and reporting better profits, but sales are down despite AUD decline. RBA knows the AUD needs to go down as lowering the interest rate further is not desirable for inflation and asset prices

Slowing economy and asset inflation is not a good brew no matter how you slice it. Not to forget Australia has resumed in being current account deficit.

[freedom]

Slowing economy is not the problem. The problem is that people are demanding high return when economy is lowing, which surely will cause problem.

There is always going to be up and down. The best way to survive is to save when up. Even animals know it, sometimes, human beings are not necessarily smarter than animals.

[greengiraffe]

Foreigners in splurge on houses
NATASHA BITA THE AUSTRALIAN MARCH 01, 2014 12:00AM

FOREIGN buyers kick-started the shaky housing recovery by doubling their spending on housing, while pulling the plug on mining investment.

Foreigners spent twice as much buying established residential housing during 2012-13, when mining investment slipped 12.6 per cent.

New data from the Foreign Investment Review Board reveals that foreign purchases of established homes rose eightfold during the financial downturn.

Offshore buyers bought a record 5091 established homes worth $5.4 billion last financial year, compared with just 647 properties worth $810 million in 2009-10.

A further 4499 new apartments and homes worth $2.9bn were sold to foreigners off the plan last financial year - more than double the investment recorded three years earlier.

Nearly half the established home sales were in Melbourne and Sydney, where Asian buyers have been targeting properties close to the CBD and on Sydney’s north shore.

Chinese buyers poured $5.9bn into property investment last financial year, topping the list of foreign buyers.

Foreign investment in vacant land doubled last year to $1.4bn, for development and “land banking”.

The FIRB statistics give the first official confirmation of a surge in foreign investment that breathed life into Australia’s stagnant housing market last year. They also expose a slump in foreign spending on commercial property, and a downturn in applications from Australian developers to build new apartment blocks targeted to offshore buyers.

Overall, investment in real estate fell 12 per cent last financial year, to $34.8bn for commercial property and $17.2 for residential real estate.

Only 50 new property projects, worth $5.7bn, were given FIRB approval to be sold directly to foreign buyers off the plan - half the value approved the previous year.

Foreign buyers can buy off the plan without any restrictions but can only purchase established housing if they are temporary residents, use it to house Australian-based staff or plan to demolish a home for redevelopment.

Colliers International’s Asian director of investment sales, Steam Leung, said yesterday China’s ban on owning more than one investment property was fuelling demand for Australian real estate, including vacant land.

“Wealthy Chinese who want to buy a property for long-term investment cannot buy (more than one) in their own country,” Mr Leung said. “They are also very keen to buy residential sites to develop themselves, in areas that are close to train stations, good schools and universities.”

Mr Leung said many buyers had children studying in Australia, or were recent business migrants.

“They mainly go back to China to do their business and leave the wife and kids to study and live in Australia,” he said.

John McGrath, founder and chief executive of McGrath Estate Agents, said Asian buyers preferred new units but were also buying expensive houses on Sydney’s north shore.

“A lot of the purchases are associated with education and people migrating to Australia,” he said.

“New homes and units are an easy passage into the Australian market.”

National Australia Bank’s senior property economist, Robert De Iure, said foreigners purchased 11 per cent of new properties and 6.5 per cent of established homes last year. Investment had doubled in the past two years.

Many Asian investors were buying rental properties off the plan, with the aim of “living here down the track”, he said. “They’re getting around the strict laws about buying property in China, where the government is trying to clamp down on property speculation. Australia is seen as an attractive destination.

“Foreign buyers are also developing property here, and marketing it directly in their home markets.”

The FIRB data reveals total foreign investment in Australia fell 20.5 per cent to $135.7bn last financial year. Investment in mineral exploration and development crashed to $45bn - a 12.6 per cent drop in 12 months and 44 per cent less than the $81bn invested during the depth of the global financial crisis in 2009-10.

The Minerals Council of Australia blamed the carbon tax and mining tax for driving investors away. The council’s deputy chief executive, John Kunkel, said: “The decline in the value of foreign investment in mining is unsurprising given Australia’s transition from historically high investment to the production phase.

“It’s nonetheless important that Australia’s ‘open for business’ message on foreign investment is clear and backed up with supportive policies in order to boost future growth. Our attractiveness as a destination for investment has declined in recent years due to the carbon tax, the bungled mining tax and creeping regulation.”

Foreign investment in agriculture, forestry and fishing fell nearly 20 per cent to $2.9bn, despite an increase in applications from 41 to 91.

Investment in the services sector jumped 24 per cent to $26bn, including $9bn of foreign money poured into transport and $7bn into communications.

The US remains the biggest foreign investor in Australia - spending $20.6bn last year - followed by Switzerland ($18.3bn) and China ($15.8bn).

[Stocker]

This is very positive to St******, believe their stage 2 launch tomorrow will be sold out also.

[greengiraffe]

Sydney units now cost more than Melbourne houses
Rebecca Thistleton
848 words
4 Mar 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
The average Sydney flat now costs more than the average Melbourne house.

Figures from RP Data out on Monday estimate Sydney's median price for apartments is now $530,000, compared with the $515,000 median price for a Melbourne home, a consequence of the rapid growth in Sydney property prices that has triggered concerns of a price bubble.

On Saturday a two-bedroom ­apartment in Rockdale, about 12 kilometres from Sydney's CBD, sold for $536,000. On the same day, a three-bedroom Heidelberg West house, about 13km from the Melbourne CBD, sold for $511,000. It was originally quoted at $410,000 to $450,000.

RP Data senior analyst Cameron Kusher said apartments had outpaced houses across the capitals in February, a new trend which showed buyers competing for more affordable small homes.

Selling agent Sam Abbas of Raine & Horne said the Rockdale apartment had attracted owner-occupiers, but two investors fought it out after the price hit $480,000.

"Auctions are working because there is so much competition," he said. "A lot of people from the inner west have been interested in this area as they find it is better value for money over this way."

Agents have been sitting on pre-auction offers and encouraging vendors to carry through marketing campaigns to squeeze the best price from ­enthusiastic purchasers, buyer's agent Oliver Stier said.

"The savvy agents are waiting until at least two Saturdays into the marketing campaign to put offers to vendors, but at the same time, buyers are more aggressive," he said.

Off-the-plan apartments have sold rapidly across Sydney. Head of Richardson & Wrench projects Tony McGinley said 111 apartments launched at 'Vue' Bondi Junction on Saturday sold out within two hours.

Prices started at $595,000 for a one-bedroom unit without parking on a lower floor. More than 200 potential buyers booked appointments.

House price growth was flat in February across the capitals, except for Sydney, after RP Data recorded buoyant growth nationally in December and January.

In Sydney, unit prices rose 1 per cent and houses 0.7 per cent. Sydney has recorded growth across nine consecutive months, a rise totalling 14 per cent for houses and 10.5 per cent for units.

Mr Stier said owner-occupiers were willing to outbid investors. Strong demand has created competition between buyers and increased the pressure to pay more over missing out.

Higher prices mean lower rental yields for investors and have led to yield compression in Melbourne and Sydney. "We're seeing a lot of demand for three-bedroom units from people who would otherwise be buying houses," he said.

Mr Stier said competition was so strong that buyers were making serious offers early in marketing campaigns – high enough for the vendor to sell ahead of auction.

"There are offers being made and sales wrapped up within the end of the first week on the market," he said.

Homes which have sold prior to auction include a Leichhardt property which was due to go under the hammer on March 8.

The two-bedroom cottage has no parking and was initially expected to sell for more than $800,000.

Selling agent Simone Azzi of Belle Property said more than 100 groups inspected the home in the 20 days it was on the market and 12 contracts had been issued. "Almost all of the contract holders were young professional couples from the inner-west or eastern suburbs," she said.

A couple from Randwick buying their first home out-negotiated two other groups for the home.

Melbourne house prices dipped 0.3 per cent in February but have recorded more than 10 per cent growth in the past year.

Melbourne apartment prices rose 0.4 per cent in February.

Brisbane prices slid 1.5 per cent in February, the median house price was a more affordable $480,000 and ­apartment prices were up 0.8 per cent to $365,000.

Perth apartment prices gained almost 3 per cent for the month and in Adelaide, 1.6 per cent, while both cities recorded slight decreases in median house prices.

RP Data analysts suggested the small dip in house prices was more of a market correction after a buoyant December and January, rather than the start of a price growth slump.

But given interest rate rises have been predicted this year, RP Data has predicted house price growth will slow in coming months.

The RP Data-Rismark monthly home value index, released on Monday, showed the median house price across the eight capital cities combined was $506,000.

Rismark chief executive Ben Skillbeck said Sydney's nine months of price rises was surprising compared with the dips in the other cities.

He said during the past decade Sydney values had risen less than 3 per cent a year, suggesting the market was playing catch-up.READ NEXT: Property prices hit 'temporary' flat spot in February Hot home loan competition leads to lower NAB rates Rain cools Sydney auction market


Fairfax Media Management Pty Limited

[Boon]

This article is a bit old but still relevant...........

Sydney property prices have always been more expensive than other capital cities. Prices are already high but still rising - why?

IMO, it is simply a case of Demand outstripping Supply - as vacancy rates remain healthily low.

Until Supply could meet up with Demand - prices would always stay high and may get even higher.

_________________________________________________________________________________________________________________________________________________

..................................why are Sydney prices so much more expensive than other capital cities. Like any pricing related question, the answer often comes back to the relationship between demand and supply. From a demand perspective, Sydney has the largest population of all the capital cities and the second highest level of population growth (based on raw numbers rather than percentage change). New South Wales also attracts the largest number of overseas migrants.

From a supply perspective, the inefficiencies surrounding land release and development across New South Wales has resulted in an insufficient level of new dwelling construction, creating a housing market which is undersupplied. The undersupply of housing tends to place some upwards pressure on prices.

Other reasons, apart from the higher incomes argument, likely come down to a handful of other factors.
•Geographically, development and urban expansion in Sydney is curtailed by the large tracts of national park and the large number of waterways located across the Sydney metro region
•Sydney is one of Australia’s most mature housing markets. The long established inner city and coastal areas tend to push the overall median prices up. In fact, the outer western and northern fringes of the Sydney metro region provide some of the most affordable capital city housing markets across the major capitals.
•Another factor is the high cost of vacant land across Sydney, which is much higher than any other capital city.

http://blog.rpdata.com/2012/11/why-does-...ng-market/

[Boon]

These are some interesting observations - Supply Constraints of different nature to that in my previous post.
_________________________________________________________________________________________________________________________________________________
Sydney's property dam is about to burst
Robert Gottliebsen
21 Jan, 7:52 AM

New ingredients are emerging that look set to generate a surplus of apartments in Sydney in two or three years – the first time that has happened for a long time.

The two new ingredients are the emergence of Chinese developers and a looming change of attitude by local councils and planning authorities.

Those buying Sydney apartments in the current strong market and those commenting on the 2014 buoyant forces need to be aware of the looming trend reversal.

And, although the forces are slightly different, a similar situation is emerging in Melbourne.

I reached the Sydney conclusion after a conversation with Sydney’s largest apartment builder and owner Harry Triguboff, who explained to me that he is seeing new trends in Sydney, which, if they continue, will cause of surplus of apartments. However given strong demand he does not expect the market to collapse but the new ingredients will clearly affect price levels. And Triguboff does not expect the emerging over supply of apartments in Sydney to affect rents.

To understand the power of the new forces we have to quickly document what has been causing the shortages.

On the supply side, councils and planning authorities made it very difficult to get planning and development approval on economic terms. This limited the supply and pushed up prices, so contributing to the high cost of dwellings in Sydney. At the same time banks were reluctant to lend to apartment property developers and to take into account pre-sold apartments bought by people residing on the Chinese mainland.

So while supply was constrained, in recent times, banks have been happy to fund buyers – particularly investors – whose ranks have been boosted by lower interest rates. At the same time Westpac have been big funders of Chinese buyers who are also assisted by their own banks. This classic planning/banking squeeze on supply and the boost in demand created by banks and interest rates contributed to the Sydney dwelling shortages and boosted prices effectively taking first home buyers out of many markets. Although he has been a long-time critic of the councils, planning authorities and banks, in fact Harry Triguboff has been a major beneficiary of these trends because he has had the capital to fund both the planning delays and construction of new developments.

But dramatic changes are ahead.

Triguboff says that while the local councils and planning people are still tough “the dam walls are cracking” as these groups and the NSW government realise the damage that has been done to dwelling affordability in Sydney.

The Chinese have been significant buyers of Sydney (and Melbourne) apartments for a long time but their buying intensity is increasing and the Chinese are also buying apartments in many other countries. There has always been a strong desire by wealthy Chinese to have assets abroad as a safeguard against what might happen in China. But overseas investment is now being encouraged and the jailing of leading politician Bo Xilai has intensified the desire of many Chinese to have assets overseas.

In Sydney and Melbourne not only are the Chinese buying apartments from Australian developers like Harry Triguboff’s Meriton, but Chinese developers are now entering the market. Unlike smaller Australian developers the Chinese do not need to use Australian banks and are using their own banks to fund the developments. Accordingly, funding is now plentiful and the two pillars of supply constraint are crumbling.

In Melbourne there is no developer of the power of Triguboff/Meriton. Most of the new developments have been concentrated around the Docklands and Southbank area where permission has been relatively easy to get. But in other areas of the city the Sydney-style supply constraints exist leading to too many apartments being concentrated in the one geographical area (Southbank/Docklands). This is also changing. And the Chinese developers are entering the Melbourne market with a vengeance, out bidding many locals for key sites. Like Sydney the supply blockages are breaking down.

For a long time in Brisbane the Chinese were not buyers in the market and so prices were restrained but that is now changing.

In Sydney and Melbourne the Chinese are not buyers of developments in outer areas like Sydney’s Northern beaches so apartments are much cheaper than in the city. But much more travel is usually required by residents.

http://www.businessspectator.com.au/arti...bout-burst