Australia Property

[Boon]

Housing prices to come off the boil in 2017, says Fitch
The Australian 

February 17, 2017

DANIEL PALMER
Ratings agency Fitch has detailed forecasts for a 3 to 5 per cent price appreciation in the local property market this year as part of a broader global review of the real estate market.

In its update, the agency said 2016’s “unsustainable” price appreciation of 10.9 per cent would not be repeated, although first home buyers would still struggle to find a way onto the property ladder given continued price growth.

“Record low interest rates have helped support price growth while rents remained flat. But tighter lending standards, including limitations on the growth of investment loan portfolios for authorised deposit-taking institutions, have dampened price dynamics,” Fitch said.

“Fitch expects moderate growth in Sydney and Melbourne property prices in 2017, propped up by low interest rates and population growth.”

National price growth of 3 to 5 per cent is expected, while the regional market may again underperform against the capital cities, particularly Sydney and Melbourne.
“Lower growth in regional residential property prices of around 0-5 per cent [is expected], due to falling rental yield pressure, increasing supply and fewer prospects for capital growth for investors,” the agency added.

“Fitch expects dwelling completions, to continue to rise nationwide and peak in 2017, acting as a dampener on prices.”
Wage growth has lagged price appreciation for the better part of two decades, with the gap swelling since the end of the GFC.
This dynamic is not expected to be resolved this year, with wages to still undershoot even if the gap is likely to close.
In response, first home buyers are finding it increasingly hard to find an entry point to the property market, an issue that will be remain a point of contention for 2017.
“Fitch expects first-home buyers to continue to struggle in 2017, as demand for housing remains strong,” the report said.
“Low income growth, tighter underwriting and rising living costs maintain pressure on affordability, even as low rates persist.”
The ratings agencies have long warned on the heavy exposure of the big banks to the mortgage market, with Fitch again noting high household debt would weigh on mortgage serviceability.
However, 2017 is expected to see stable arrears rates given persistently low interest rates.
Mortgage lending is projected to rise broadly in line with prices, with 5 per cent expansion tipped for 2017, as against 10 per cent last year.
As part of its global report, the ratings agency noted the prospect for rapid growth in several markets and stable conditions or better in 19 of the 22 markets measured.

However, a slowdown was “overdue” for some of the hotter markets, such as Australia.
“The rate of price increases should slow as home purchases become increasingly expensive relative to household income and rents,” Fitch added.
“Unsustainably rapid price rises in some countries (eg New Zealand, Norway, Australia, Canada) are expected to moderate in 2017.”

http://www.theaustralian.com.au/business...826abc07bb
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[BlueKelah]

Starting to happen now, akan datang for the great australian apartment crash.
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There are reports a lot of Chinese buyers are struggling to settle on their Aussie apartment

[“The off-the-plan apartments market is now the worst I have seen in the last 10 years,” sai Li Ming, the co-director of Melbourne-based real estate company Aussiehome.]

[piggo]

The LTV ratios are still extremely low vs Singapore....

Am wondering if the rich/poor disparity's wider there? Or is it just simply because of the higher interest rates?

[BlueKelah]

Once again RBA is late to the party. Building and construction approvals had already plummeted for past couple quarters already, especially in Brisbane. Melbourne should be badly hit as well. China men buying OTP now all balik kampung liao.

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Reserve Bank worried about collapse in apartment prices

The Reserve Bank is considering tighter bank lending standards amid concern about how the financial system would handle a collapse in housing prices, beginning with Brisbane apartments.

The Bank's assistant governor (financial system) Michele Bullock told a business event in Sydney that the Reserve Bank was particularly uneasy about the "looming oversupply of apartments in Brisbane in particular, and possibly in some parts of Melbourne".
[/url]
[url=http://www.smh.com.au/business/the-economy/reserve-bank-signals-tighter-standards-unless-banks-rein-in-lending-20170313-guxd74.html]read more

[Boon]

Perth and Darwin have been in “correction phase” – but “no crash”
 
Units in Brisbane are looking more vulnerable but some experts are talking about a 5% drop in prices in 2019………..
 
Units in Brisbane and possibly Melbourne would enter into a correction phase sooner or later but again a crash scenario is unlikely…………
 
If building and construction approvals have dropped off significantly without any rate hike being imposed by the RBA - it means “apartments oversupply” situation, if materialized, is likely going to be short-lived…………… underpinned by demands from new migrants…………… 
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Brisbane in for smaller hit in Aussie property smackdown
The Courier-Mail
March 15, 2017 2:56pm
http://www.couriermail.com.au/business/b...8eabbb7e56
 
“But units in Queensland’s capital “are more vulnerable”, he said. That could lead to a potential 5 per cent drop in 2019 for units, he predicted.”
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I’ve changed my mind on the property market
By David Taylor
https://au.finance.yahoo.com/news/ive-ch...38146.html
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Australian housing markets 'defy belief' but bank warns against knee-jerk policy reactions
MARCH 15 2017
By Eryk Bagshaw
http://www.smh.com.au/federal-politics/p...uyfqm.html
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[BlueKelah]

People tend to forget what happened before and often history repeats itself...

Just not so far from Brisbane and in 2013.
Australia’s Property Crash: Gold Coast Homes Selling at 50% Discount

[soros]

Foreigners are only allowed to invest in new build property in Australia for the rental income.

Foreigners are not allowed to invest in second hand ( used ) residential property.

I often see adverts in Hong Kong newspapers offering new Australian property with low interest loan , showing the buyer can pay a deposit and get a monthly income from the rental income. This gives the false impression of a strong rental market. The buyers in Hong Kong and China don't see the difficulty of oversupply in the rental market.

[cfa]

Some people have been hoping Aus property crash for years , will somewhat get it right one day ?

[Boon]

People tend to forget what happened before and often history repeats itself...

Just not so far from Brisbane and in 2013.
Australia’s Property Crash: Gold Coast Homes Selling at 50% Discount

Property crashes do happen in Australia…………..in Gold Coast and some mining towns………………..

Technical analysis (TA) assumes history repeat itself. Unfortunately, I am not a fan of TA............
 
In analyzing the supply-demand dynamics of the Australian property market, I would rather stick to the more reliable way of Fundamental Analysis (FA).

Properties are non-homogeneous
No two properties are exactly the same.
No two cities are exactly the same
No two property markets are exactly the same
The dynamics and drivers in each market could be vastly different at any given point in time. One just has to look at the market dynamics of each market closely.
 
What people often miss is that there is no one homogeneous Australian property market – Australian property markets are all very different.
 
A 50% price crash in Gold Coast did not look as bad as compared to the 75% price crash in Pilbara.
 
The supply-demand dynamics that had driven the Gold Coast market down by 50% was very different to that that had driven the Pilbara market down by 75%.
 
After many years of not building enough residential property (for various reasons), there has been over the last few years a big spurt in the supply of apartments hitting the Australian markets (especially in Brisbane, Melbourne, and Sydney) – which could potentially reverse the current “undersupply” situation into an “oversupply” situation – and subsequently lead to price correction down the track in those markets……………..
 
The magnitude of the “price correction” would largely determined by the magnitude of the “over-supply” in each market.
 
The stock overhang resulting from oversupply got to be massive in order to induce a price correction in excess of 20% in each market, IMO, which I don’t see happening - especially now that building and construction approvals have fallen off significantly over the last few quarters.
 
Demand for property has always been reasonably strong in Australia capital cities due to growing population + arrivals of new immigrants + investments from overseas.
 
The “over-supply” situation, if materialized, is likely going to be reversed back sooner into an “under-supply” situation again, if building and construction approvals numbers were to remain low for the foreseeable future………….
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Property values in parts of WA’s Pilbara fall 75 per cent after mining boom
[img=3x3]file://localhost/Users/Boon/Library/Caches/TemporaryItems/msoclip/0clip_image002.png[/img]
HAYLEY GODDARD, Real Estate Reporter, PerthNow
October 2, 2016
http://www.perthnow.com.au/news/western-...db0ec7c571

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[Boon]

Overvalued but no property crash on the horizon
By Phillip Baker
15th March 2017
http://www.afr.com/markets/equity-market...314-guy9kd

The bad news for would-be homeowners is that on a range of measures Australian property is still overpriced. The good news, at least for those that own a house, is there's not going to be a crash.

Well, there won't be if we can avoid falling into a recession and interest rates don't go through the roof, both of which are looking "unlikely", according to AMP Capital's chief economist Shane Oliver.

The only other way there could be a crash is if there is an "oversupply" of property and for that to happen the construction boom would have to carry on for years.

That, too, is unlikely to happen despite all the apartments being built right now.

"To see a general property crash – say a 20 per cent plus average price fall – we need to see one or more of the following: a recession – which looks unlikely; a surge in interest rates – but rate hikes are unlikely until 2018 and the RBA will take account of the greater sensitivity of households to higher rates; and property oversupply – this would require the current construction boom to continue for several years," says Oliver.

That sort of prediction is good news for the Australian economy as well as for property owners although perhaps not so good for those would-be buyers wanting a sell-off so they can snap up a bargain.

If there is a really sharp fall in property prices then household wealth would take a hit and a drop-off in consumer spending could also lead to an economic downturn.

Nobody wants that.

As Oliver also points out, the property obsession of the past few years means that housing is now almost a 60 per cent share of household wealth.

So much for diversification, the first mantra of any decent financial planner.

But when you build economic growth around housing as mortgage rates plummet – a key feature of the local economy since the global financial crisis – and house prices take off, there's always the risk that everyone gets too comfortable that prices will always rise.

When it gets to that stage, bad things are bound to happen. Call it Murphy's Law.

But there have been plenty of calls for a crash over the years and so far it hasn't happened.

It's been 13 years since The Economist magazine said Australia was "America's ugly sister" because of roaring property prices and the "borrowing binge" we were on, while the OECD has also flagged the chances of a property crash.

Oliver says it's not that simple.

"Firstly, we have not seen a generalised oversupply and at the current rate we won't go into oversupply until 2018 and in any case approvals suggest supply will peak this year," he says.

" Secondly, mortgage stress is relatively low and debt interest payments relative to income are around 2003-04 levels. 

Thirdly, lending standards have not deteriorated like they did in other countries prior to the GFC.

In recent years there has been a reduction in loans with high loan to valuation ratios and interest-only loans are down from their peak," he adds.

Oliver also points out that in Perth, house prices have fallen back to where they were in 2007 while of course they have gone crazy in Sydney and to a lesser extent Melbourne too.

That's not to say houses aren't overvalued. They are.

"On the basis of the ratio of house prices to rents adjusted for inflation relative to its long-term average, Australian houses are 39 per cent overvalued and units 13 per cent overvalued," says Oliver.

Compare house prices to incomes and rents and it also comes in at the high end of other OECD countries.

Then there's the 2017 Demographia Housing Affordability Survey.

It shows the median multiple of house prices in cities where more than 1 million people live, the household income is 6.6 times in Australia compared to 3.9 in the US and 4.5 in the UK.

"In Sydney it's 12.2 times and Melbourne is 9.5 times," says Oliver.

But maybe investors are working out for themselves that property is not the best place to invest after the recent spike in prices.

The latest Westpac-Melbourne Institute consumer sentiment survey shows that consumers haven't been this bearish on property since 1973.

When asked where is the best place to put any savings only 11.6 per cent said property, down from 14.3 per cent previously and the lowest reading in 44 years.

In contrast, paying down debt is seen as a wise thing to do. That reading was the highest in five years and almost the highest on record.
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