Australian Property Update - 17 May 2011
This week we take a look at some of the latest news in Australia's Property Market\
- What do Auction Clearance rates mean?
- Sydney and Melbourne still flat.
- Good week for Aussie mining.
- A great week for SA mining!
- More suburbs crack the million buck club!?!
There has been much comment in the property press over recent weeks regarding auction clearance rates. These stats offer a guide to the appetite of a market, and as a rule of thumb, 65-70% clearance rates are seen as neutral, with a lesser rate indicating a buyers’ market (not enough punters wanting to pay the asking price) and a higher rate demonstrating a sellers’ market (buyers getting competitive and paying up).
Recent figures on clearance rates in Sydney and Melbourne present an interesting puzzler. In general terms, there is more stock on market but less property is being transacted on. How can this be in a country that is undersupplied with housing yet boasts maybe the strongest economy in the developed world and a very healthy employment market? All this points to an ongoing lack of consumer confidence.
Using RP Data’s figures published in SMH on 9th May for the Melbourne market, listings have risen but clearances are down. Apparently there were 53,300 properties up for sale in Victoria in April, up 41% from 12 months ago and with current listings up 57%. At the same time, the clearance rate has fallen to 56 %, not necessarily good news for the vendors of 2300 properties due to go to auction in Melbourne over the remainder of May. The trends for Sydney have indicated the same themes – more on market, less being picked up.
More properties listed but less being sold – what’s it mean? There are obviously enough owners happy to part with their property at the right price but buyers are looking for an upward trend in pricing, or at least evidence that we’ve seen the bottom of the market. As we discuss in the next article, there are good reasons for believing that we have seen the bottom, but as we know, the actual market usually lags the facts, so it will likely be next year before we see a surge of capital growth.
National Property Update - Sydney and Melbourne prices flat over the year
Figures reported in the recently released ABS Housing Price Index point to recent falls in property values across the country. Melbourne and Sydney slipped last quarter (2.5% and 1.8% respectively) to more or less negate small gains achieved over the previous 3 quarters and the assessment of Michael …. From Herron Todd White is “in short, national house prices have recorded no meaningful change” over the past year.
According to Australian Property Monitors’ Senior Economist Andrew Wilson report’s, Sydney slipped 0.4% over the March quarter whilst Melbourne was steady. This highlights the constant discrepancy in reported statistics but at least in this case both sets of figures indicate similar themes are at work. APM believes we are returning to a more consistent market driven by the fundamentals of supply and demand. Predictions that GDP will grow 4% over the 2010-11 financial year and that unemployment will continue to shrink (4.75% is predicted – which is regarded as more or less full employment) are seen as positive for housing markets. APM quotes higher wages, high rental yields (Sydney average is reported as 5.4%) and a return of first home buyers to the market as underpinning property prices.
The Australian Financial Review reported on the national property market on 16th May with 3 key points;
- According to research, the office market has strong fundamentals with capital values and rents stabilising,
- and debt and equity funding becoming more available.
- Retail property will face some challenges throughout 2011-12, with the prospect of higher interest rates, reduced consumer spending and the shifting consumer buying patterns to online retailing.
- For the housing market, the prospect of higher interest rates will cause further deterioration in affordability in 2011-12, however the risk of significant drops in house prices is slim.
So what does it all mean?
Using Sydney as an example, with SQM research citing the city’s residential property rental yields growing at a compound rate of 8.5% per annum (again, these should probably be taken with a grain of salt) there looks to be an obvious “floor” to the housing market, meaning further falls in price are becoming less likely and will be limited where they do occur. Essentially, strong rental yields underpin prices.
With a “softer” residential market in general but a strong national economic outlook, prices are likely to bounce around until clear buying demand emerges but unlikely to drop much across the board. Buying demand is strongly tied to consumer confidence and if the economy performs strongly as expected, capital growth may well return in 2012.
More Million Buck Suburbs
The May 2011 edition of Smart Investor magazine ran an article on top end residential property entitled “Million Dollar Babies”. NextHotSpot’s concerns about the obvious volatility of top end residential pricing have been repeatedly expressed in our reports and these numbers only serve to underline the potential problem. In a flat market (see next article) it is the bottom end that responds to demand, particularly where housing is undersupplied, as is the current case in the Australian market. If discretionary spending is creeping up at the top end, let them have it at their peril!
Most of these rises are due to natural inflationary growth and some probably due to questionable measurement of the statistics. In 2009 there were 157 suburbs with median pricing of $1 million or more (up from 78 in 2005). That number has risen to 212 suburbs, with 119 in NSW, 42 in Victoria and 26 in WA. RP Data “does not expect another 35% increase in $1 million suburbs this year” – thanks for your help guys! The inference is that this is a buyer’s year.
As a sideline comment on a recurring theme in property analysis (the ongoing unreliability of statistics), does anyone believe the following data?
According to APM the top-10 suburbs for median house price growth in Sydney in the past year to April are Kensington (30.9 %), Westmead (30.7 %), North Sydney (28.9%), Lewisham (26.1%), Neutral Bay (25.2%), Tempe (24.6%), Dundas (24.2%), Abbotsbury (24.2%), Rosebery (24%) and Coogee (23.4%).
Could anyone possiblly believe that North Sydney rose 29% last year? NextHotSpot’s observation, having attended several auctions for North Sydney property this year, is that the market is basically flat. APM also called the Sydney market as a whole up 0.8% for the same 12 months. It’s enough to make the average punter question why they bother – surely they can’t believe this stuff themselves?
SA mining Industry has another good week
According to Access Economics, the future of the SA economy depends on BHP’s expansion of its Olympic Dam project coming to fruition. Several announcements were made last week, and in summary, both the SA government and BHP are keen for the project to succeed and expectations of a final commitment from the world’s biggest miner are expected early next year.
In another positive step, the state government has called for Spencer Gulf Port Links to prepare an Environmental Impact Statement on Port Bonython between Whyalla and Port Augusta. The location of a Spencer Gulf Port has been a political football for some time now but the government’s attitude would appear to make the development of Port Bonython highly likely. SA Infrastructure Minister Patrick Conlon has stated the project’s importance to regional infrastructure, with the potential to create 400 jobs and be functional within 3 years. “Port Bonython will be incredibly important. There are a number of iron ore mines around there and, in the long term, we will see a second deep-sea port around there because of the size of the resource” said Minister Conlon.
SA looks likely to join WA and Qld in the powerhouse resource states club. NSW at least has coal development in the Hunter and the potentially much bigger Gunnedah Basin. Victoria’s supply areas like the Latrobe Valley have some development prospects which has seen the area tipped recently by some property pundits but we’d like to see a bit more activity before we recommend it. Tasmania, as usual, brings nothing to the table.
Good news for mining towns
On May 12th Craig Emerson and Anand Sharma, Trade Ministers for Australia and India respectively, committed to doubling bilateral trade within 5 years.
THIS arrangement will benefit Australia more than India as the balance of trade, currently worth around $20 billion a year, is strongly tilted in Australia’s favour. India is currently the fourth largest consumer of Australian goods, and is notable for its strong appetite for gold, copper and coal. Despite some well publicised incidents over recent years, Australia remains a favoured destination for Indian students, who are worth around $3 billion a year to the Australian economy. India has expressed an interest in Australian uranium and this trade may well open up in the future despite currently being hamstrung by India’s failure to sign the Nuclear Non-Proliferation Treaty.
It is India’s need for resources that is the key, though. The massive expansion of Australia’s resources industry is geared toward demand from growing economies in Asia, predominantly China and India. India is certainly not without its problems but with a long term growth rate of around 8%, even a significant slow down leaves room for Australian resources industries to expand. This announcement is another positive step for the resources boom.
From a property point of view, the areas that will benefit are those involved with supplying resources to India. Nothing much has changed here – areas like the Pilbara, Gladstone and potentially those servicing Olympic Dam and Newcastle all stand to benefit. State capitals Perth, Brisbane and Adelaide are almost certain winners, with traditional leaders of industry Sydney and Melbourne largely missing out.
In the Press
Some of the articles that caught our eye this week include;
- HIA: Budget worsens housing affordability – SMH 17.5.11
- BHP’s Kloppers voices fears over China and India – The Australian 12.5.11
- Inundated mines drain economy – Daily Mercury 12.5.11
- Wealthy homes the biggest energy users – SMH 16.5.11
- Housing doom and gloom just a prediction – Herald Sun – 2.5.11
- Victorian Housing remains dynamic – SMH 2.5.11
- Prices are falling – some suburbs still hot – SMH 7.5.11
- ABS: Perth property worst in country – SMH 2.5.11
- Home prices to avoid a ‘wholesale’ drop: ANZ – SMH 12.5.11
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Missed out on last report? Click below to view the May 10th edition of