Lots of ups & some downs in What’s News this week. Inner city apartment numbers up; tenants down; land values up; Qld housing & tourism set to be up; & Oz economic outlook really up.
Jobs up. China down, and going down; but be happy, there’s been a 30% boost in home loan approvals over the past year.
- A slowing China – is the biggest international threat to US economic growth – more than the Ukraine situation & potential tensions between US & Russia – says a majority of economists polled by the Wall Street Journal. China’s slowdown is already underway with a reported weakness in Jan/Feb industrial production & retail sales. The Russia periphery is important, just not as urgent, as China’s economic health. Expect some wide-fluctuations in reporting on China’s economy in coming months. What to believe? Who knows?
- Australians are turning to apartment living – more than ever before; and most markedly in Sydney, where last year, 57% of all dwelling approvals were for apartments; up from 50% 10 years ago. There are 4,500 apartments either under construction or proposed in the Sydney CBD – currently 400 of those are actually under construction; with peak completions anticipated in 2017.
- Too many units, too few tenants – would-be landlords are being warned to avoid the nation’s growing number of postcodes where supply massively outstrips demand; & rents are falling. Inner Perth vacancy rates are about 6%, twice what a comfortable market should be, says SQM’s Louis Christopher – same for Brisbane and marginally better for Melbourne.
- Apartment glut – new inner city apartments are flooding into our capitals at up to three times the markets’ ability to occupy them. 41,400 high rise apartments were approved last year; up 30% on 2012. In some cities, the glut is already driving down rents. Red alerts have been issued for Brisbane; also for Perth, Melbourne & Canberra.
Regarding the above three items, firstly go here as to why this is happening; secondly this whole conversation is way too one dimensional for mine. Structurally there is a strong & growing movement towards more compact living, especially in our major urban locations. This will continue. Yet too much of this demand is being forced (yes forced) into mid-to-high-rise apartments. [sam id=41 codes=’true’]
As a result, the already lumpy apartment cycle is being exaggerated, creating short-term oversupplies & in due course, undersupplies. For the next period of time (say, two years) apartment supply will, in many inner city locations, exceed demand. In due course, this oversupply will be absorbed.
Another thing missing is this conversation is the projects themselves & the product being delivered. Like most commodities the delivery can be simply divided into two types – quality & quantity. Sadly, there is way too much quantity & too little quality emerging in Australia’s mid-to-high-rise apartment markets. This trend, true, applies to all new property delivery but it has become quite lopsided in recent years in apartments.
Investing in compact housing – again for mine – is quite wise (we have seen a structural shift in demand across the country) but also, given the current planning & market mindset, this rising demand will lead to an even more rambunctious apartment cycle.
Investors need to understand this & be prepared to hold apartments during market troughs. Remember, investing in property is really simple – it’s all about product + price + demand + supply + time + tax + leverage.
Now for a quick ad – go here to get your copy of our Brisbane Market Outlook report. Yes, it costs $50. But you get 22 pages of solid reporting & recommendations.
- Good news – 80,500 full time jobs were created in Australia…yes, here in our own backyard – in February. But ongoing reports of job losses appear to be getting to consumers which, according to Westpac economist Matt Hassan, would explain why there was a drop in the Westpac consumer sentiment reading this week. Hmmm, I think that the ABS’s labour force statistics are increasingly detached from reality. Jobs are being created – too few full-time & relatively speaking, a lot more now are being created in Queensland than in years gone past. But unemployment & underemployment is much higher than the ABS reports. It must be, I keep on running into business colleagues on the golf course or in high streets midweek, & most of us aren’t in a rush to go anywhere. Well that was definitely true last year.
- Be happy – the Australian economic outlook has lifted significantly in the past 12 months, driven by a surge in the housing sector & renewed business & household confidence – all in spite of growing concerns about China and domestic job losses…so says Brian Hartzer, head of Westpac’s Financial Services division. Well, at least Westpac’s economic department is in a happy mood. I wonder what has been added to their water coolers.
- China growth downgraded – economists have moved to downgrade growth forecasts for China after weak industrial production & the absence of government short-term stimulus to bolster the economy. First quarter 2014 activity has been weaker than anticipated. Ditto re: my comments above.
- Go tourism & housing – activity in the tourism & housing sectors should accelerate as Queensland’s economy continues a slow recovery. Deloitte Access Economics says a steady population growth & an influx of international holiday makers will help to offset spending cutbacks in the resource industry. The dollar drifting down is good news.
- NRAS has failed according to Harry Triguboff, with lower-paid Aussies unable to afford new apartments developed under the plan. Even at $200 a week less, inner Sydney rents are now too high, says the owner of 1,800 rental apartments. Triguboff builds more than 2,000 apartments a year in Sydney & Queensland, but does not participate in the NRAS scheme. NRAS works only in specific locations & in particular projects. In too many cases, sadly, it – like most government-based schemes – has been misused & has been used, too often, to window dress average projects. Harry isn’t wrong.
- Great news for some – land values for inner-city suburbs have surged across Queensland while resource-rich towns are starting to level out. Toowoomba, Cairns & inner-city Brisbane have seen values jump by as much as 24%. In Brisbane, land values went up in 88 suburbs, with Red Hill, Paddington, Bulimba & Ascot all increasing by more than 10%. Go here for what we think about Queensland’s land valuations.
- SMH readers are not deterred by the disappearance of Flight MH370 – 72% said their likelihood to fly is unchanged; 16% will fly, but not with Malaysian Airlines; 9% with any carrier; & 3% are not sure.
- SMH readers were also asked if they have ever made an overseas investment – 77% have not; 13% have purchased shares; 4% have made multiple investment types; 4% have invested in property; 4% in multiple investment types; and 1% don’t know. Seriously?
WHAT’S NEWS: Our wrap of current property headlines.