What’s News In Property This Week – Michael Matusik

Property news weekly wrap  – the Sydney market; our high household debt, foreign buyers, tourism & Queensland’s apparent multi-billion dollar property market. 

And from this week forward, a little snap on each wrap – my thoughts to boot.

What's News images - 28 April 2014

House price growth has slowed.  The SMH headline stated ‘Sydney’s great property boom appears to have ended.

Well, let’s for a minute ignore the fact that much of this growth has largely been confined to Sydney & Melbourne.  There has been little movement in recent times – even falls – in other major urban areas.  But that’s okay, as Sydney & Melbourne – to most media outlets that report on such matters – IS Australia.

More importantly, what does it say about residential property when during generational low interest rates, major pump-priming from banks, the SMSF splurge & unprecedented buyer interest from abroad, that price growth has already tanked?

Fully priced?  Unsustainable?  Or is this just statistical noise?

A shift in price strata, from upper markets to lower priced ones?  Great property boom – well you have a get a laugh out of that!

According to the RBA, the ratio of debt to disposable household income is close 150 per cent.

One of the reasons for the slowdown in price growth in both Sydney & Melbourne must surely be high household debt.  Rising interest rates must also have a negative impact on prices & their future movement.

More on this in Wednesday’s Matusik Missive.

Low CPI means no cash rate increase for some time to come.  Some are even suggesting a rate cut.

Rates now look like they are on hold for some time.  Given my first two commentaries above, many reading this will hope that is the case.  But if the Australian dollar remains high & business confidence (i.e. employment growth) remains low; then the RBA might return to an easing bias.  [sam id=43 codes=’true’]

For mine, the RBA has been too easily spooked about the extremely narrow based (i.e. just Sydney & Melbourne) rise in house prices.

One might also want to ponder why inflation remains so low.

Why aren’t quantitative easing & record low interest rates driving up inflation?  In theory, this should be happening. Inflation makes a lot of the world’s debt problems go away.

But nothing is happening.

I think we are going to see deflation as the world economy slows, due to high levels of debt & due to ageing demographics.

Inflation isn’t likely to be the problem; deflation, for mine, will be over the next decade or so.  Investors need to think more about rent not appreciation.

Apparently the value of Qld’s residential property market is $800 billion.  It was $737 billion this time last year.

Well, more absolutely useless stuff from one of the “publish at all costs” property data houses.  The media headline strongly suggested that this means that Queensland property values jumped by over $50 billion or about 7% over the last 12 months.

How were these figures worked out & what do they really mean?  I don’t know, but the difference between the two doesn’t automatically mean there has been price growth, that’s for sure.

NAB says that one in four new property sales in Qld is going now to foreign buyers & that around 15% of new residential property demand across the country is coming from overseas.

Also they forecast price growth of 6.4% for Brisbane in the next 12 months.

I do like the decimal point when it comes to these price forecasts.  Not a mention about how it was worked out or their past track record on such matters.

Also, isn’t this overseas buying now getting out of hand – seriously we are selling off the farm & pricing our first home buyers out of the market.  This has real consequences, both social & economic.

For mine – if this trend continues (or worse, accelerates) – after this recovery phase (peaking in early 2016 according to our work), things look increasingly dire for Australian real estate. Local property investors need to be extremely careful about what they buy.

I find myself increasingly asking why an overseas resident, especially the Chinese, would want to buy a dwelling in Australia.  Why don’t they invest in their own country?

Maybe it is because China’s economy is weaker than we are told; in fact it must be.  They have a 25% vacancy rate; yet keep building; they report high yet declining GDP growth figures, yet their stock market – a true measure of profits & an economy – is woeful, in terms of gains.

Why does the Chinese government let this money escape?  Is China’s economy about to implode – is this wave of money like rats leaving a sinking ship?  Why now?

Why didn’t this money come to Australia a few years ago when China’s economy was stronger & Australian real estate was in a downturn?  I am curious, that’s all.

Many overseas buyers of Australian property – as is supported by those with whom I speak at the coalface; & has been my direct experience too of late – and despite being told the opposite at point of sale – believe that ownership gives them the right to occupy.

Now let’s assume that they know that they cannot live in their property purchase, then they must be expecting capital growth – and if it doesn’t come (and in some cases I see losses on resale/settlement, not gains) then why settle?

Their 10% deposit to buy off-plan in Australia is nothing compared to full upfront payment that the Chinese have to pay when buying off-plan at home.  Maybe many are just currency hedging?

It doesn’t add up.  It reminds me of the Japanese boom when I first started working in this business in the mid-to-late 1980s.  Everything was Japan.  I cannot help but think that history may repeat.

The number of Chinese travelling to Australia rose to 748k last year – 16% on the year before. Now the Chinese are the 2nd largest overseas visitor group after New Zealand (1.2million).

Chinese money is now behind a raft of integrated casino & hotel developments. Several media outlets over the Easter break labelled these stories with “our next boom” or “tourism boom to replace mining surge”.

Yes, there will be short-term local economic benefits of more tourist-based construction & longer-term locally sourced employment too.  So Cairns, for example, should benefit.

But unless we pick up – dramatically if you ask me – our level of service, from arrival to departure, then this ‘tourism boom’ as the media like to label it, will deflate before it has a chance to even rise.

The last time I was in Cairns the service was memorable – for all the wrong reasons – the facilities & even attractions were tired, to say the least.

Unlike previous booms – which Australia continues to lunge from, one to the next – wool; gold; wheat; mining – tourism is footloose; is very fickle & almost every other country is a competitor.

Much more work is needed than just letting the Chinese build something; or thinking that some pretty crappy American TV – for example, Modern Family’s Australian episode aired last night – will somehow magically boost tourist numbers.

We keep broadcasting the same outdated cultural cringe.

Increasingly, overseas tourists to Australia are middle-aged.  They want much more than seeing a few Aussie landmarks & petting a koala.

I really wonder if we are up for the challenge.

You see, tourists don’t work on a Monday to Friday, nine to five schedule.  They expect things to be open when it suits them.

Facilities need to be open 24/7, without penalty rates or holiday surcharges.  Tourist workers will need to be subservient.  They will have to smile.  Cross the ditch to see how it should be done.

[post_ender]



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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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