BIS Shrapnel: Vic property recovery 5 years off

By Leith van Onselen

In what will come as bitter news for Victoria’s stamp duty addicted government, the usually bullish BIS Shrapnel has predicted that a Victorian housing recovery could be five years away. From Property Observer:

Victoria will miss out on the recovery in the property markets of the other major states, according to BIS Shrapnel…

Victoria will be left behind, facing level growth for at least the next three years, says BIS Shrapnel, which forecasts vacancy rates will rise in the next year due to a big influx of residential developments currently in the pipeline coming online.

Zigomanis says Victoria could experience falls in capital growth for the next two to three years, and if housing picks up in the other states, as it is forecast to do, the RBA could raise interest rates again by 2015, which would nip Victoria’s possible recovery in the bud. In that case, a recovery in the Victorian housing market could be five years off.

The firm is equally bearish on the Victorian economy as a whole, saying unemployment could rise to over 6.5% in the next few years.

“I don’t think people realise how bad it’s going to be in Victoria,” says BIS Shrapnel chief economist Frank Gelber.

But at least Victorians be glad they are not living across the Bass Strait.

“Tasmania’s a basket case,” says Zigomanis.

Don’t say that I didn’t warn you…

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

Comments

  1. Just wondering what “level growth” is… Is it actually “no growth”? I can’t keep up with this spruiker-speak.

    • thomickersMEMBER

      level or zero growth is the lowest number that property bull knows of. The simply don’t know of any numbers below zero.

    • GunnamattaMEMBER

      Thats what I am wondering. I am in Victoria right now and I can certainly feel that things have slowed since I got back here from OS in March.

      What I find interesting is that BIS havent actually forecast a downturn in RE (just low growth) – which makes me wonder how much of an effort the state government is going to have to make to get that outcome (slow/no growth) and what other areas of state government outlay are going to bear the brunt of making that effort to soften the impact on the RE sector.

    • yes – i’m confused. Logically level growth means existing growth rates to continue. Which in Vic’s case means falling another 4% a year?
      Non level growth seems to imply exponential growth or volatlie growth?
      Basically BIS have no clue, but using the word “growth” is less likely to upset their punters and by leaving it vague enough they have all scenarios covered and can tell us in 5 years that they were right.

  2. Meh.

    BIS Shrapnel charge large sums of money turn out “reports” that say what the customer wants them to say.

    How is this any different?

    • I think the difference is that their customers normally want to hear that prices are going to increase forever.

      • No.

        Their customers are the large lobby groups, and if it suits them to say disaster is approaching, then that’s what BIS Shrapnel will say.

        Don’t confuse the people paying BIS Shrapnel with the intended audience for the message. The latter are various governments. (“Disaster’s coming, give us money.”) That’s how the game works.

      • Mmm I partially agree, but their intended audience is always government and the public. Either way they talk (ie if they talk up or down the market) it comes with a cost and a benefit. Saying housing will be bad may beat the drums for government assistance but it obviously reduces demand from investors and homeowners alike.

        The meaning of this article is that, for whatever reason, BIS Shrapnel now assesses that the net benefit from talking down the market is higher than the net benefit from talking it up. Why they have made that assessment I do not know. Perhaps they feel confidence couldn’t get any lower? lol

      • They tried talking it up, again and again and again and again. Didn’t work.

        Time for a new tactic.

  3. They probably said the same thing in Japan where people are still waiting for house prices to recover.

  4. First Tasmania, then VIC. The carriage with 25% of the population just went over the edge, I´m pretty sure that will have knock on consequences elsewhere so I wouldn´t hold my breath on the property recovery.

  5. Doesnt bother me in the slightest, if we are going to go through a sharp economic down turn we may as well have the housing buble burst so at least when its all said and done there will be affordable housing for all.

    • Well, for all who still have a job. Even if you don’t lose your job and are intending to buy a house, a downturn will also hit your interest on savings and whack your share portfolio. Having said that, I’m still hoping for a pretty sharp downward correction to VIC RE.

      • Its clear now that the down turn is coming, my savings accounts have already been hit by RBA’s “non emergency” rates. The downturn is going to hit my business likely quite hard, however there is no point lamenting what we cannot change, much better to look at the positive side of things. At least when its all said and done I will be able to afford a home, even if that means things may be difficult for me in the mean time. Its a small price to pay to have a few years of difficulty now rather than a lifetime of wage slavery.

      • If the government bails out the banks you will still have a lifetime of wage slavery. That’s the exorbitant privilege that the banks have.

  6. Perhaps Julia is right, those Mayans have a lot to answer for.

    BIS seem to be over correcting on this call. I think that Victoria will be in a correction mode for maybe 12 months and then flatten out for a couple of years, but 5 years seems unrealistic.

    • Translation: Victorian house prices will keep falling, and then won’t bounce back, and we don’t know how long for.

    • Peter, that is a fall in real terms of 20% to 25%. Not a good investment.

      Why do folk in the RE industry have an aversion to real prices?

      • Bakunin – you can talk in either term with me, I’m ok with both, but normally I would talk in nominal terms.

        If I didn’t do that and I spoke in real terms constantly, then I could say things like “the debt on my loan has fallen in real terms 20% over the last 4.5 years” but it would be rather silly, don’t you agree?

        When we talk in real terms, it usually puts a heavy bias on the side of leveraged property where real values generally rise and real debts fall, and we wouldn’t want to do that, would we?

      • I live in an inner city terrace house in Melbourne which was built and then sold for 200 pounds or $400 dollars in 1885.

        If my place doubled in value every 7 years since then, it should now be worth $52 million. I’m wealthy. I have made it.

      • Bakunin – I’m not in real estate. Nevertheless it was my understanding that the mantra was that houses increase in value by 7% per annum which based on exponential growth means that prices will roughly double every 10 years, not every seven years as you claim.

        So I think that the calculation of your wealth may be a little exaggerated, although for your sake I hope that it’s true.

        That means that your house has completed 12 decades which will mean it was valued at $1,638,400 in 2005. Whether it makes $2,785,280 in 2015 is anyones guess.

        Of course I don’t know your house or it’s current market value, but I suggest you keep your day job for a while longer.

        Of course if we convert that to real dollars (not nominal)it probably hasn’t increased much at all. It was a house in 1885 and it’s still a house in 2012. If it has increased in real value it will have only done so because of the change in the desireability of the location. What was on the city limits in 1885 is now inner city, so it is the land value that has changed, the structure is probably worth zip.

      • Good idea, the view is just awesome.

        As a bit of comic relief there was a group selling parcels of land on the moon, they might have been Russian – clearly a scam of course but a Google search will find them.

      • American, some crazy dude, there was a doco a while back on it, many Movies stars etc have bought land on the moon according to the show.

        Although landing on the moon is hard, some other stuff will happen first. On the grand scheme of things I think it will be not far off before it will become fashionable to have your own space robot, explorerbot or minebot to control.

      • Yes it’s crazy stuff. They must have no shame.
        On the other hand, what do you reckon about Venus – It’s much bigger and the mining rights will be worth a Kazillion dollars. We can start a website and start flogging lots off right now.
        There are all the space suits as well, there is money in that merchandise.

      • The best story I read on Venus, is one where the “real estate” was made up of floating diamond (carbon) balloons, people living inside in earths atmosphere. Most things were made of synthetic diamond.

        The pressure is too high to mine the surface, but the gas could in theory be used to make carbon cities.

      • Thanks blot, always nice to meet someone with a sense of humour.

        Diamonds on Venus are in a bubble.

      • ahahaha, bubble

        If they could remove the atmosphere the bubble(s) would pop.

        p.s. for mining, I would say Asteroids. Full of goodies.

        My theory, from a combination of sci-fi I read, is, Robots, loading giant rail guns. A second rail gun near earth is used to catch the packaged incoming asteroid pieces. Then processed and sent down an elevator or some such, maybe dropped somehow.

        To overcome momentum problems moving the gun the catcher could receive from multiple directions from the asteroid belt. It could also launch waste.

        I have not worked out how to stop the outer guns to stay put though.

        The asteroids do not have to be flung at high velocity, sort of a conveyor belt over tens or hundreds of years.

        I bet that is what Virgin Galactic is planning, anyway.

  7. BIS = no credibility. See previous predictions here in their “Residential Property Prospects” report for 2012-2015:

    “The Residential Property Prospects, 2012 to 2015 report from economic forecaster BIS Shrapnel says NSW and the resource-rich states of Queensland, Western Australia and the Northern Territory are already showing signs of recovery.

    However, the rest of the country – Victoria, South Australia, Tasmania and the Australian Capital Territory – will lag behind because of what the report says is an emerging excess of housing.

    Perth and Brisbane were forecast to record the highest growth in median house prices over the next three years at 22 per cent and 20 per cent respectively, with Sydney just behind at 17 per cent and Darwin at 15 per cent.

    This compared with a forecast nine per cent increase for Adelaide, five per cent for Hobart, three per cent for Melbourne, and just one per cent for Canberra.”

    http://discover.realestate.com.au/buying/news/housing-market-forecast-to-improve

    Did everyone get that? They reckon in the next 3 years that real estate will go as follows:

    – Perth +22%
    – Brisbane +20%
    – Sydney +17%
    – Darwin +15%
    – Adelaide +9%
    – Hobart +5%
    – Melbourne +3%
    – Canberra +1%

    Ha ha ha. Dreaming.

  8. Brisbane at 20% over 3 years is on the cards.

    Is it, Peter? Is it?

    (channelling Cam from Modern Families 😀 )

    • I always have a chuckle when I see predictions of property price rises based on the fact that ‘prices have eased; they’re back to levels that will attract eager buyers, and push on from there’. I recall a YouTube interview ( can’t find it!) of a lass in Ireland saying the same thing “I’ve just bought in, now that prices have fallen by 20%. How can I lose?”. Well, the answer became clear as Dublin prices continued down to ‘plateau’ at 65% down.Have they finished at that level? Who knows…but I’m sure there are some eager buyers noting ” Now that price have come off their 65% ‘bottom’ they’ll……” Good weekend, all….

    • Yes R2M – that’s only about 5% growth pa, and Brisbane is overdue for a growth spurt.

      Sorry mate, I just don’t buy the houses are gonna crash meme – it doesn’t wash no matter which way you look at it. We are going through a correction phase now, but in 5 years house prices will be higher in all capitals except perhaps for Hobart, but even there they shouldn’t be any lower.

      To put in a nutshell, I would expect to see many of the same commentors here now still here in 5 years time still waiting on a crash even though prices will have generally risen bewteen 10% and 20% in that time. It’s just the way it is, we have a percentage of people in the population destined to never buy.

      In life we can spend two currencies – we can spend money, or we can spend time, and I know which has the greater value. That’s something not obvious to many until it’s too late.

      • Well, Pete, I have several million dollars in assets and I didn’t get that by making lots of bad decisions. And my financial antennae tell me that now is not the right time to buy.

        And unlike you, my income does not depend on convincing people of my point of view ❗

      • As difficult as this will be for you to understand, my future financial well being doesn’t depend on me convincing anybody to do anything.

        It’s completely irrelevant to me what you or anyone else does. It’s your decision to make, it’s not mine.

        I tell people what I really think, not what they want to hear. I suppose that I could tell you what you want to hear, but I would be lying, and I don’t like that.

      • I think the answer is to be found in the small print PF. “So if America’s consumers are debt-constrained in their spending, Australian consumers are even more so—with negative implications for employment in the retail sector” sound familiar? Keen may have got the timing wrong but the effect on the economy of the logjam of debt is the point. It isn’t going away, and with any significant downturn in mining employment (everything else is looking [email protected]@@@@d ) it’s going to become more and more evident as a slowing force in the general economy. IMHO there’s no way in the foreseeable future that you’re going to be able to heap more on the pile through a miraculous resurgence in house prices.

      • Mod: Mav, R2M stop baiting and either have a decent conversation and try to understand someone elses point of view, or just be quiet and disagree.

      • I was commending Peter for his honesty.

        How long ya gonna wait?

        Good to know mods are happy with Peter’s blatant “buy now before it is too late” scare-mongering.

      • They don’t want to drive PF away. Vocal property bulls are becoming a rare breed; we need them for spicing up the comment section. 🙂

      • I don’t know R2M. It’s bizarre. The only possible derogatory word in my deleted comment was “spruiker”.

        To put in a nutshell, I would expect to see many of the same commentors here now still here in 5 years time still waiting on a crash even though prices will have generally risen bewteen 10% and 20% in that time. It’s just the way it is, we have a percentage of people in the population destined to never buy.

        If that is isn’t spruikilicious scare mongering, I don’t know what is. It seems calling a spade a spade is now banned on MB. I am outta here.

      • I had a post deleted too, merely for mentioning barbers and haircuts! But it’s their site, so they can delete whatever they like. ❓

      • Just to explain mav, the comparison was real house prices to cpi adjusted bank shares and a cpi adjusted ASX index. Since 2010 bank shares in particular have risen considerably. CBA shares are almost back to peak value, so if the graph was updated it would show a completely different picture.

        People need to update their views based on current information. Bank shares have come back both here and in the USA, house prices and demand in the USA have turned around, and even house prices in Ireland have stopped falling.

        The world does not stand still and wait for anyone.

      • Describing the possibility of a house price crash as merely a “meme” seems to be a fairly dismissive and blinkered attitude. and I am unfortunately forced to draw comparisons to a certain Iraqi propaganda spokesperson.

        Personally, if prices did rise 10-20% in the next 5 years I would still be able to purchase something outright at my current rate of savings which is roughly 50k pa. As for a percentage of people destined never to buy, the concern is that the range of the population appears to be extending beyond the chronic unemployed, low income brackets and gradually increasing. Anecdotally, I have a number of professional colleagues and peers in their late 20s/early 30s with substantial 6 figure savings feeling that they would be priced out. Paper calculations would sugget otherwise, but it’s the sentiment and vibe y’know.

      • Priced out where they want to live, won’t buy to live where they can afford to buy while they can rent to live now where they want to live now.

        It’s the usual requirement for instant maximum gratification at the likely expense of future well being (although what’s worked for say 80 of the last hundred years has no guarantee of future success).

        Deferring purchase of first or additional property has been a very good decision in a couple of our major cities over the past year or two, but not in some others based on ABS stats.

        Selling to rebuy has so far not been significantly profitable on average in most markets because of transaction costs. It may have been profitable in some suburbs/regions or developments.

  9. in bold letters on the front cover

    DON’T PANIC

    just about to see some people who forgot their towel’s
    if you know the reference

    the BS report … still waiting for the prediction of north of sydney from 2008 to be in the money …. needs another 40% to be anywhere near close (& thats not inflation adjusted) the seminar I went to they stated 10% to 14% a year for next 10 years!so far i would say we are +1% pa … what was inflation ?

  10. BIS Shrapnel finally conceding that there will be negative capital growth in Vic property is a sign that things are going to get really viscous.

    Definition of SHRAPNEL

    1: a projectile that consists of a case provided with a powder charge and a large number of usually lead balls and that is exploded in flight

    2: bomb, mine, or shell fragments

  11. I heard and ad on crapola radio today for some spruiking company saying that “Melbourne house price median will hit over 1 Million in a few years” that has too be the worst pile of spruiking poo I have ever heard and there was not one supporting evidence or attempt at a rider.

    Bow I am Australian and have been back here 10 tears but are Aussies really this dumb to believe that Sh**?

    I mean really … it is complete nonsense.

    I should complain to ACMA but they will shrug it off until the stack of cards falls down and blame it on the champagne after …

    TM.

  12. As a home owner I welcome the depression in house prices in VIC, I hope the government can use this reduction of costs in land as a boost to business. Low input costs to start of business , low rents and hence lower wages.