Investors stampede NSW dwelling construction

What does $5000 buy you? A lot of housing investors.

Yesterday’s housing finance figures were subdued across the board, with first home owners going nowhere except in WA:

Upgraders looking a little better if still muted:

Yet investors went bananas, but only in one place:

This is pretty odd. When we dig into it further, we find the spike was all in construction for rent or resale (blue line), the other categories fell:

Zooming in, this was the third highest month in history for investor-funded dwelling construction for the entire nation let alone driven so decisively within one state:

h/t to The Red Economist who has pointed out to me that the new NSW New Home Grant Scheme provides a $5000 freebie to investors (which is different to the new $15,000 First Home Owner Grant for owner-occupier new homes). The investor scheme has been available since July 1 but seems suddenly to be having an effect.

God knows, $5k can’t fix the paltry metrics of housing investment, and capital growth is lousy in far flung estates but go for it they are and bring it on.

Stand by for a national roll-out of the NSW scheme (except glutted VIC!). There is hope that this could help fill the mining hole where monetary policy is failing.

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Comments

  1. TheRedEconomistMEMBER

    Surely the the spike is due to the O’Farrell government offering $15k to investor or FHB’s to buy or build brand new.

    If this is the case, then, supply is increasing which will have a dampening effect on prices and rents.

  2. Investors are not buying to flip, there is no money in that, but the tight supply in Sydney will give them a ROI that is comparable with bank interest, and it’s secure. It also has long term capital gains for the patient.

    New homes also come with depreciation advantages, although they are given back when sold at a profit.

    I hope this is a sign that investors are now becoming more professional than they have been in the past.

    • “… it’s secure. It also has long term capital gains for the patient” That’s what the Japanese thought in 1989! Secure? maybe, unless a tsunami, or earthquake in NZ’d case, takes it out; and ‘capital gain for the patient’? Well I suppose after 20+ years they’ve learned to be patient,as well as “being a patient, the result of a property market collapse” – as will we!

      • OK Janet, I’ll put a caveat in for earthquakes, tsunamis, sink holes, & nuclear disasters.

        The other 99.9999999% of homes should be just fine.

      • …and bushfire and floods for Queensland, I guess! Oh, and unemployment as jobs move….lots of ‘disasters’ can occur to a secure investment, Peter. ( just ask the NZ’der who bought a Leaky Home inadvertently, and have had their secure investment reduced to …$zero..in many cases and 50% at best in thousands of others… Unforeseen things, Peter, unforeseen things….)

      • In that case janet you should never buy a house, a car, or even a bed because statistics show that most people die in bed.

        I take the attitide that I’m going to do what I want to do and if something happens that i couldn’t foresee then it’s on my head.

        I also insure against fire and floods just to be cautious. Don’t you?

      • Christchurch property owners who had insurance are still waiting for settlement from the 2010 disaster, in many cases, Peter. Insurance doesn’t solve or mitigate a problem, as you know, it just shares the risk, somewhat. But as for a car? a bed? They are at economically usable values to me at the moment. A house isn’t. Besides, if either of those two pack up, I can buy another one. But if I, or anyone else, gets property wrong, it can change life – for good. In many of our peoples’ cases, that is what is going to happen to them.

      • Oh really Janet, do you think that I would buy in Christchurch, or anywhere in NZ for that matter.

        Just occasionally buyers do their homework on the building and the area. If a completely unexpected disaster is your fear then you will never buy or even rent a house.

        I consider your fear to be irrational.

      • Ah….so you’d be on the Brisbane River, then?! Perhaps you have the advantage of your business to draw on, as to where and what you buy. But most aren’t as lucky as you in that regard. What and where they buy is often a matter of luck and optimism. But, what happens to their prices, could affect yours, wherever they are. If prices generally fall, say, 50% it’s unlikely that many pockets of good, astute purchases will be immune. (NB: Didn’t you chaps have a problem of ‘what a foood’ was over there, and was it actually an Act of God etc, that nullified insurance? I may be mistaken)

      • Nope not on the river but I did get flooded in 2011 – yes act of God. I’m not a believer in the Divine, but nevertheless he seems to act everyday, and I am OK with that. It’s his job to create disasters, and it’s my job to recover from them.

        So far we are both doing quite well at our respective tasks. I do admire his work at times, he is very efficient.

      • Cyclones are a growing risk factor in FNQ.

        Post Larry and Yasi, significant increases Cyclone insurance are having severe effects on property values and sales in some areas.

    • … and it’s secure. It also has long term capital gains for the patient.

      Past Performance Is Not A Guarantee Of Future Returns. Investing 101.

      • au contrare, past performance over 150 years is a very good indicator of how things will perform in the future.

        Move with the times R2M – the heralded crash hasn’t eventuated in 5 years, and it probably never will. The world is recovering from the GFC – I know that doesn’t suit your hip pocket, but it’s what is occuring.

      • Then the real debt that the homeowner borrowed was obliviated during the process.

        Lets compare apples with apples.

      • Of course that included almost a decade of government fixed prices, on top of a decade of depression. Prices doubled around 1950 when price fixing was discontinued as I recall. A quick look at Stapletons graph will clear that up for you.

      • Around 85 years I believe, but someone may have better information. If you have a look at the Herengracht index there was a period of 70 years of gains – given our ability to start wars and deploy nuclear weapons anything can and will happen, but if the laternative is to crawl into a cave clutching a fistful of dollars that I want to protect, then that’s just not for me – others can if they choose.

        If your lifespan thought also covers the issue of people getting towards retirement age and still homeless, then those people are spending non-replenishable capital, not money which can be replenished.

        There are a lot of people approaching 50 who still think they are young and they have time on their side – they are wrong, and that’s an important issue.

      • “The world is recovering from the GFC”

        That’s a stretch Peter. We could probably cherry pick data points which show things getting worse (US food stamp use increasing) or better (US unemployment rate falling), but most green shoots are largely being driven by central banks expanding their balance sheets, keeping the debt bubble alive. As far as I’m concerned we are not in real recovery from the GFC until the debt burden is reduced across the globe to manageable levels, most likely via high levels of inflation, debt cancellation or collapse.

        But I do agree with you on one thing, I think the crash that a few bears have been expecting for Australian property (e.g. 40-50% off prices in a few years) is probably never going to happen. But property will still be a poor investment choice for the foreseeable future.

      • Nice to read a considered reply. In have no arguments with that, but I add – it depends on your expectation for a return. In Brisbane I can buy property that will give me the equivalent of what I would expect from a bank over the next 5 years, and I would expect some capital gain on top of that. Not a spectacular return, but in any portfolio there should be some non-spectacular reliable investments that can’t be reduced to zero in a crash, and housing will do that for me.

        Another buyer who is a PPOR has a different expectation altogether, and he/she may be looking for a lifestyle return, as I do with my own home.

      • If one accepts that some sort of continued de-leveraging/debt repayment/forgiveness is on the cards, then surely it’s not inconceivable that just one of the doublings in property prices that occurred in the 70’s, the 80’s, the 90’s and the 00’s might happen – a, perhaps, solitary cancellation of one of the ‘doubling’ – a 50% drop in prices? Well, that’s my expectation, anyway!

      • There will be no mass debt forgiveness for ordinary people Janet – perhaps there will be for Greece etc.

        The CB’s have a different method called QE to ease debts, not forgive them.

      • QE actually just increases the debt for all of us. That’s fine in an economic environment where price inflation can erode the real price of debt ( as it did in decades gone by); but today? The West is debt soaked, at all levels – that’s why we are having this conversation. There’s marginal scope for increased personal debt (where consumption – property buying emanates from), that’s why QE is taking it on for us! (Generous, eh). Demographic, social and cultural changes are in play, Peter. Property is a play of the past for The West. A Jubilee? I doubt it also. But in effect it’s happening right now, with the Fed Mortgage purchases – that are then quietly extinguished. So we shall have to see if it becomes generally available ( Everyone gets a hand-out; the indebted to compulsorarily repay debt, the debt free to get the loot!)

      • Exactly how does it increase the collective debt Janet?
        An increase in our own personal, borrowings would increase our debt, an increase in the public debt would increase our pro-rata debt obligation, but lower interest rates decrease our debt burden, both public and private.

        In an enviroment of low interest rates, it’s borrowers who will be the winners if they allocate their resources efficiently. I understand that about 50% of borrowers are 1.5 years ahead in their repayments, and I expect that to improve further.

        Who do you think the settings favour?

  3. TheRedEconomistMEMBER

    “Investors are not buying to flip, there is no money in that”

    I know of some people buying land in Sydney northwest for under $400K. Spending $200k on the house then selling the completed package for $650K+

    Do this a couple of time a year and that is another salary

    Sure there is execution risk with builders and some finance costs, but it seems the benefits outweigh the costs. At the moment.

    • And herein lies the crux of the problem. It used to be, looking back over Peter’s historical time frame, that the land cost $200k, and the house $400k – not today’s vica versa! Land costing more than the dwelling is the real problem….

    • Sorry but after costs there is no profit on that play.

      True investors would rather buy and hold in this market.

      • TheRedEconomistMEMBER

        A few Mum and Dad investors are doing it.

        I think it is crazy also. But these days people will pay a premium not to have to deal with Builders etc.

        They want to just be given the key… Then tall there time is allocated to work 3 jobs just to keep up with interest payments.

        No time do landscape the garden or paint the house.

      • Frankly given the standard of workmanship on new builds, I’d pay them not to do the painting and landscaping.

      • In Sydney we looked at some brand new units in the Waterloo/Redfern area and the workmanship was appalling. So cheaply done – looked like they would fall apart in 5 years. Is this just a Sydney thing or is it everywhere?

      • TheRedEconomistMEMBER

        Plenty of Developments in the Northwest are a disgrace.

        All done on the cheap and a lot of them seemingly empty.

        Usually the initial work is done by non-English speaking tradies and then the local are brought in to fix the defects.

        Those that are about 5-10 years old are looking very run down.

        I went to an auction for a one these “live the dream paradises.”

        A tri level town house in a complex of 8, failed to meet the reserve.

        With qrtyly strata fees of $540 the inside looked ok but exterior paintwork was peeling and rendering was cracking noticably between townhouses. Possible Structural issues.

        The highest was bid was apparently at auction was $548K

        After being passed in, the place went to private treaty at offers over $550K. (I do not know why the vendor did not accept the $548K bid… if it was legit)

        With seemingly no offers over $550K a fresh sticker is now on the massive sign out front to be Leased.

        Yes that is right….The “For Lease” sticker is over the “For Sale” sticker which is over the “Auction” sticker.

        The lease is only for 6 month at $520 per week.

        Seems like the vendor has decided to move on and will sell the place under your feet if you accept the 6 month lease.

      • Indeed. The unit I bought in Brisbane ~10 years ago (built by Pradella) had numerous workmanship problems, many of which were not addressed in the post-build period.

        I can’t imagine anything built since then is any better.

        Personally I wouldn’t buy an apartment with someone else’s money, after that experience.

    • HI RedE, saw some blocks for sale a few weeks ago in the Hills Times or Hills News.(NW Sydney) They were located around the Bella Vista area, size was about 700sq but average prices were 700k and over half had SOLD on them.
      Still waiting on the train lines too!!
      Regarding the workmanship on most project homes, it is now the same quality and standard of an African bushman’s hut only with a big water tank.
      Really all we are doing is building structures to warehouse all the crap coming in from China and calling it a home.

  4. It’s a shame this doesn’t include SA which has gone crazy with FHBG.. 8.5K for anyone and up to 23.5k for FHBs.. unfortunately land is hideously expensive, under sized and just not available near enough to the city.

  5. Just looking around Queensland recently,there seems to be whole estates of homes that have dated really badly. In fact I would say that they have little to offer the next buyer when they can buy the ” alfresco” look that seems all the rage these days, in a new build. I suspect that there literally hundreds of thousands of stale properties that fail to compete for first home buyer tastes all around the country.
    A patient investor might just see their new build become yesterday’s theme pretty quickly.
    There has to be better investments for the patient investor has anyone been watching high yield stocks lately up by 20% over the year.

  6. GunnamattaMEMBER

    From what I am seeing in Geelong, where they dont sell people are simply hanging on – there seems to be no sense of prices coming down, but none of them rising either.

    I had a chat with a RE agent I know on the weekend. His view was that stock on the market was still drifting higher, but there was more a sense of preparedness to wait than an urgency to sell across all prices.

  7. FHB and special investor grants seem only to have a short term impact on the market now.NRAs are still kicking around and they cannot flog them off. $100k anyone…anyone out there?

  8. It’s amazing what ‘free money’ will do to the ‘investors’ out there.

    Anyhow, here’s some anecdotal info for Queensland:

    – Mate is renting a place in inner-north Brisbane (The Grange) and the guy is trying to sell it for around 800K+ (standard 3 bedroom on a 700-800m2 block (?) backing onto a park. 2 open houses and only 1 old fella turned up who looked around for a couple of minutes. The open house was as a result of a previous willing buyer under a private sale arrangement being unable to offload his property in Hawthorne to complete the transaction;
    – numerous rentals have popped up in his one street alone over the last few months. The old “I’ll rent it out till the market recovers” chestnut seems to be in full force
    – his colleague has a place at Bulimba she couldn’t offload (expensive, inner city apartment – 2 bedroom?). But she is also struggling to find a tenant to fill the place
    – another mate in inner city apartments (Kangaroo point) was able to get a rental discount of some 200+ dollars on a 2 bedroom apartment overlooking the river (from around high 700s down to high 500s) due to significant rental vacancies

    Yes anecdotal. But this doesn’t exactly scream ‘pent up demand’ OR ‘rental shortage’ – at least in the inner city areas for units AND houses in Brisbane.

    Despite this, workmates, friends and family still rejoice every time some bonehead buys into this over-inflated land bubble and props up the Aussie dream.

    You know why it’s a dream right? Because the happiness of owning is illusory and it’s simply out of reach for the median income earner in today’s society.