Sydney property investor bubble hits record

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By Leith van Onselen

Today’s Lending Finance release by the ABS provided a break-down of investor mortgage demand at the state and territory level, which revealed yet another increase in the share of New South Wales (read Sydney) mortgages going to investors, which is also driving the blow-off nationally (see next chart).

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According to the ABS, investor finance commitments in New South Wales rose by 38.3% in rolling annual terms in the year to January 2014, well above the national average increase of 25.0%.

Further, as at January 2014, investors accounted for a whopping 52.1% of total housing finance commitments (excluding refinancings) in New South Wales, which was an equal record high share (same as in the year to May 2004), and well above the experience of the other major capitals. Victoria’s (read Melbourne’s) share of investor mortgages also rose to 44.5%, which is just shy of the record 44.7% share reached in the year to November 2008:

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Sydney clearly remains a speculator’s market, with Melbourne a distant second.

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  1. All the proof needed to know that leaving Sydney is the best decision ever. It’s no longer a city of homes but a city built on mortgage transactions.

  2. More than half of all house purchases in the country’s biggest housing market being bought for speculative reasons – nothing to see here, nothing out of the ordinary….move along.

    If it keeps going they’ll catch up with Gladstone, where around three-quarters of all our housing sales went to investors during the LNG boom run-up.

  3. How can a government see a parabolic chart like that and promote ever higher prices? Madness…

    • This kind of thing can’t continue. This is becoming a real social problem now and it’s consistently in the MSM.

      • What can they do? Only politically viable options are lower rates, FHB grants and other demand side ‘solutions’. The real solutions are lower house prices and both the means of achieving that and the results would be catastrophic to a myriad of rent seekers that make up a major part of our economy.

        Don’t get me wrong though. Nothing would please me more than to see all these rent seekers, LibLab voters and smug investors absolutely broken. However, I know just the thing that will happen once this comes about. Bailouts paid for with my taxes, followed by bail-ins paid with my prudent savings.

        If only people really knew the kind of trouble we have set this nation up for….

      • I wouldn’t be surprised by macroprudential given that the story is growing. Personally, I hope that they do nothing and the speculators get spit-roasted. Bailout or not, I want pain.

      • reusachtigeMEMBER

        At least kodiak is switched-on to how rubbish the call for macroprudential is at this stage of the game. It IS NOT your friend.

    • It seems they have given aussie investors every opportunity to get out of the bubble by allowing rich foreigners to buy up anything and everything. A get out of jail free card so to speak.

      At some point the music with stop and the Chinese and any other fool who didn’t take heed will be left holding the bag!

      Even in high demand areas there are prices that the Chinese are now unwilling to pay… The tide is turning.

      • It appears investors/speculators do not see it as a chance to get out.

        They just see that they made a lot of easy money and as they are successful investors, they are going to do it again.

        Hubris often indicates a loss of contact with reality and an overestimation of one’s own competence, accomplishments or capabilities.

        This will not end until there is wide spread financial decimation of Aussie investors and the concept of risk is reset to sensible levels.

  4. I’m guessing the tide will go out in Sydney soon and then we will see a lot of naked SMSF and Chinese [ooops, sorry, delete, I mean ‘overseas’] property investors holding hands together scrambling to cover their privates. Not likely to be pretty.

  5. Australia is ‘doing it’s bit’ to absorb its share of the global debt mountain. To do that its people need to have something to borrow against to legitimise the action. Property gives us; the banks; the Government that legitimacy. Low interest rates were the catalyst, as they have been everywhere else that matters. That the A$ is struggling to fall into the teeth of a never ending accumulation of foreign debt surprises people. It shouldn’t. Until this course of action fails, and it will, we should expect higher and higher property prices. More and more debt accumulation, and an A$ miles above wherever trade should place it. But when failure of policy becomes reality, stand back! The fabled elevator shaft awaits the property market; accompanied by the futility of interest rate rises and an A$ sucked down the shaft after both of them.

  6. Does anyone know what’s the current ratio is between average home/house prices in Sydney and average annual income ?

    Some say it’s at 6 times (Steve Keen) and other reports say it’s at 8 and 11 times.

    I consider every reading over 4 times to be expensive.

    Thanks to the chinese stimulus program after 2008 there’s another country that has a massive real estate problem: Singapore
    “The most expensive after Canada & Hong Kong”. O.M.G.

    • Well from ABS, the national average male wage is around $82k a year (full-time)!

      Pretty steep….

      • I think the average wage has been dragged up by those on very high wages. I would seriously doubt that the average male wage is $82K. I think they say the average wage (overall) is more like $74K, but I’m guessing that in reality the average is lower.

        I wonder also whether they are basing this on full-time wages? Or are these pro-rata wages for part-time workers? What about contract workers? There would probably be a lot of people who want to work more hours but can’t find the work. And then there would be a lot of people who are probably qualified to earn higher wages but can’t find work so have to take lesser-paying jobs.

        And the other thing is that a lot of jobs are going to be lost, especially in Vic manufacturing over the next few years. They haven’t lost their jobs yet so we won’t see the full effects until probably 2017.

        I just can’t help but feel very suspicious of the stats.

      • evilsync

        didnt you know that affordability is no longer measured on the male wage but the household income combined?

      • ABS says average FT male total earnings (includes overtime etc) is $1620 pw $84,240 pa

        Average wage for all earners, male & female, part time as well as full time is $1115 pw $57,890 pa.

        I’d agree with md that very high income earners skew that figure upwards. Despite that, I still feel a bit ripped off as I’m not earning anywhere near the male average…

        It’s a shame they don’t publish median figures in that release, as that would give a better idea of what most of us are earning.

      • flyingfox, that figure is gross. Don’t know if it includes super, but that is a good question as that would make our pay look better than it really is. Will have a look at ABS site when I get a chance.

      • I read the following as including super.

        From the ABS

        “Weekly ordinary time earnings

        Weekly ordinary time earnings refers to one week’s earnings of employees for the reference period, attributable to award, standard or agreed hours of work. ,It is calculated before taxation and any other deductions (e.g. superannuation, board and lodging) have been made. Included in ordinary time earnings are award, workplace and enterprise bargaining payments, and other agreed base rates of pay, over-award and over-agreed payments, penalty payments, shift and other allowances, commissions and retainers, bonuses and similar payments related to the reference period, payments under incentive or piecework, payments under profit sharing schemes normally paid each pay period, payment for leave taken during the reference period, all workers’ compensation payments made through the payroll, and salary payments made to directors. Excluded are amounts salary sacrificed, non cash components of salary packages, overtime payments, reimbursements to employees for travel, entertainment, meals and other expenditure incurred in conducting the business of their employer, and other payments not related to the reference period.”

    • Pretty sure Demographia use median price against a single median income rather than average, to make it more representative of what we actually mean by average. From memory it’s up around the 9-10 times ratio in Sydney at the moment.

    • Depends on where you buy. In this mornings SMH a young couple paid $1.5 m for a three bed fibro dump in the inner west from memory. The plan is to knock it down. One has to wonder what sort of income they have as the woman was holding her baby. In the south west of Sydney you can still get a three bedder with a yard for $350k but they are getting thin on the ground. In a new subdivision near me 60 km from the CBD you will pay $ 800k for a new joint on 450 sq metres. Of course it will have a ” home theatre” where the kids can sit and stuff their faces instead of exercising in the non existent backyard. Oh, it will have four bedrooms which is always handy when the typical family is something like 2.6 people. Aren’t averages a wonderful thing? I would like to see figures on the MODAL take home ( net) income relative to house prices but have never seen this anywhere.

  7. Mining BoganMEMBER

    Why aren’t the South Aussies playing the game? Have they got lives to lead or something?

    • South Australia is a mendicant state. There is virtually no serious industry and half the population is on some sort of government hand out. Adelaide is wonderful. Everybody selling coffee to each other and washing each other’s dogs. When the shit hits the fan SA will drop to the bottom of all the league tables only to be beaten by Tasmania.

    • Because they don’t have a mining/resource processing boom and a major industry is slated for closure and it is not a hub of finance and head offices of national and multinational companies.

  8. Any info on LVR of those investor mortgages? I suspect most investors would be high LVR and considering they are now big share of the market wouldn’t this be a significant risk for the banks?

    • Makes you wonder where property prices would be if NZ rules were in place here and 90% of those investors had to put down 20% deposit.

      • We just tried to buy another property here in Canada. The bank we have been dealing with said that they wouldn’t even consider us if we hadn’t been with them for years as they had been burnt so badly by foreign investors during the GFC.

        However, as we had a good record with them, they would consider it if we put down a 50% deposit.

        I wonder how foreign investment would go in Oz if those rules were applied?

  9. What always gets me is that when the MSM talks about Sydney prices they always say something like, “we’re not in a bubble yet, but if prices keep growing, then we have to worry about a bubble.”

    Or they call it a “recovery” as though prices have come off some very low base.

    Wouldn’t it be interesting to hear them actually say at what point they would consider we are in a bubble?

    • It’ll be when they hear the enormous POP! Then they’ll say “That was a bubble”. Past tense.

  10. Spare a thought for the poor property investor.
    As the property prices are escalating to the moon, the larger the value of the property climbs above the base price of the property …. ie: the more capital gains we have to endure when selling. Yes ENDURE!!!!!!
    Do you people have any idea about how much capital gains tax I will have to pay trying to sell my investment properties. Not only will I have to pay a shit load of tax, but will also be penalized by losing the benefit of my Seniors and pensioners tax offsets (sapto) and can not offset any of that gain with super as I am no longer allowed to put money into super.
    Not being able to afford a house is nowhere as traumatic as loosing a large value of an investment property in all the taxes and losses that we must suffer when we sell.
    I am sure you all would agree with me that capital gains taxes should be removed from investment properties so that we (the haves) are not disincentivised to sell so that we can put more properties on the market and keep the prices down.
    Life is just so unjust. 🙁

    • You can always wait until our property bubble bursts and then sell all your investment properties for a huge loss. No taxes with no capital gains–but your local real estate agent will be happy to collect his commission.

  11. thanks for your info. ” as at January 2014, investors accounted for a whopping 52.1% of total housing finance commitments (excluding refinancings) in New South Wales ” .. do you have the figure for including refinancing ? I browse ABS briefly and could not find.
    I agree there may be bubble in syd prop mkt , the 52.1% here you refer to suppose the ratio between investor and FHB ? , i think the share of investor to the whole housing finance ( inlcuding refinance) is probably a better barometer .
    I also wonder why government dont push up LVR for investor to cool down the market if the Interest rate is not so easy to use?

    • Refinancings are excluded as they are not “new” finance commitments, but rather are a change of mortgage on the same property. Therefore, they represent mortgage switching rather than new mortgage demand.

      The 52.1% figure is not the ratio between investors and FHBs, but rather investors and owner-occupiers (i.e. investors comprised 52.1% of total mortgages and owner-occupiers 47.9%, of which FHBs are a sub-component).