Congratulations all housing spruikers. You’ve fucked yourselves (and your country). Your king, John McGrath, explains:
Dear fellow shareholder,
I start my address today by acknowledging that our company’s first 12 months as a publicly listed entity have been defined by some unprecedented conditions in our most important markets.
They are important elements in understanding the context in which we operate, and have been reflected in our share price. We share your disappointment.
After considering various corporate events during calendar 2014 and 2015, we opted to IPO, and did so in early December 2015. Our first half performance was on budget. Then, it was as though every vendor woke up in the New Year and
made a resolution not to sell.
This chart shows how listing volumes as a percent of total property stock are currently at levels we have not seen since the data set began.
Coupled with historically low interest rates and other factors, this has resulted in a demand/supply imbalance which has pushed up prices in a self-fulfilling cycle.
Against this backdrop, in April the Board formed the view it was necessary to revise our financial guidance and in August we reported a proforma first year after tax profit of $14.6m and a dividend of 3.5 cents per share in line with that revised
guidance.
The good news is that we managed to increase our market share in around two thirds of the areas we serve. In the context of the market conditions, it was an outcome that we believe speaks to the underlying strength of the brand, the quality of our agents and our potential leverage to any improvement in market conditions.
Your Board believes that McGrath’s continued focus on building a resilient and sustainable business is the most appropriate response for these conditions. I would like to discuss in greater detail some of the forces currently at play.
For much of calendar 2016, we have been in an environment in which vendors are reticent to sell, fearing they will not get back into the market. In 2005, residents in Australian Capital Cities would move house on average every 6.7 years, and apartment every 5.9 years. Today that is 10.7 years and 9 years respectively. This contributes to the decline in volumes available for sale, eroding housing affordability in many capital cities of Australia, including Sydney.
Average Sydney house prices are now approximately 12 times average wages, necessitating a spend of more than 50% of after tax income on either mortgage or rent. This city is in the midst of what economists might call “severe
disequilibrium”: endlessly growing demand meeting newly limited supply.
When our society’s teachers, nurses, police and emergency services personnel cannot afford to live in the communities they serve, housing affordability can very quickly become a factor in social and economic dislocation. The political upheavals of the US earlier this month and the UK in July were born from similar issues and while we don’t have the hate politics of those countries’ 2016 campaigns, to be complacent about this from our positions of relative security would seem unwise.
Our business is about finding people their homes – their dream homes, usually the largest asset they will own in their lifetime, or a family rental property.
Housing affordability concerns us, and we believe it is time for State Governments to now review their transfer tax regimes where they are affecting transaction decisions, rather than being a consequence of them. In New South Wales, the Stamp Duty thresholds have not been changed for 30 years, in which time the median house price has increased from $100,000 to over $1 million. Stamp Duty on the median house price has increased from $1,300 or 1.3% then, to over $40,000, or 4% plus today. A two or three bedroom terrace within three kilometres of where we meet today will set you back around $100,000 in Stamp Duty. It is more affordable to renovate than move. We understand that the State Governments rely heavily on these taxes, but point to precedents in Western Australia, the Northern Territory and elsewhere which show that revenues increase when these tax rates decline because of consequent volume increases. State Governments: if you can increase revenue while making your States more affordable, it is simply lack of political will which is stopping you.
And there it is, poor little spruikers stuck in grotesquely overprice dwellings scared to budge, people and nation both.
Despite the crocodile tears, the proposed reform is a good one. McGrath’s problem is that it is not coming any time soon and, as shrinkflation steadily drains the economy and more interest rate cuts result, any further price increases will only make it worse. Conversely, if prices fall so do transactions. Our John doesn’t get it:
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Founder and executive director John McGrath was confident property listings would pick up in early 2017 and in the event they did not, he said the company would beef up agent productivity, employ more agents and expand its offices and market share as in 2016, and keep a lid on costs.
But Mr McGrath was confident the listing drought would not be permanent.
“I was of the view things would improve post election, but it didn’t. We are seeing anecdotally it will improve early in the year,” he said.
It’s going to change “anecdotally” even though prices are unchanged. He’s going to spend while reducing costs. He’s going to improve productivity by employing more people.
The entire pitch is bullshit.
