Via the AFR: Emilia Rossi, digital and lifestyle entrepreneur, rents an apartment in Melbourne’s Docklands and has bought four investment properties with interest-only loans, a product that is causing increasing nervousness for regulators and lenders. …”I’m a high-risk investor,” Mrs Rossi, mother of recently born Hercule, said. “I am willing to take risk because I
Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.
With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.
There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.
What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.
Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.
MacroBusiness cover all elements of Australian property daily.
These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.
Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.
It’s not just interest-only. More forced sales are coming, via the AFR: As part of a housing affordability package in last year’s budget, the government announced it would deny CGT main residence exemption for foreigners. Reaction was muted at first but expats slowly realised they, too, would be caught by the measure. “Expats are being
CoreLogic released its auction report yesterday, which reported another increase in the preliminary national auction clearance rate to 70.5% from 69.1% last week. However, the preliminary clearance rate was still well below the 78.4% recorded in the same weekend of last year: Nevertheless, as you can see above, the trend clearance rate has bounced. Auction
By Brendan Coates and Trent Wiltshire The conventional wisdom among many affordable housing advocates is that boosting the supply of market-rent housing won’t help low-income earners. They argue that most new housing built in Australia is too expensive for low- and middle-income earners. They believe that building more homes won’t lower the rents paid by
By Leith van Onselen The deflation of Sydney’s housing market has continued for the 24th consecutive week, with CoreLogic’s dwelling values index registering another 0.18% decline, and values down a cumulative 3.8% over that 24-week period, and dwelling values also down 3.7% over the past 29 weeks: Sydney’s quarterly growth rate remains firmly negative, down
By Leith van Onselen In the week ended 22 February 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.12%: Values fell across all major markets: So far in February, dwelling values are down 0.29%, again led by Sydney: So far in 2018, home values have
We know that residential property is already withdrawing from growth at a decent clip: And that that is going to steepen as it follows sales: But there has been some decent offset in wider commercial property: But there are signs that this pipeline too is starting to see pressure, via NAB: • The NAB Commercial
By Leith van Onselen The International Monetary Fund (IMF) released its Article IV report on Australia, which included wide-ranging discussion on Australia’s distorted property market, as well as gave tacit support to Labor’s proposed reforms to negative gearing and the capital gains tax (CGT) discount, as well as to replacing stamp duties with land taxes
By Leith van Onselen SQM Research has released its rental vacancy series for January, which revealed a 0.2% fall in the national vacancy rate over the month and a 0.2% decline over the year: Over the year, decreases in vacancies were recorded in Adelaide (-0.4%), Perth (-0.7%), Melbourne (-0.1%), Canberra (-0.1%), Darwin (-0.6%), and Hobart
By Leith van Onselen With first home buyer (FHB) demand surging in Sydney and Melbourne on the back of large reductions in stamp duty following measures implemented in last year’s State Budgets: And the Turnbull Government recently passing legislation to allow FHBs to use up to $30,000 of voluntary super contributions for a housing deposit.
By Leith van Onselen Let’s take a walk down memory lane. It’s June 2015, and Treasurer Joe Hockey is furious that a wealthy neighbour of his in Hunters Hill Sydney had sold his heritage listed home to a Chinese buyer, even referring the matter to the Foreign Investment Review Board. Here’s Hockey speaking on 3AW
By Leith van Onselen With Australian household debt at 200% of disposable income: And Australian housing prices starting to fall, NAB has cut its maximum loan-to-income ratio to 7-times. From Australian Broker (h/t Martin North): From Friday, 16 February, the loan to income ratio used in its home lending credit assessment has been changed from
Or tries: John McGrath, the founder of the embattled real estate group, McGrath, is set to appoint a new chairman on Monday – likely be a ”well known former chief financial officer” – on a whittled-down board with two other directors. …Privatising the company ”is off the agenda,” spokesman Tim Allerton said. Mr Allerton has
Hello, via the AFR: Realtor Andrew Fawell has valued four distressed – or mortgagee – sales in the past two weeks for houses and apartments valued between $1 million and $2.5 million located around Melbourne’s coveted, prestigious and expensive inner south-east fringe. “The drum is starting to beat,” says Fawell about home buyers and investors
The MSM demolition of poor old John McGrath continues. From The Australian: Despite having run up an alleged gambling debt to bookmaker William Hill of more than $16m, a source familiar with the company’s accounts said McGrath performed better than most punters. Ordinary punters lose about 10 per cent of their turnover. The source said
CoreLogic released its auction report yesterday, which reported an increase in the preliminary national auction clearance rate to 69.1% from 67.7% last week (later revised down to 63.7%). However, the preliminary clearance rate was still well below the 74.9% recorded in the same weekend of last year: Nevertheless, as you can see above, the trend
From the Guvner in Parliament: My colleagues and I welcome these opportunities to explain our thinking on the Australian economy and to answer your questions. We view it as an important part of the accountability process for the Reserve Bank. Since we last met in August, the improvement in the global economy has continued and
From the CREA: Home sales via Canadian MLS® Systems dropped sharply in January after having climbed to the highest monthly level on record in December. Although activity retreated to the lowest monthly level in three years, January sales were on par with the 10-year monthly average. Activity in January was down in three-quarters of all
Via Domainfax: Embattled real estate agency McGrath is seeking “urgent clarification” from incoming executive chairman and founder John McGrath after becoming privy to information relating to recent media reports. The company requested a trading halt on Thursday morning pending an “announcement regarding recent media comment in relation to Mr McGrath”, after delaying a conference call
By Leith van Onselen The deflation of Sydney’s housing market has continued for the 23rd consecutive week, with CoreLogic’s dwelling values index registering another 0.15% decline, and values down a cumulative 3.7% over that 22-week period, and dwelling values also down 3.6% over the past 28 weeks: Sydney’s quarterly growth rate continues to turn negative,
By Leith van Onselen In the week ended 15 February 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.08%: Values fell across most major markets, but was again led by Sydney: So far in February, dwelling values are down 0.17%, again led by Sydney: So
Via S&P: Australian mortgage arrears fell 7% year on year to 1.07% in December, according to a recent report by S&P Global Ratings. Improving employment conditions are helping to keep arrears low. While there are risks in this environment of cautious economic optimism, we expect arrears to remain stable, with small movements driven by changes
Via Moody’s: APRA’s proposed changes to capital framework are credit positive for Australian banks The Australian Prudential Regulation Authority’s (APRA) proposed revisions to its capital framework for authorized deposit taking institutions (ADIs) are credit positive for the sector because they will improve the alignment of capital and asset risk in ADI loan portfolios. A particularly
Crazy stuff today from Gottiboff: We have achieved a significant breakthrough in the troubled inner city apartment markets of Sydney, Brisbane and Melbourne. Full marks to the man who this month has made a major contribution to stabilising those markets — none other than Treasurer Scott Morrison. Morrison did the Australian equivalent of a Donald
By Leith van Onselen The AFR yesterday published a report on the potential oversupply emerging across some capital city apartment markets: Sydney suburbs including Zetland, Epping and Schofields line up with Brisbane, Melbourne’s Southbank and the Perth and Adelaide CBDs in posing the greatest risk to investors from the supply of newly completed apartments, consultancy