Australian Property

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.

7

Sydney/Melbourne final auction clearance rates hold above 70%

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic released its final auction results, which reported a 1.9% decline in the final national auction clearance rate to 66.4% – well above the same weekend last year (54.0%) but below last week’s 68.6%: As you can see, Sydney’s final auction

15

Ralan reads last rites to Aussie apartment market funeral

As we know, developer Ralan has collapsed, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state of the high-rise property market. …The private Ralan Group specialised in high rise developments with a

26

Broker: Apartment market “doomsday”

Via Martin North comes Chris Bates, mortgage broker: I am still concerned about this binary market of rising existing and falling new property. But I am even more concerned that Australian income is about to be demolished by a global shock. Outright recession risk is the highest I can remember. I can see the apartment

46

Why owners should sell “bubonic plague” apartments

New research from Propertyology has advised owners of recently built apartments to consider cutting their losses and selling now before : The analysis from respected property market research firm Propertyology said unit owners who were patiently waiting for prices to rebound were playing Russian Roulette with their financial futures amid a looming apartment crisis. Propertyology

4

Australian mortgage market shows signs of life

Today’s housing finance data for June from the Australian Bureau of Statistics (ABS) recorded a modest rebound in mortgage commitments: As shown above, total finance commitments (excluding refinancings) rose by 1.9% in June, with owner-occupied commitments rising 2.4% and investor commitments rising 0.5%. However, 0ver the year, total finance commitments (excluding refinancings) crashed by 17.6%, with investor

9

NSW Government blows apartment crisis smokescreen

Last week we reported that the NSW Government had belatedly appointed a dedicated building commissioner to return integrity to the construction industry amid the proliferation of flammable cladding and structural faults across the apartment market. This commissioner is slated to “drive legislative reforms of the industry” and would be there to convince developers to “do the job

34

Perth and Darwin property losses near 40%

CoreLogic’s Cameron Kusher released interesting data tracking the real inflation-adjusted decline in Australian dwelling values across the major markets to June 2019. As shown in the below charts, both Darwin and Perth have experienced vicious housing downturns of 39.9% (Darwin) and 36.3% (Perth), with Darwin’s running for nine years and Perth’s 12.5 years: It is

20

Analysts: Mass immigration to drive up Australian rents

Several analysts have warned that the slowdown in residential construction amid ongoing strong immigration will force up rental costs from 2020: Scott Keck, chairman of property consultants Charter Keck Cramer, said Australia’s steady influx of migrants would shore up demand for apartments… The bigger problem for Australia, he said, was that supply would fail to

29

Mascot Towers owners slugged $76k each to fix cracking

Fixing cracks in the Mascot Towers apartment building’s primary support structure will cost $10 million – half the initial building cost of $22 million – according to information to be presented at an owners meeting on 22 August. Owners of apartments in the evacuated building in Sydney have been told that they will have to

8

Financial Regulators want ban on SMSF property investment

The Australian reports that the Council of Financial Regulators (CoFR) recommended in February that the federal government impose a ban on property investment through self-managed superannuation funds (SMSFs), but its recommendation was ignored by Treasurer Josh Frydenberg. The CoFR’s call came after 18,000 SMSFs were found to have over 90% of their savings in a

25

Lawyers lick lips as developer “washout” arrives

As we know, developer Ralan has collapsed, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state of the high-rise property market. …The private Ralan Group specialised in high rise developments with a

20

Auction market takes a breather

After last week’s final auction clearance rate hit a two-year high, CoreLogic’s preliminary auction clearance rate for the weekend’s auctions retraced slightly, although Sydney’s and Melbourne’s remained well above 70%: Auction volumes also remain soft – 1,100 aucti0ns were held over the weekend versus 1,324 in the same weekend last year: According to CoreLogic: Despite the

26

NSW Government too late the hero on apartment crisis

After undergoing an unprecedented boom in high-rise apartment construction over the past decade: And with flammable cladding and structural faults proliferating, the NSW Government has finally taken action by appointing a dedicated building commissioner: NSW Premier Gladys Berejiklian has appointed a building industry expert who is a professor at Western Sydney University, David Chandler as

21

More warnings of a property bull trap

Via Mortgage Business: The recent spike in housing market sentiment could be luring speculators into a “bull trap” with the dwelling values to continue falling, according to analysts. Over the past few months, there have been suggestions that green shoots have begun to emerge in the housing market, following two years of price declines. Some

10

Final auction clearance rate rockets to two-year high

Last weekend, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Yesterday evening, CoreLogic released its final auction results, which reported a 2.6% decline in the final national auction clearance rate to 68.6% – well above the same weekend last year (55.6%) and above last week’s 65.4%: As you can see, Sydney’s final

37

Ralan crashes into apartment collapse

As we know, developer Ralan has collapsed, via The Australian: The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state of the high-rise property market. …The private Ralan Group specialised in high rise developments with a

10

CoreLogic: No “V-shaped recovery” for property

Following on from yesterday’s post on CoreLogic’s daily dwelling values index results for July, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table). As you can see, Sydney (0.2%), Melbourne (0.2%), Brisbane (0.2%), Hobart (0.3%), and Darwin (0.4%), all registered rising dwelling values in July, whereas

12

Coalition launches suprise negative gearing crackdown

The Morrison Government has already baulked on its election commitment not to touch rules around negative gearing, introducing a $50 million plan to end tax deductions related to vacant land. From The AFR: New legislation to deny deductions for any losses or outgoings incurred through undeveloped land has been introduced to Parliament, backdated to July

7

Adelaide Brighton versus Highrise Harry on property

Yesterday we saw some pretty stark divergence between property doyens. Gottiboff was cock-a-whoop: In Sydney last night, a jubilant Harry Triguboff said: “The market is improving in all our projects. It started with the election, then quietened down and now is rising again. That sounds like a day-to-day prospect if you’re not a Highrise Harry