The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.

Category Archives For: Economy

In what do we trust?

In the wake of the global recession, societies the world over have suddenly turned to the Japanese model of conservationism, choosing to place their trust in banks and the interest returns they offer. Australia has been blessed in it’s ability to stand steadfast amidst this financial crisis, even trumping the revered US dollar, a feat not seen since 1983.

However, the strange phenomenon that is sweeping across Australia is that whilst the dollar is strong, investments in property have dropped drastically. There might be a willingness to spend on everyday items but long term, ‘liability heavy’ spending is at a minimum.

The mentality governing this phenomena is that everyone is waiting for the prices to bottom out before buying; the problem is where will that bottom be and between then and now, what could or would those funds be doing otherwise? The banks offer safe but meager returns on interest, term deposits can only do so much and most unmanaged super funds are not as super as they seem.

If share prices begin to go in reverse, property prices plateau, and if the trusted interest on term deposits fall, what will be left to fall back on?

Making our cities denser

The New York Times has a great piece on creating more jobs and greater prosperity in cities by increasing the density of them.

The NIMBY (Not in my backyard) mentality is present across the world.  It’s easy to understand that many don’t want cities to become denser, especially in their own neighbourhoods.

This article makes some compelling points on the offensive for denser cities.

Home Loans – Slowing Down

Home Loan borrowing is slowing down.

In fact borrowing has slowed down to its slowest pace since records began back in 1976.

A good piece here talks about Australians attitude to debt.

Owners are calling us? Unusual, yet a sign of the times

Normally we get a few calls from Vendors.  In normal events we get a good look at the property prior to it being listed with a selling agent.

At the moment however,  I’ve noticed a big swing in calls coming to Secret Agent from vendors who are currently on the market.

What’s the deal with this?

Owners that have engaged an agent are also trying to locate a buyer?

I think it’s the sign of the times.  This is unusual ground for agents and vendors alike,  and I don’t see this changing any time soon.

Some desperation has creeped into the market and vendors are taking this into their own hands…

The Role of Confidence; the share market has none, will the property market?

After an initial post on Wednesday,  things have gotten a whole lot shakier.

During the first instalment of the Global Financial Crisis we noticed many areas that had heavy reliance on the the financial sectors like Hawthorn and Brighton took an absolute hit in prices.

Margin Calls could be another word we are hearing very shortly and this means that some people needed to clear assets, often property, to pay down their debts.

According to the REIV, tomorrow has 500 auctions taking place:

• Last weekend: 581 auctions, clearance rate of 57 per cent

• This weekend: 500 auctions

• This weekend last year: 544 auctions, clearance rate of 67 per cent

• This weekend 2009: 424 auctions, clearance rate of 85 per cent

The confidence in the market for Australian property will well and truly be put to the test tomorrow.

Carnage on the Stock Market

Today has been an absolute shattering day for the local and international stock markets.

The overall market has plunged and deeply at that.

We are dealing in very interesting times at the moment and things can turn quickly.  Just as we’ve thought that inflation could trigger a potential increase,  today’s events show that this might not eventuate.

I’ve never seen sentiment move so rapidly in both share and property markets like the current times.

Rates on Hold – For Now

Rates have been announced to be on hold for now.

My earlier thoughts were that we could see a decrease in rates towards the end of the year.  The economy in Western countries around the world is extremely weak and the reserve bank will be worried by this.

However the inflation figures during the week were too high for comfort.  If inflation continues to rocket,  the RBA might have little choice but to raise rates sooner rather than later.

Full meeting summary can be found here.

CPI; Increasing an at uncomfortable pace

With the June Quarter showing an increase of 0.9% in consumer prices,  the chances of a rate cut are well and truly on hold.

These figures will put the reserve bank in a very challenging position over the next few months.  While the softness is evident in the general economy and housing market,  the reserve bank doesn’t want to let inflation get out of control.

The latest figures put the annual CPI increase to 3.6% which is its highest level since 2088.

Melbourne actually had the lowest increase in consumer prices for the quarter.

This is a space which must be watched.

What Happened to the tight Rental Market?

The most recent figures released by the REIV suggests that presently a 3.1% vacancy rate is present in the Melbourne market place at the moment.

Looking closer into the city centre it’s currently reported that 3.9% of property 0 – 4km of the CBD is vacant while 3.6% of property sitting within 4 – 10km of the CBD is also vacant.

The figures are collected from Real Estate Companies by way of survey  and the proportion of vacant property sitting on their rent rolls.

This is a rather profound shift and it’s one of the highest vacancy rates I’ve seen for some time.  It’s important to note that this rate is for a given month.  However if we look at the data below then we see some interesting things:

June 2009

0 – 4km of CBD : 1.2%

4 – 10km of CBD : 1.5%

June 2010

0 – 4km of CBD : 0.9%

4 – 10km of CBD : 1.3%

Present:  June 2011

0 – 4km of CBD :  3.9%

4 – 10km of CBD : 3.6%

So what’s the cause?

This time of year is generally a tougher slog for the rental market, however it doesn’t help explain the present statistics.  In fact the past few months of data shows some real concerns for landlords on the horizon.

My initial thoughts are a combination of factors:

  • 1.  We’ve overbuilt

We see plenty about the fact that we’re under supplied when it comes to housing.  I think in past times gone by,  this might have been the case.  However I think we are in a different situation now.  We’ve overbuilt in the past few years,  and we’ve overbuilt the wrong type of accommodation.

  • 2.  Population growth is slowing

Melbourne’s population has started to slow,  yet new projects and developments have only grown.

  • 3.  Prices has stagnated and fallen in many instances

As prices have softened,  this has led many owners forced to rent their property out rather than sell it.

  • 4.  International student levels have dropped off

International students aren’t coming in the same numbers as previous years.  High Australian dollar plus other reasons.

  • 5.  Staying at home longer + Sharing of space

A shift of youngsters staying home longer is evident plus those seeking to share accommodation.

  • 6.  No one wants to live in a box

Too much of what’s been built plus what’s going through construction at present,  is not the type of accommodation people want to live in.  People live in ‘a box’ when the market is so tight that they don’t have a choice.  Bring choice into the market and this stock gets absolutely left behind.

Now we are still seeing strong demand for the good stock, and I don’t think this will change.  Yet some big shifts are happening is this section of the market and it’s looking a little better for renters rather than landlords.

Baby Boomers – The Potential Problems of Cashing out

Its no surprise that much of the Baby Boomers generational wealth is tied up in Property.  Self managed super funds,  negative gearing,  unlocking equity in the family home for investment –  Baby Boomers have hit the property market like no other group before / after it.

I’ve noticed many calls over the past few months from Boomers that are looking to start selling investment property to help fund retirement.  Many others (Property Professionals) I have run into from time to time have expressed similar experiences.

Typical example looks like this:  A couple own a few places and are using their income to offset much of the interest due to utilising the negative gearing setup.   They are planning to liquidate over the next few years as they move into retirement.

So what’s the problem with what has been described above?  The problem lies in that we have a generation that is holding a significant amount of real estate that has been purchased for retirement funds.  The problem is that an entire generation is thinking about ‘cashing out’ at exactly the same time.

When you buy anything that can be resold;  you must think about your future customer.   The future customer in this case is who you intend to sell down your property to down the track.

These are some issues which could result from what is described above:

*Much higher levels of stock that counter the shortage of property argument and struggle to get absorbed.

*Lack of current financial wealth in the X and Y generation (next customers) to buy off Baby Boomers.

*A trend away from larger high maintenance homes further out to smaller/ amenity rich property.

*Large supply of new apartments that have been purchased purely for investment that nobody wants.

The next decade will be about buying smartly.  Personally I don’t think the growth rates of the past decade will be repeated for a very long time. In some segments of the market

I just don’t see the pricing holding and would be worried about any retirement plans with some of those assets involved.

This generational change will create both opportunities and challenges for the market over the next decade.