Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyers agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"Blog is great - loads of good data and charts. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Monday, 5 December 2016

Guns for hire

Visas for wealthy Chinese

There's been little change to the source of applications for Australia's Significant Investor Visas (SIVs), with the latest statistics showing that China and Hong Kong still account for 93 per cent of applications and 91 per cent of the visas actually granted. 

SIVs can be issued to non-residents with at least $5 million to invest in compliant bonds and other investments. 


Between the inception of the scheme on 24 November 2012 and 30 June 2015, the number of visas granted totalled only 879, or an average of just 28 per month. 

A bit of a fizzer, you'd have to say!

Since that time visas have been issued at a somewhat faster rate of more than 40 per month. 

Over the 4 months of the financial year to 31 October 2016, a further 180 visas were issued, at a rate of 45 per month, with a further lift in the rate of invitations and applications.

Despite the increased interest, visas are being granted at around only a quarter of the program's annual capacity of 2100.


Of the 1614 visas granted from the inception of the scheme to date, an overwhelming 60 per cent have been issued in Victoria and 30 per cent in New South Wales, with the amount invested in complying investments increasing sharply to $8.07 billion at 31 October 2016 from $7.17 billion as at 30 June 2016.

At 30 June 2015 only $4.395 billion had been invested in complying investments so the funds are beginning to flow.


Some thoughts

I previously considered the changes to rules in complying investments here back in August this year. 

Overall, while more than $8 billion of complying investments and the introduction to Australia of more than 1500 wealthy families from Asia is nothing to be sniffed at, the visa numbers don't appear to be material enough to impact a residential property market valued at approaching $7 trillion, even at the margin.

What these figures do hint at is where wealthy non-resident investors in Australia are most likely to hail from (China) and where their preferred cities of investment are (the Chinese love Melbourne first by quite some margin, then Sydney, and then Brisbane and Gold Coast). 

The rate of applications lodged suggest that SIVs issued to wealthy Chinese might continue to rise through FY17 and beyond. 

Canada was oversubscribed for its equivalent investor visa and closed off applications with a reported 45,000 pending applications from Chinese still in the queue back in 2014.

Meanwhile, the US election result led to an unprecedented spike of interest in immigration to Australia as I charted here

These twin trends could lead to more applications going forward, but it still wouldn't be a surprise to see tweaks or amendments to the qualifying investments to encourage more applicants. The present rules don't make it all that easy for applicants. 

Where are we heading? The housing cost spiral - it can't go on

Canberra swap

"This can't go on" reports the Canberra Times. 

Home-building costs are moving the price of houses beyond the means of the average purchaser. 

A home sold a dozen years ago has seen an increase in value of 209 per cent. 

As a generally accepted though unproven safe economic limit, the average home purchaser should spend no more than 2.5 times their average annual earnings on a home. 

As such, only a man with an above average salary can purchase a medium-sized dwelling.

The current situation is leading to a lopsided economy.

The country finds itself in a serious situation. 

It can't go on...

Source: Canberra Times, 2 August 1950.


The article goes on to discuss the rent controls that were in place in Australia until the mid-1950s, with properties falling into decay since rent returns were too low to encourage investors to repair them.

Laments the Canberra Times, the system has spent a decade cutting down tall poppies instead of encouraging the "short buds" to flower by means of self-help.

Advantages should be "weighted to the thrifty, instead of the unthrifty".

Basically the 1950s version of avocadogate with archaic language.

Sunday, 4 December 2016

Diff'rent speeds

Sydney property prices versus regional New South Wales (Commsec).

Gridlock

Development

I've noted on this blog before that when I first came to Sydney before the Olympics, I worked as a courier and delivery driver near the airport in Mascot.

It was a great job for me at the time, not least because it partly involved the delivery of wine, with many of the premium vino subscribers being European itinerants on 12-month holiday visas (alas, they often had to fly home leaving no time to consume their final case). I'd never have classified myself as a wine connoisseur...and yet! 

Back then, Sydney felt much smaller and quieter - contrasting with today, the centre of the city itself was practically dead at weekends - and suburban Mascot was mostly just a commercial area with relatively little traffic during the working week, comprising warehouses for cargo and storage, a few pie/chook/cake shops and carwash cafes, Clancy's (now an IGA), a few pubs and hotels. 

In short, quite a relaxed and cruisy place to be a delivery driver, and a huge disparity with the areas surrounding London's hectic airports. 

There was some residential living in the suburb. In fact, a few of the other warehouse casuals were packed into the more dated homes with front verandas in Mascot, Kiwis and Irish mainly. 

Some of the older housing has been replaced by apartments (it wouldn't be a surprise if a few of those dated houses had burned down, a number of them were practically being used as 'hotboxes'), and swathes of the old industrial space has also been rezoned for apartment blocks.

The drive from the airport at O'Riordan Street/Botany Road towards the City is virtually unrecognisable today, such has been the extent of the redevelopment. Entire new suburbs with train stations have sprung up out of the industrial wastelands.

Inner suburbs outperform

If you're a long term investor in property over a horizon of, say, 20 years plus - and the high transaction costs often determine that you should be - then you can only have very limited control over the vagaries of the construction cycle through investing in landlocked and supply-constrained suburbs.

The preceding residential construction boom in Sydney finally peaked in 2004. This construction cycle gradually began to ramp up from a nadir for dwelling starts in Q1 2012, with apartment commencements rising virtually ever since.

At this stage in the cycle people love to talk about greedy investors pushing up prices, yet if you buy counter-cyclically vendors are practically trying to ram sales down your throat, so keen are they to get out of the market. Ups and downs, peaks and troughs. 

My basic thesis when it comes to Australian property has always been that there are certain desirable inner capital city areas, close to the beaches, employment, the city, and transport nodes, that will outperform the averages through the inevitable ups and downs of the cycles.

The specifics of those locations and property types do change a bit over time, but the principle of where pressures on land values are greatest are fairly constant. While affordability will always be a constraint to some extent, as the population grows there will be a greater demand for the geographically limited supply of desirable land close to the city. 

That's not to say outer suburbs can't do well at various points in the cycle - outer Western Sydney has seen some outlandish price gains over the past 4.5 years, for example - but the growth won't be sustainable.

Population density

The population growth in Australia has been heavily focused on four capital cities plus parts of coastal south-east Queensland, and is projected to become even more so over the coming decades.


There have always been some congested roads in Sydney (the Grand Parade has long been a shocker, for example) but only really in the last year or two that the traffic has become so much noticeably worse, with the population of the harbour city now moving beyond 5 million. 

Because I spend so much more time interstate these days, my initial experience of Sydney is often the airport and suburban Mascot - on one trip this year the taxi took more than half an hour to even escape the airport!

Experiences globally have shown that once a city reaches a population of around 5 million, logistical and liveability challenges become just that much greater. 

None of us likes sitting in traffic, of course. But the reality is with a global population of 7.5 billion rising towards an estimated 10 billion before over the next four decades, the aim in our cities should be fewer automobiles on the road, not more. China alone is now poised to surpass 300 million motorists as its urban population expands relentlessly towards 1 billion


Public transport use soars in 2015-16

The use of public transport in New South Wales as measured by passenger trips soared by a thunderous 72 million or 12 per cent over the last year to 678 million trips.


Trips by rail transport increased by 10.7 per cent to an unprecedented 363 million. Bus trips increased by 12.8 per cent to 290 million. Light rail is still in its relative infancy, but the number of trips increased by 66.7 per cent year-on-year.

Ferry trips, unsurprisingly, were unchanged, and I wouldn't expect them to increase much in future either, unless capacity is increased. 

The increased popularity of Opal Cards - which now appear to be actually working properly according to the data! - was cited by the audit office as one of the drivers of the surge of activity on public transport. 

While the incentive of more free trips is no doubt a factor, alone it clearly can't explain an extra 72 million trips on public transport! 

Obviously the real reason is that driving in Sydney is becoming less attractive over time as the city matures and becomes more densely populated, in line with other world cities.

The wrap

Studies by Grattan and others have shown that outer suburban areas struggle with access to employment within a 45 minute drive, and as such public transport hubs are growing in importance, especially rail links.

Domain recently reported that home values had doubled or almost doubled over the past decade in a number of Brisbane suburbs, most of which were within a few kilometres of the CBD, such as South Brisbane, Newmarket, Cannon Hill, Camp Hill, Balmoral, and Wilston (while large price gains in Sunnybank were obviously driven by the vast influx of Chinese capital and immigrants).

That's no surprise, as it's where desirable land is at its most scarce, and demand is highest.

Over the past year Pyrmont in Sydney has delivered another ripping 22 per cent capital growth. Surry Hills is another suburb I expect to see continuing to benefit from a combination of Chinese investment and the CBD & SE light rail project.

Prices in the eastern suburbs such as Bondi have delivered stunning returns, although Bondi Road has morphed into something akin to a car park over the last year or three, so I expect strong price pressures will steadily shift shift closer to the Junction at BJ, and later towards towards Randwick, Coogee and Maroubra as the light rail comes online.

Public transport links, particularly train and light rail links, are gradually morphing from a 'nice to have' to becoming an essential. 

Summer starts in Sydney

Softer start

A huge week of auctions to kick off summer in Sydney with some 1111 homes going under the hammer as the long summer break approaches. 

Although this was a large number of auctions, activity levels are still some way down on a year ago. 

The preliminary auction clearance rate according to Domain was down a bit to a still-strong 75.8 per cent.

Patchier in parts

While the inner suburbs are still firing, there were plenty of examples of auctions passing in out west, while auction after auction in both Bankstown and Blacktown failed to deliver a positive result, and likewise Cabramatta.

While on the 'B' theme, in the east almost everything in the four suburbs of Bondi that is touched is turning to sold, and the same is true of Randwick and Surry Hills.

Meanwhile the north shore suburbs such as Lane Cove and the northern beaches (Dee Why, Manly, etc.) continued to power on relentlessly.

The sheer strength of results in suburbs to the north of the coathanger through this cycle has been something to behold.

In Marrickville in the inner west, everything sold under the hammer. 

There are some signs that affordability is biting, with attention shifting to properties in the lower percentiles in the popular suburbs.

Indeed, the median auction price for units increased to $892,500 from $850,000 last week. 

On the other hand, the median auction price for detached houses slipped a little from $1,410,000 top $1,380,000.

This dynamic took the reported auction median overall down a notch to $1,200,000 on the day.  

On a 4pMA basis, the median reported auction price was down a little from the record high of $1.27 million a fortnight ago to $1.23 million.


Not lot to go now until Christmas when everyone can take a well-earned breather.