Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, 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.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"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

Thursday, 30 August 2012

Desperately seeking approval(s)

ABS shows stymied dwelling approvals
Interesting figures from the Australian Bureau of Statistics today showing a huge drop in the number of dwelling approvals. In particular, note the massive 40%+ drop in approvals for apartments, which increasingly represent the dwelling type that the population demands.

While this appears to be an alarming drop, drilling further into the numbers reveals that the fall is largely due to a drop in approvals in Melbourne, which may be no bad thing itself. Even so, the overall level of approvals remains a little low at 11,306 seasonally adjusted.

Are we building the 'right types' of property?
Housing bears almost pathologically continue to refer to the housing bubble in southern California in the USA as irrefutable evidence for why dwelling prices can drop by 40%.
I, for one, have never even been to California, let alone the southern part thereof, but I’m starting to feel as though I have given how many times I’ve been pilloried with the evidence of the housing bubble that occurred there.
I could waste an awful lot of time and space here listing differences between inner-suburban real estate in Australia and the property dynamics of California (e.g. unemployment as close to zero as we are likely to see in Australia as compared to ≈12.5% in California around the point of the downturn). However, life is short and that would be as close to dead time as…well, being dead actually.

Much of this rather misses the point anyway. Part of the reason that Australian property in desirable locations is expensive, as noted by a number of commentators lately, is the abject failure of developers to build the types and quality of properties that buyers seek.
Population growth

Much of the affordability issue boils down to the sheer weight of increase in the population, which tends to flock to the capital cities. The recent Census showed that the population of NSW increased to 7.30 million in 2011 from 6.82 million in 2006, a staggering increase over five years of close to half a million extra heads (*resist temptation to insert quip here*).
Here are the prevailing and ongoing level of approvals; of particular importance being the approvals of new apartments:
Graph: Dwelling units approved - NSW
It's very difficult to pin down statistics from a macro level to a micro level, but I have the definite sense that the supply of appropriate dwellings is not keeping track with the billowing demand in inner- and middle-ring suburbs of Sydney, as is borne out by the very low (near-zero) vacancy rates of quality property.

Even these statistics only score a glancing hit on the point. Pessimistic commentators furiously post about there being no housing shortage in Australia, citing super-specific examples of individual streets with empty houses on them, or else reams of national statistics which 'empirically prove' there is no such shortage. It's largely balderdash.
If there was a genuine over-supply of appropriate and available dwellings property prices would surely be easing as demanded by that most commonly referenced of study modules, Economics 101.
You don’t buy the market; you buy a property
What we actually have in Australia is a dearth of the right type of property in desirable locations. Property home-buyers and investors need to see past all of this market noise and the associated hogwash.
Those who buy property in Sydney and acquired the type of in-demand property generating strong yields (apartments) in the right areas (the more desirable supply-constrained suburbs of the inner-west) will have seen their property prices appreciate by around a third over the past few years. It's a clear-cut case of appropriate supply failing to track increasing demand.
Property owners don’t 'buy the property market’ in the same way that an equities investor might buy an index, instead they buy individual properties therein. Smart property buyers therefore outperform the market at large every time.
Location, location...location
For a time around a decade ago it became trendy to say that you should not let the location of a property affect your purchasing or investment decision, that "negative gearing should never be accepted" and the only thing that really mattered was a property’s rental yield.
Argh! To paraphrase Margaret Thatcher: “No. No. No.” - I have to disagree with all three of those statements, and very strongly with the first of them.
When it comes to buying property, to paraphrase a second Brit (Welsh social worker and poet David Hughes): location is critical. Don’t even for one second ever think otherwise!
And a moderately negative cash-flow can be accepted by some if it means you are investing in area and property type that will secure outstanding capital growth. While most will sit on the sidelines fretting about an Australia-wide property crash, experienced investors know that while some sectors of the market may ease, there will always be those that are growing appreciably too.
There you go: I’ve disagreed without being disagreeable. I think.

Demand for apartments

Every real estate commentator ought to be known for having at least one hare-brained theory. Here's mine: in a decade's time the median value of an apartment will be higher than that of a house in Australia's major capital cities.

Yes, you read that right: it will become more expensive to own a flat than a house. That's not quite as wacky as it sounds. Demand for medium-density dwellings is growing ever stronger, and as apartments tend to be located more centrally and conveniently than many houses, their median prices are outperforming those of most housing stock at this time.

Check the dwelling price stats later today and you'll begin to see the angle I'm coming from.
***
Just a wonderful day in Sydney today, spent most of it in café’s around the harbour. Busier day tomorrow, as I need to get yet more vaccinations and yet more anti-malarials for my trip up north.