Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's 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.

"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

Saturday, 30 November 2013

"Australia needs to get real on population growth" - Joye

A fascinating read here from Christopher Joye at the AFR. Four of Australia's capital cities are likely to see their populations explode in size:

"Within the lifetime of the typical Australian the number of people living here is expected to jump 60 per cent from 23.3 million today to 37.6 million by 2050.


Sydney and Melbourne’s populations are projected to explode by 60 to 80 per cent to reach almost 8 million inhabitants each. Perth’s size is set to more than double to 4.6 million within the next 37 years. But ­politicians, policy makers and the private sector appear unprepared for this radically different future.
The anticipated population increase over the 2012 to 2050 period, which has tripled in the last decade alone, almost defies comprehension. In the Australian Bureau of ­Statistics’ base-case scenario, known as “Series B”, we will have to find the room and resources to accommodate 15 million extra residents by the middle of this century. That means we will probably have to build another 7 million additional homes in our cities.
Back in 2003 the official statistician thought Australia’s population would by only 4.7 million bigger in 2050. Yet actual experience has forced the ABS to radically revise these numbers on three occasions since the 2003 vintage."

Graincorp takeover blocked

Problems from Graincorp (GNC) as a planned $3.4 billion takeover by US giant Archers Daniels Midland (ADM) has been blocked on the grounds that it is not in the national interest.

Shares in GNC were crunched by 25%, the company having brought in senior management with M&A experience in order that they might oversee such a transaction.

Not sure where to next for GNC. Business Spectator:

"Mr Hockey earlier told reporters in Sydney he would oppose a $3.4 billion offer from US giant Archer Daniels Midland to acquire 100 per cent of the agribusiness.

GrainCorp chairman Don Taylor said in a statement to the Australian Securities Exchange the decision "will have enduring implications that will be felt not only by our shareholders but by the entire industry".
"Australian agriculture has been prevented from realising the potential benefits from the significant capital ADM would have invested in the long-term future of the industry," Mr Taylor said."

Warmest year on record?

Sydneysiders recently celebrated the 40th anniversary of the Opera House: out in force enjoying the sunshine again today. 

With temperatures averaging almost 26 degrees even through spring and bushfires running amok, the city is on track for the warmest year on record.

Auction markets also continue to break records with more than 900 properties due to go under the hammer today.


Construction rebounds - but not for housing

Construction work done

On Wednesday, the reported seasonally adjusted estimate for total construction work done rose by +2.7% to $53,427m for the September quarter, outshining expectations and being driven by increases in non-residential and engineering construction.

Source: ABS

It was pleasing that total construction work done beat analyst expectations, yet not so smart was the fact that residential construction once again went nowhere, for a third consecutive print. Given that the economy is supposed to be rebalancing away from engineering construction (i.e. mining) and into residential projects, this doesn't look so great.

If you live or work in inner Sydney this might come as a surprise given that there is an uplift in construction happening here. However, it is not so elsewhere, and for this reason property analyst Michael Matusik is in the camp of those expecting further rate cuts:

"The continued subdued nature of new housing starts – despite record low interest rates & a high number of actual dwelling approvals – means a lower than anticipated economic growth rate for next year; something below 3% per annum.  Very few new jobs will be created across the country if GDP stays below 3%.  Anything less than 2.5% usually means job losses.

Whilst the RBA jawbones for a lower Aussie Dollar – yes, something in the mid 80 cent range would be very good – the only real tool we have to help get housing starts increasing again (and by ten-plus percentage points per annum) - and with that type of growth rate, many more jobs – is interest rates.
At present new housing construction – for the year ending September – grew by just 1% across Australia.  New housing construction is actually contracting across Queensland – down 2% on last year.
Despite talk to the contrary of late, interest rates need to fall again and soon. We need to build more new homes.
Matusik is bullish about the outlook for east coast residential property and in particular for Sydney, Melbourne and south-east Queensland, noting that prices could rise by as much as 25% over the next 3 years.
Private capital expenditure - actual and expected
Most of us are probably familiar with the doomsday scenario by now: mining capital expenditure tanks "off a cliff" through 2014 and beyond, our terms of trade collapse, unemployment rises and Australia sinks into recession. In contrast, what we actually want to happen is a relatively smooth transition from mining construction to mining production.
In this context, total new capital expenditure rebounding by 3.6% in the third quarter was a welcome surprise to the upside.

Source: ABS 

The "Estimate 4" figure for total capital expenditure in for 2013-14 came in strong at $166,832m which is 3.2% higher than the Estimate 3 for 2013-14. In plain English, this means that capital expenditure next year is expected to hold up a little better than had been feared - perhaps more of a plateau or a gentle taper rather than a cliff?
Source: ABS
Similarly, the estimated figure for expected mining capital expenditure ticked up a little. The widely feared 'capex cliff' has not materialised to date.
Source: ABS
There could be any number of reasons for this, including project cost overruns. Paradoxically, such inefficiencies appear to be a positive in capital expenditure actual prints (in line with the 'parable of the broken window' - if our aim it simply to boost GDP we should all go and smash a window tomorrow). 
From my own experience I know how hard it can be to estimate capital expenditure in mining surveys and material blowouts are not uncommon. Expected figures which may appear entirely reasonable at the feasibility/FID stages can go badly awry over time. Labour costs are high in Australian mining and construction activities are tightly regulated (as they might say in mining parlance: "you can't go to the bathroom without filling out a form", or words to that effect).
New home sales
A weaker month recorded by the Housing Industry Association in October. The small sample sizes mean that the data set is volatile, particularly at the state level. Clearly, new home sales are significantly stronger than they were in Q3 2012, with total sales up by around 25% y/y (in particular house sales are up strongly by more than 33%).
The largest increase across the 3 months to October this year was in South Australia (+10.5%), followed by Victoria (+6.0%), Western Australia (+5.3%), Queensland (+5.1%), and New South Wales (+2.0%). The trend in new home sales remains up, albeit not in an earth-shattering manner.

Source: HIA

Affordability

The HIA caused a stir by also releasing its housing affordability index this week, showing 'affordability' at an 11 year high thanks to 225bps (2.25%) of interest rate cuts since 2011. Clearly repayments have dropped sharply, but entry prices remain elevated.

Dwelling prices
RP Data's Daily Home Value Index sees dwelling price growth lately as moderate or having moderated everywhere except for Sydney. Melbourne dwelling values will be reported as having fallen by more than 2% in November, although to some extent the index is likely have been impacted by a change in the sales mix.

Source: RP Data
Summary and risks to the outlook
So, where does this all leave us? The rebound in total capital expenditure combined with improved retail sales suggests that the Q3 GDP print next week might be a little better than had been expected, perhaps in the realm of 0.6%-0.7% for the quarter. However, residential construction is not firing across Australia and the official cash rate appears set to be stuck in the 2-3% range for the foreseeable future.

Source: ABS
I've alluded to some of the risks for 2014 and beyond above, including any severe drop in mining capital expenditure or a major weakening of our terms of trade from historically very high levels.
Terms of Trade graph
Mining production is increasing, the iron ore spot has held up well at $135/tonne at a time of year when support may begin to return to the price, and the Aussie dollar is threatening to sneak into the 80-90 cent range which may help producers to remain competitive.
The biggest unknown is probably the outlook for China. No surprises that growth in China looks set to hit its target, but significant question marks still remain about the stability of the model. The Chinese economy is imbalanced, with a very high percentage of GDP growth being driven by investment rather than by consumption: the building of apartments (tens of millions of which reportedly sit vacant), infrastructure and factories. 
Whether or not China is able to rebalance away from investment towards consumption in the years ahead is unclear, and consequently it needs to be considered whether the growth rates that we have come to expect from China are sustainable going forward.
GDP Growth – China and India graph

Saturday Summary: articles of the week

Summarised by Michael Yardney at Property Update here.


Thursday, 28 November 2013

Australia in 2061: more of us in the capital cities...

A very interesting piece from RP Data's Cameron Kusher here.

The Australian Bureau Statistics in its 'middle' series, projects the Aussie population ballooning to 41.5 million by 2061 from around 23 million today.

New South Wales will remain the largest state by population, but growth rates will be faster elsewhere, particularly in Western Australia

Meanwhile the absolute increases in state population will also be vast in Victoria and Queensland.

state by state

One of the most notable trends is that in certain regional areas and some smaller cities, population growth is forecast to become static or even fall in some cases.

Meanwhile, an even greater proportion of Aussie will live in the capital cities with the populations of Sydney, Melbourne, Brisbane and Perth bursting at the seams.

cap city by cap city

RP Data notes:

"The proportion of Australian’s living within a capital city is already quite high at 66.1% however, this is projected to increase to 73.4% by 2061.  

Think about that, out of a projected population of 41.5 million, almost three out of every four Australians will live in a capital city.  

If we focus on the four most populous capital cities, 57.3% of Australians currently live in Sydney, Melbourne, Brisbane or Perth.  Based on the population projections, by 2061 65.8% of the total national population will live in Sydney, Melbourne, Brisbane and Perth."

Wednesday, 27 November 2013

Property Observer: property supply is about more than just planning restrictions...

I write for Property Observer today here on the complex subject of land supply and planning restrictions.


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I have a real problem with chocolate consumption. If there is any in my flat, I always eat it. Always. If it's there, it gets consumed. The only way to deal with it that I've found so far is just not to buy any of the stuff in the first place. If it's not there, I can't eat it.

It's kinda getting like that with the Daily Home Value index. I'm not a big believer in daily house prices due to the obvious limitations of short-term median price trends and variations between property types and price bands.

And yet, the data is there so...

Here's what has happened in November to date. Interesting. I wonder how long before this gets a mention in the mainstream media (one week is my guess)...


Data Source: RP Data


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Most amusing news story today: "Man who said he fell on banana peel in Metro station accused of fraud" - only in America! 90 second video here...

Gold miner Newcrest capitulating

It's been a terrible year for the gold price, but an even worse one for some of the gold miners.

Newcrest Mining (NCM) has seen its market capitalisation fall from around $30 billion in 2010 to just $6 billion following a series of mammoth write-downs, with its share price capitulating by 64% in 2013 alone.

NCM is getting absolutely slammed again today down by more than 3.5% during the morning trade to just $7.81. 



Source: ASX

Good (and not-so-good) investments since the financial crisis

Not much to report on the share markets: the Fed taper keeps getting deferred and US stocks remain in a significant uptrend.

There has been a lot of talk about shorting the market over the last few years due to the world ending - and it still might yet. There are a lot of debt-related issues in the world (both public and private) where the full pain of a long-term resolution has never fully been taken.

But you'd have done very well indeed just to hold the index - the DJIA is +27% y/y...and the returns since the middle of 2009 have been staggering.

The share market recovery has been less dramatic in Australia, in part due to a historically strong Aussie dollar which may have made our stock market less appealing to foreign investors.

Nevertheless, excellent returns for holder over the past half decade, particularly for those holding strong dividend-paying stocks. 

You could have done well from shorting the market if you timed your entry and exit well, but that's a tough gig to get right for most average traders/investors.  As a general rule, for most people, there is a far greater chance of long-term success through owning quality income-producing assets.


Source: ASX

I keep reading articles about how, for various reasons, property in Sydney is not a good investment. Well, you can keep telling yourself that if you like and if it makes you feel better, but unfortunately, that's nowhere near being the case. 

SQM produces an excellent 'vendor sentiment index' based upon asking prices by property type and by capital city. It's one of my favourite reporting tools. Here is their key:


And here has what has happened to Sydney dwelling prices since the financial crisis, which is to say, sentiment has been very, very strong across all property types. And sentiment is continuing to get stronger, with SQM forecasting a boom in prices of 15-20% in 2014.

Vendor expectations are getting higher, and as anyone who has actually bought in the established Sydney market of late will know, there are stacks of buyers out there ready to meet them.


Source: SQM

If you think back to my posts on population growth, here and here, combined with an inherent under-supply in the harbour city and low interest rates, it's not hard to see why.

Sure, population growth in itself does not cause property prices to move higher. but in the supply-constrained desirable suburbs, that is precisely the impact it is having.

Wondering whether Adelaide will start to pick up a bit now? You'd think it would have to sooner or later after a very uninspiring and under-performing 5 years, but at this stage, according to SQM's vendor sentiment index...no dice.


Source: SQM

More on population growth...

The Sydney Morning Herald explores further the new population projections in this article today here.

People often ask me why I prefer the idea of investing for the long term in large cities like Sydney (and London) and where possible prefer to steer clear of cheaper alternatives such as South Australia, Tasmania, and regional NSW and Victoria.

Well, the article is pretty much self-explanatory:


"By 2060, the bureau estimates, Melbourne will have 8.5 million people, twice as many as now. 

By then Sydney would have 8.4 million, an increase of 80 per cent from now. 

Perth would more than double to 5.5 million people, and Brisbane to 4.8 million. Both cities would be bigger than Sydney is now. Melbourne would overtake Sydney in 2053.

Those four cities, the migrant magnets of Australia, would add 14 million of the 18.4 million extra people envisaged by 2060. 

The rest of Queensland would add 2 million, the ACT would double to almost 750,000, but in much of the rest of Australia - South Australia, Tasmania, and regional NSW and Victoria - population growth will either reverse or slow to minimal levels by 2050."

Tuesday, 26 November 2013

What's going to happen to Australia's population by 2061?

A very interesting release from the ABS today which estimates what could happen to Australia's population based upon a range of assumptions surrounding fertility rates, mortality rates and net impact of migration.

(see here for the assumptions built in for babies per woman, life expectancies at birth and net overseas migration).

Unsurprisingly, the figures anticipate a monumental increase in Australia's population, but not in every state.

The population is expected to increase significantly in every state except for Tasmania.

But the absolute increases are forecast to be relatively small in South Australia, the ACT and the Northern Territory.

The next 50 years are expected to see giant increases in the population of New South Wales (+4.2 million), Victoria (+4.7 million) and Queensland (+4.7 million).

And if you think that is dramatic growth, see below for what the ABS estimates for Western Australia! 

I've copied a short sample of interesting excerpts from the ABS release below:

"Australia's population at 30 June 2012 of 22.7 million is projected to increase to between 36.8 million and 48.3 million in 2061, and reach between 42.4 million and 70.1 million in 2101.

The three main series project continuing population growth throughout the projection period. 

In Series A, Australia experiences strong and consistent growth, reaching 48.3 million in 2061 and 70.1 million in 2101. 

In Series B, the population will reach 41.5 million in 2061 and 53.6 million in 2101. 

In Series C, growth is projected to be lower, with the population reaching 36.8 million in 2061 and 42.4 million in 2101."


By 2061 the population of New South Wales is projected to reach 11.5 million people, an
increase of 4.2 million people (or 57%) from 2012, while Victoria is projected to reach
10.3 million people, an increase of 4.7 million people (or 83%).

Queensland is projected to more than double over the projection period, from 4.6
million in 2012 to 9.3 million by 2061.

Western Australia is projected to experience the largest percentage increase in
population between 2012 and 2061, more than doubling the 2012 population of 2.4
million to 6.4 million by 2061.

The Northern Territory's population is projected to increase by 217,800 people between
2012 and 2061, to 453,000 people. 

Although a smaller absolute increase than those
projected for the larger states, this is a significant increase (93%) relative to the Northern
Territory's population of 235,200 people in 2012.

The population of the Australian Capital Territory is projected to increase by 365,800
people (98%) between 2012 and 2061, reaching 740,900 people. By 2038, the Australian
Capital Territory is projected to exceed Tasmania's population. 

Tasmania's population is projected to increase slowly before levelling at 569,200 people at 2046 and then decreasing marginally from 2047 onwards (565,700 people in 2061).

South Australia is projected to increase by 651,700 people (39%) to 2.3 million people in 2061."

Which is the strongest/weakest capital city property market in Australia?

SQM's Louis Christopher explains in this short video here.

In summary:

-Sydney dwelling prices forecast to grow by 15-20% in 2014.

-Canberra prices now falling.

-Elsewhere, more subdued levels of growth.

Monday, 25 November 2013

NSW $60 billion infrastructure boom

New South Wales has $60 billion of infrastructure projects in the pipeline sparking a boom in jobs.

These include the north-west rail link, light rail projects, $13.7 billion on roads (including the massive West Connex project and roads in Western Sydney), hospitals, new schools, a total of $14 billion on rail expansion and $92 million on replacing buses.


These projects are welcome news in the face of the forthcoming mining capex downturn.

Note that this is what is happening and is expected to happen to mining capital expenditure:

Chart: Financial year actual and expected expenditure- Mining Capital Expenditure

Source: ABS

Property Observer: the bid-rent theory in Australia

Read my lead article on Property Observer today.

Gold continues its slide

Gold slides below US$1,230/oz.

Unless I'm mistaken that's a 5 month low...



Source: kitco

How quickly is Sydney property selling right now? (and what hope for macroprudential measures targeting credit?)

To all intents and purposes: immediately (for desirable/well-located stock).


Source: RP Data

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We'll hear a lot about macroprudential housing market measures discussed through 2014.

For those that are interested (which won't be many, I guess), a short but interesting BIS paper on the impact or otherwise of non-interest rate policies on housing markets.

The conclusions on the restriction of credit growth on pages 25-26 include:

"Of the two policies targeted at the demand side of the market, the evidence indicates that reductions in the maximum LTV ratio do less to slow credit growth than lowering the maximum DSTI ratio does. This may be because during housing booms, rising prices increase the amount that can be borrowed, partially or wholly offsetting any tightening of the LTV ratio."


Note that DSTI means 'debt service to income'. 

The BIS paper concludes that, particularly in a rising housing market, limiting how much people can borrow as a ratio of debt serviceability to income is a more effective tool for the capping of credit growth than limiting loan-to-value ratios (as the aggregate of loans might otherwise increase with appreciating market prices).

All makes sense. 

Perhaps the more worrying BIS conclusion is that none of the macroprudential measures targeted at limiting growth credit have any discernible impact on house prices at all:

"None of the policies designed to affect either the supply of or the demand for credit has a discernible impact on house prices."

This would be particularly so if there was a material increase in the number of cash-rich buyers impacting our major capital city markets from offshore, but, as ever, we have no reliable data upon which to conclude.

Sunday, 24 November 2013

Aussie property prices 2013 YTD

Sydney by far and away the strongest market in 2013.

Things at last appear to be looking up for Adelaide.

Watch out for Brisbane sentiment improving next up with interest rates set to stay at ultra-low levels into 2014...


Data source: RP Data

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1-0 to Australia in the Ashes following a convincing win. 

And the Perth Test still to come where Australia will be favourites. 

England need to bounce back very quickly in Adelaide (after a brief stop for a tour match in Alice Springs)!

Sydney's newest suburb (panoramic)

Epic construction going on down at Barangaroo, so I took my camera down for a snout.

Opening in 2015.

Check out the landscaping in the third picture...




Privilege

"Instead of comparing our lot with that of those who are more fortunate than we are, we should compare it with the lot of the great majority of our fellow men. It then appears that we are among the privileged." - Helen Keller.

"I wish I had coined the phrase 'tyranny of choice,' but someone beat me to it. The counterintuitive truth is that have an abundance of options does not make you feel privileged and indulged; too many options make you feel like all of them are wrong, and that you are wrong if you choose any of them." - Susan Orlean

David Jones - strike one


Two weeks ago I noted here my incredulity at the stupidity of David Jones (DJS) management for granting executives the permission to do this:



That is to say, load up on a few cheap shares in the immediate run-up to a price-sensitive revenue release for Q1 2014.

Ridiculously, DJS management even tried to claim that while profit releases are market sensitive, revenue figures are not (note: the red exclamation mark next to the ASX release denotes a price sensitive release), which is an unusual notion for a retailing company

This was followed hard upon by the obligatory "we was just showing support for the company" line.

With the share purchases now under investigation by the corporate regulator, we'll at least be spared any further comment from the company on the subject for now.

Anyway, it seems that I wasn't the only one who found the contempt annoying.

Nearly 40% of shareholders voted against the Remuneration Report at the AGM, thus issuing the company with a so-called "first strike".

Under the rules now adopted in Australia a company which records higher than a 25% "no vote" against its Remuneration Report at two successive AGMs is compelled to put is entire Board up for re-election.

In practice, a second "no vote" is less likely as shareholders would probably be shooting themselves in the foot.

I haven't sifted through any of the voting results but there were whispers that some of the institutional investors were in favour issuing the first strike due to a lack of clarity surrounding short-term incentives (STIs) for management.

After a tough few years, DJS will be glad to move on and focus on getting another strong revenue release out for Q2 - hopefully this time with no preceding Appendix 3Y lodgements...

Saturday, 23 November 2013

Melbourne property markets running out of puff?

A month ago I posed the question (to the expected protest) as to whether after a tremendous run since 2007 Melbourne's property markets are at long last running out of steam in this article here.

The REIV reported an auction clearance rate today sliding all the way back to 67%.

That's not a trend that looks good.

Of course, the usual counter-points will be rolled out: a high number of properties on the market, unrealistic vendor expectations, not all properties are sold at auction...and so on.

The trend in Melbourne auction clearance rates is not good. That's all I'm sayin'...

On the flip side, if we chart the mortgages processed data from Australian largest mortgage aggregator, Australian Finance Group (AFG), then volumes still look to be in good shape for Victoria, so I may be premature.

Whilst acknowledging some volatility in month-to-month readings (and allowing for AFG snaring a gradually higher market share over time), it is worthy of note that the broker processed more than $4 billion in home loans in October 2013, with Victoria one of the states to see a material and continuing uplift spanning well beyond the past 12 months.


Source: AFG

AFG commented:

"The $4,057 million figure [for October 2013] is 12% higher than the $3,624 million processed the month before, which was itself a record. The October 2013 figure is also 30% higher than that recorded by the company for October 2012, and 61% higher than for October 2011, showing how far the mortgage market, and broader economy, has recovered over the past two years."

Meanwhile, Sydney powers on, with Australian Property Monitors (APM) reporting yet another 80%+ clearance rate. 

The final clearance figure will probably be revised down but Sydney's property markets are clearly staying strong through into 2014, and dwelling prices are heading up.

What does Sydney's apartment construction boom mean for investors?

If you live or work in inner Sydney, you'll only be too aware that the city is now well into a dwelling construction boom.

In particular, the inner city is seeing the building a new apartments aplenty.

The Reserve Bank will certainly be well pleased to see this, for part of their grand plan was for low interest rates to stimulate dwelling construction as the mining investment boom passes its peak and tails off.

And after years of weak supply, Sydney certainly needs the dwellings: the city's population is increasing by more than 60,000 persons per annum.

In the inner city and in parts of the inner south, at times it almost feels as though every available block is under construction.

This will lead, no doubt, to a spate of articles citing a forthcoming oversupply and a "major shake-out" coming.

And in certain sectors of the market, this may indeed be true.

In the Central Business District (CBD), Sydney tallest residential tower will soon appear. At Barangaroo, a whole new suburb is in the process of springing out of the ground, albeit with much of the space allocated for commercial ventures and parkland, in addition to a number of luxury apartments.

In the city's inner south, a huge amount of development is underway.

If you are a homebuyer looking to stay put for a reasonably long period of time, then these new developments may suit you fine.

However, from an investors point of view, there is far better value and potential capital growth to be found elsewhere, in established stock within certain suburbs located a little way from the city.

For some there may be a time and a place for buying expensive apartments 'off the plan', but now is probably not that time.

Instead investors should look towards some of the favourably-located leafy suburbs which are located within easy striking distance of the CBD, but not in the CBD itself (where there are few height restrictions on building and there exists an oversupply risk).

Look to suburbs where there is no land available for release and where tall tower blocks will not be granted development approval, thus capping the population growth.

A small amount of redevelopment in a suburb can be a good thing, for the price of new stock can underpin existing dwelling prices, and a six pack of units where a house once stood is not going to suddenly cause an oversupply in a city with a population growth as strong as that of Sydney.

Over the last few years, relatively high vacancy rates in Melbourne led a number of bearish market commentators to predict a major correction in  the city's wider housing market.

But while in certain high rise developments and suburbs prices may have stagnated, established stock in supply-constrained suburbs have defied the gloomy predictions and continued to demonstrate impressive rates of growth.

We'll likely see similar trends unfolding in Sydney. The city is not into a very strong growth cycle as I anticipated long ago on this blog, but capital growth does not continue forever. 

When the next cyclical downturn arrives - be it in 2016 or 2015, or whenever - investors who hold well located stock close to the median price range in supply-constrained suburbs will be thankful. Those who own over-priced high-rise stock where vacancy rates are higher, will not.






A bubble we have to have?

Read Roger Montgomery's take on the outlook for Australia here.

Property Observer: Property price predictions for 2014

My article on Property Observer has been the most read piece for the entire week.

Take a read here.


Saturday Summary: articles of the week

Summarised by Michael Yardney at Property Update here.




Friday, 22 November 2013

AUD touches 91.7 cents

Well, that's been a welcome little turn up for the books this past few days, with the Aussie dollar sliding back in response to news from the US as well a little "jawboning" from the Governor of the RBA down under.

I've been holding USD (effectively, therefore, short AUD) short for 12 months now, although I lost my nerve and lightened up a bit last month. 

In other news, did anyone catch any cricket today?

Hmm, oh dear, an utterly awful day for the Poms and the green caps well on track for a decisive First Test victory.

Now there must be some storms around in Queensland...

New record high for the Dow overnight at 16,057 or +0.3%. 

Things looking up in Adelaide...

Adelaide has homebuyer-driven property markets, which might suggest that the city could be of the 'slow and steady returns' type.

And it looks as though a generational low cash rate is at last starting to bite in South Australia after a sluggish 5 years. 

Interest rates are expected to stay relatively low through 2014, so moderate gains in most capital cities markets appear most likely to be the order of the day.

RP Data's index below shows dwelling prices as having increased in every capital city over the past 12 months. 

The quarterly figures also suggest that we remain in a growth cycle, as all major capital cities are in the green.

Hobart and Canberra, where the outlook has been less rosy, are not included in RP Data's Daily Home Value Index. 

Sydney remains the obvious standout performer. 


Source: RP Data

Dow closes at record high above 16,000

The records continue to tumble with the DJIA closing up 109 points or 0.69% at 16,010 as jobless claims fell by 21,000 to 323,000 (beating Bloomie survey expectations of 335,000). Consumer expectations in the US are also tentatively higher this month than have been.

This is the first time ever that the Dow Jones has closed above 16,000 and the index also hit a 40th record high for the year.

Clearly with few superior ideas of where to push capital, markets still betting hard on the timing of a Fed taper. As interest rates rise, worsening bond losses loom large.

So, what would actually trigger a taper to the stimulus? According to Deutsche Bank, a payrolls print of +185,000 and a fall in the headline unemployment rate, which sounds fair enough.

Meanwhile, back in Australia, if you were a disciple of technical analysis - which I'm not - you'd probably suggest that the slide in the XJO over the past month sees the ASX 200 threatening to break out of a 5 month trading range on the downside.

However, after four straight losing trades, the strong trade on Wall Street may mean that the Aussie bourse finishers the week with a bit of a spring in its step. Maybe.

Mind you, if Australia's batting line-up gets rissoled for 300 on a flat deck at the Gabba, who knows, perhaps sentiment could tail off later in the day...


Source: ASX

Thursday, 21 November 2013

ASX 200 tailing off

XJO now trending down over the past month...



Source: ASX

Ashes Day 1: Even at the Gabba as tail wags dog

Superb first day of cricket in Brisbane.

Let's hope that the storms hold off as it seems to be shaping up  to be a superb game of cricket.

Stuart Broad the standout for England with 5 wickets, but a fine counter-attacking innings from Brad Haddin sees Australia at 8/265 with just a couple of overs remaining on the first day.

Big day ahead tomorrow as England will most likely get to bat on what looks to be a flat wicket.

Crucial wicket ... Stuart Broad gets Australian captain Michael Clarke.

Photo from Sydney Morning Herald (Getty Images)

Gold stocks creamed

Oh dear, gold stocks just can't catch a break.

Not surprising when you look at the gold spot chart which looks woeful.



Source: kitco

Reports Motley Fool:

"Gold stocks were punished today with the major losers within the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) being dominated by gold miners. St Barbara (ASX: SBM) fell 10.8%, Perseus Mining (ASX: PRU) fell 9%, Silver Lake Resources (ASX: SLR) fell 8% and Medusa Mining (ASX: MML) fell 6.4%. All four stocks are back trading close to their 52-week lows having each lost between 70% and 90% of their value. That is despite having rallied strongly over the intervening period from late June to late August which saw their share prices surge off of the June lows by over 50%.
Foolish takeaway
With the AFR reporting that the World Gold Council believes gold consumption could fall between 5% and 10% this year and expectations that it could be 2015 before the gold market starts to see a contraction in production, despite the seeming appeal investors might think the beaten up gold sector could hold, it may be advisable for investors to steer clear of the sector."

Wednesday, 20 November 2013

UK property recovery gathers momentum

Gross mortgage lending in the UK increases by 37% y/y to the highest levels seen since 2007.

Different indices show different results, but UK property prices are at or close to all-time highs.

Certainly in and around London prices are easily breaking new peaks.

The market is being driven by the Help to Buy scheme and ultra low borrowing rates among other factors.

Even as an expat, provided you have access to a 25% deposit, it is very easy to borrow at such low yields that an investor can manufacture a comfortable reverse yield gap...even when buying investment property in London.

Investors are starting to see extremely cheap long-term fixed rate products as a no-brainer.

With residential construction stuck at desperately low levels, the population growing and a long-term migration to the south-east of the United Kingdom, the British market is all set to enter yet another boom period after half a decade of pain in many of the areas away from London.

London prices barely batted any eyelid through the financial crisis, particularly in the well-heeled boroughs.

The British market tends towards boom/bust cycles, and another property boom seems all set to get underway, as I predicted some time ago.

Monthly gross mortgage lending of £18 billion is still a long way below the peak of October 2007, when lending hit a massive £33 billion.

At the current rate of growth however, by 2015 Britain could find itself in dizzying territory once again.

The figures in my chart below are sourced from the Council of Mortgage Lending.

An arresting thought!

Almost every statistic which comes out of China seems to blow the mind, including the amount of ore which Australia is exporting there.

Today, here's another mind-bending thought from the Washington Post.

Due to the enormous respective populations of India and China, more of the world's population lives within the circle than without.

(Via Imgur)

Continues this blog on the Washington Post:

"Amazingly, the numbers check out. The world population, according to the U.S. Census Bureau, is roughly 7,083,460,000. The countries in the circle are ...
China: 1,349,585,838 
India: 1,220,800,359
Indonesia: 251,160,124
Bangladesh: 163,654,860
Japan: 127,253,075
Philippines: 105,720,644
Vietnam: 92,477,857
Thailand: 67,448,120
Burma: 55,167,330
South Korea: 48,955,203
Nepal: 30,430,267
Malaysia: 29,628,392
North Korea: 24,720,407
Taiwan: 23,299,716
Sri Lanka: 21,675,648
Cambodia: 15,205,539
Laos: 6,695,166
Mongolia: 3,226,516
Bhutan: 725,296

… which adds up to a grand total of 3,637,830,357, or roughly 51.4 percent of the global population. (The circle also appears to include parts of Russia and Pakistan, which I haven't included, and may have cut off a bit of northwest China.)
Asia’s population dominance is not a new thing: According to this neat NPR video on population growth, "most people lived in China, India and the rest of Asia" around the year 1000, too. But since population growth has gotten so fast, Asia is now expanding on an entirely different scale. By 2050, the U.N. predicted last year, 3.3 billion people will live just in Asia's cities."