Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Thursday, 2 October 2014

Building approvals hit new record

Record high approvals

The ABS released its Building Approvals data today, which revealed more good news for the Reserve Bank's plans to rebalance the economy away from mining construction towards dwelling construction.

The total number of approvals increased by 3 percent seasonally adjusted in the month to be more than 14 percent higher than a year ago. On a rolling annual basis approvals are now tracking at the highest level ever recorded at more than 197,000 (click charts to expand):

Over the past year there has been a clear pick-up in the number of house approvals (+12 percent) and unit approvals (+17 percent). On a rolling annual basis unit approvals are at their highest ever level.

State level figures

At the state level, Victoria still appears to be overbuilding which accounts for vacancy rates remaining higher than the national average, although this still has not impacted dwelling prices in the state adversely.

Unit oversupply is the greatest risk in this cycle. New South Wales has approved the greatest number of units and apartments, but we need to drill down a level to assess oversupply risk.

Capital city approvals

Greater Melbourne is still building the most houses resulting in high vacancy rates and high levels of stock on the market. 

Meanwhile, the boom in Sydney dwelling prices has resulted in a very strong supply response, the city approving more than 26,000 units over the past year, leading to levels of construction which will keep the NSW economy more than robust in the years ahead.

Unit oversupply?

While this is a historically high number for Sydney the level of approvals in August 2014 is now only at around half the level of the rampant approvals peak seen in September 2013 and the annual trend is now rolling over and is set to head back below 20,000 over the course of the next 9-12 months.

Greater Sydney's population growth, on the other hand, is bordering on out of control levels at around 90,000 persons per annum, which accounts for why vacancy rates continue to remain below the national average. That said, there will be an oversupply of apartments in some pockets including parts of the CBD, inner south and certain Urban Activation Precints (UAPs) as I covered in some detail here

The number of units approved in Brisbane continues to rise, with Lend Lease selling out Stage 1 of its Ekka (showgrounds) development in the record short time of only four hours. It's an investor frenzy, and given that most inhabitants in Queensland prefer house-dwelling to apartment living, this ongoing rush if approvals is likely to result in a significant oversupply of inner city apartment stock.

Macroprudential tools

There has been much talk of macroprudential measures being introduced by the Reserve Bank of Australia (RBA). When questioned on the matter today members remained relatively coy, although there was some inference around amendments to risk-weighting for investor loans being looked at, perhaps some time around Christmas.

In the absence of interest rate hikes it appears doubtful that this will have much effect on the market. One gets the strong sense that the RBA would rather see the market rebalance of its own accord rather than meddle too much in conjunction with APRA.

With supply increasing there is likely to be downward pressure on rental yields at this stage in the cycle. Indeed, yields will be under pressure anyway simply because there are so many buyers in the market and dwelling prices in Sydney in particular have been booming. 

SQM Research released its stock on market data for September 2014 today (see below), which says it all - unusually for this time of year Sydney's stock on market dived by a massive 6.9 percent in a month to be more than 10 percent lower than was the case only a year ago.

Moreover, a comparison of the levels of stock on market in Sydney to the only equivalently sized market of Melbourne shows there to be only half the level of on market stock. Unsurprisingly, therefore, the Sydney property price boom continues apace towards 2015.

Although it shows only as a blip on the chart below stock on market in Darwin has increased by 26 percent over the past year. After a blistering decade of price growth the Top End may finally be faltering. As a former resident, I can say that I love Darwin but the property market is an oddball.