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.

Saturday, 31 May 2014


Sell in May...?

Next week, RP Data will release its monthly property price figures for May, which will record declines for the month across every capital city. 

Some of the weekly media reporting of dwelling prices has progressed to beyond farcical, perhaps an inevitable consequence a greater volume of data. 

Anyways, the RP Data index has a history of recording declines in May for the reasons that are well explained here.

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Strange to quote a chat forum as a source? Not at all! 

Plenty of the contributors have easily been consistently more accurate across a wide range of issues and have made far more sense than some of the hysterical expert commentary. More than that, they've frequently shown a superior understanding of data and trends too.

RP Data - May figures

Below is what RP Data will report for dwelling prices for the month of May, for the last quarter, and for the last year.

That is, declines across each capital city, including a huge decline in Melbourne of well over 3% which presumably reflects a few well overcooked results in preceding periods, though time will tell.

The green annual figures telling you most of what you need to know, which is that Sydney's property markets have been the strongest of the major capital cities over the past year, and Adelaide's markets have continued to remain the most subdued (click chart):

On a related note, I've observed that some have been trying to push the line that Adelaide is the "strongest" property market based on some serious cherry-picking of a couple of weeks of data. 

Now I'll agree that it does appear to be the case that some of Adelaide's property market fundamentals have been aligning with supply tightening and vacancy rates have been falling.

But it's also true that the local economy has continued to look disconcertingly weak comparatively speaking, and the state of South Australia has barely added any jobs on a net basis for more than half a decade now.

I don't doubt that over the short term Adelaide can show a dwelling price growth spurt while interest rates are stuck at record lows.

But when comparing the market fundamentals, the state's population growth or the employment growth of South Australia to elsewhere, there appears to be a question mark against almost every metric you may care to choose.

Always remember that property investment should be a long term game. A couple of weeks data is totally meaningless and it's important to see the bigger picture. 

I've copied just a few metrics from my chart pack below. Interpret as you will with regards to South Australia's population growth and employment growth:

5 year residential property indices

As always when it comes to daily property price indices there will necessarily be noise, so remember to look at the longer term ABS data in addition in order to draw your conclusions (click chart):


Sydney lower north shore starting to fire as we correctly forecast here.

Shock and ore

Oreful chart...

Iron ore price has gone into something approaching freefall, plummeting all the way down to US$91.50/tonne overnight.

That's the lowest level we have seen since since the first week of September 2012, but that time the price recovered fairly quickly.

Surprisingly the Aussie dollar is still buying 93 US cents, but you'd have to think there are significant downside risks to that with the iron ore price having been clobbered by more than a third (34%) since the beginning of the year (click chart):

Not expecting a great week ahead for mining stocks, while there will be a couple of iron ore mining companies getting a bit twitchy up in the Pilbara as the commodity spot price continues to decline towards their breakeven point.

Interest rate hikes are looking a million miles away now. 


Very busy in vibrant Campsie today for the food fair...

Property Update: Most interesting articles of the week

Summarised by Michael Yardney at Property Update here.

Take a read...

Friday, 30 May 2014


Credit growing strongly

The Reserve Bank released its Financial Aggregates for April 2014, and the result was another strong one, with total credit expanding by 0.5% in the month of April (click chart):

Over the past year, credit growth now looks solid and is well up over the last year by a further 4.6%. Housing credit growth at 6.1% leads the way implying that the housing markets will continue to be strong in the months ahead (click chart):

Drilling in to the numbers shows that it is investment loans (+8.2%) that is driving the growth more than owner occupied credit (+5.0%), the reason being obvious enough - ongoing low interest rates and woeful returns on term deposits.

Business credit was up in the month too, leading annual growth up to 2.7%.

This normally leads to comments about how housing credit is crowding out productive lending for business.

It's unquestionably true that the share of credit has become more skewed towards housing since lending markets were deregulated in 1986. I explained the reasons why this happened here, but in short:

"The traditional distinction between savings banks and trading banks was removed in 1989 and prior to that, in the mid 1980s, 15 foreign banks were given licences to operate in the Australian market. The major change in market was that a number of building societies and credit unions converted to banks.

Becoming a bank allowed these institutions a much greater capacity to expand their capital base, and from the early 1990s forth, a number of factors contributed to the banking system shifting its focus from lending to business towards housing.
Summarily, an elevated number of bank loans to businesses became impaired during the 1990s recession, so lending for housing got the green light. With reduced assets ratios also now required by the banks, it was time for the banks to get lending on homes...and how.
Between 1991 and 1995 the share of banks' business loans fell from 63% to 48%, but the share of loans for housing soared from 30% to 46%. Lower inflation, falling interest rates and the strong performance of housing loans saw the percentage of housing loans roar up to nearly 60% by 2010."
Graph 1: AFI Housing Credit
Business lending

In truth, banks have never been too keen on lending heavily to small business, and the change in share of credit has been driven as much by the increasing credit for housing as it has a decline in lending  to businesses.
Lending for housing tends to be more attractive to banks because even if you default on your mortgage and do a runner, your house ain't going anywhere. This fact provides comfort to the lender, as do the very low default rates, with only around 0.6% of loans in Australia presently deemed to be impaired.
More than that, business loans often aren't that appealing to borrowers either.

It's an issue I faced in the UK myself. Why would I take a small business loan at a punitive rate of 7-8% with covenants and other restrictions when I could far more easily use a line of credit against one of our investment properties at a preposterously cheap 1.50% over the Bank of England base rate of 0.50% - as close to free money as I'm ever likely to see (spoiler: I obviously wouldn't).

Housing lines of credit are easier for the bank because they have the security of a property rather than the flimsy promises of a fledgling business owner, and it's preferable for the borrower too because it's so much cheaper, and ultimately, so much easier.

Friends, fools and family?

It is traditionally said that start-ups are funded by "friends, fools and family", but the data doesn't really back that up at all.

When analysing the data, the limited use of many sources is striking, with only one source, that being personal savings, being used by more than 50% of all start-ups.

Apart from credit card debt, even a major source such as bank funding is used only by a minority, while samples show that funding by business angels and venture capital firms is close to non-existent in Australia.

In fact, about half of start-ups are founded by entrepreneurs with previous experience of having done so and are thus able to fund themselves via their own seed capital and early revenue streams (which, of course, is the very hallmark of a skilled entrepreneur).


Is the lack of business lending killing productivity? There's an argument to say that to a small extent it might be, since higher land prices in our two largest capital cities are likely hold back some enterprises.

This is one of the reasons why where possible small businesses and start-ups should be encouraged to be located away from the inner suburbs of Sydney and Melbourne (where land prices are high) instead of adding to the already sky-high and increasing demand for inner city land.

Australia has to date failed to promote its regional centres as well as it might have done.

That said, over the years we have not seen a decline in the number of small businesses (or indeed, the total number of businesses) despite the impacts of the global financial crisis, which suggests that the story is far from bleak.

As perhaps an inevitable consequence of the financial crisis the number of business exits in Australia began tipping in at around 300,000 per annum.

And yet, despite the GFC, exits were still well exceeded by nascent business entries in 2008, 2009, 2010, 2011 and 2012, before finally a small reversal in 2013 as unemployment ticked up and the mining construction boom finally peaked (click chart):

Therefore I don't expect to see any dramatic changes to the existing structure of credit. 

It suits banks, and evidently nascent small businesses with drive are often able to find a way without the need for bank business loans, either through existing savings and capital, government grants, housing lines of credit, equity from family members, advance payment from customers or other means. 

Small business loans will likely remain a minority play, while Australians seem unlikely to embrace high volumes of venture capital. Whether governments introduce more grants or incentives...I don't know. But it's unrealistic to expect banks to change their approach radically of their own accord or voluntarily.


Activity in NSW

It's been no secret over the last couple of years that I've been building my case for why I believe New South Wales is the state with the best long term prospects as Sydney models itself as the new major Asian financial hub.

The state has been adding more jobs over the years than its counterparts (although Queensland has been the true out-performer of the last 10 years), Sydney has extremely strong population growth and the data is finally beginning to reflect what I have been repeating constantly for the last few years - economic and building activity is really going some (click chart):

Retail turnover is always a slightly tricky measure to predict, but over the past 12 months turnover has really been starting to take off in New South Wales and Sydney in particular (click chart):

The latest round of data to demonstrate great strength has been that of building work done in NSW, which has jumped back up by more than 40% in only two years since March 2012 (click chart):

Most reporting tends to focus on activity on a national basis, which is understandable enough, but you only have to spend an few hours in Sydney to get a feel for what is going on, and that is now a near-record level of building activity.

As noted in my blog the other day, here are just a few of the projects which have been completed, are underway or will soon be commenced:

  • Barangaroo - $6 billion - the T1 commercial tower will be Australia's largest ever
  • Darling Square redevelopment $2.5 billion
  • Barangaroo Hotel - estimated $2 billion (final approval not yet received).
  • The Star Entertainment Centre & Hotel ($860 million)
  • Sydney Cricket Ground revamp ($186 million)
  • The multi-stage Central Park ($2 billion development)
  • Circular Quay's Overseas Passenger Terminal, ferry wharves upgrade and 36 other government projects ($430 million) and corresponding private sector investment ($1.2 billion)
  • Randwick Racecourse upgrade ($150 million)
  • Sydney Showground works
  • International Convention Centre (due for completion by 2016) 
  • UTS upgrade
  • Dockside Pavilion
  • Hotel works: Shangri-La Hotel redevelopment, Four Points ($160 million), and Park Royal Hotels ($20 million)
  • 33km Connex Link motorway from Parramatta to Alexandria to be constructed 2015-2019 (cost: $11.5 billion), the Dulwich Hill Light Rail extension is now complete ($176 million), with the Light Rail line due to be extended from the CBD to the south east also at an estimated cost of $1.6 billion"


Property market analysts spend a lot of time talking about infrastructure, and for a good reason.

While new projects are important because they improve the standard of living for the inhabitants of a region or city, the long term benefits on a local economy can be lasting and dramatic.

The reason for that is due to the multiplier effect.


Let's say the government injects $15 billion of expenditure for new light rail and motorway projects.

This $15 billion becomes revenue for construction companies who then also spend heavily on sourcing construction materials in turn creating income for building materials companies.

The construction firms redistribute a percentage of the project revenue on wages, increasing employee income and purchasing power (of which some will be saved and some spent, thus increasing retail trade). 

Meanwhile, the government should recoup some of the funds in corporation taxes on the construction profits and in GST which can later be redeployed elsewhere.

The key point is that each time there is an injection of new demand into the local economy, the extra income leads to more spending, which in turn becomes more income, and so on and so forth.

This is known as the multiplier effect. 

Each dollar spent can ultimately be reflected in several or many dollars of income (the actual multiplier is determined by the marginal propensity to consume - the extent to which households are inclined to save as compared to their propensity for consumption).


In short, while states such as Victoria are struggling with higher unemployment rates than they have been used to seeing over a very prosperous decade, New South Wales (and Sydney in particular) is becoming an economic powerhouse, almost by stealth.

As noted above, it doesn't seem to be often reported that way with most data reported on a national basis, but with the population of Greater Sydney increasing at around 80,000 per annum, jobs being added consistently over the long run, a large proportion of immigrants favouring the harbour city and a fantastical level of infrastructure spending underway, the benefits for Sydney are rippling through its economy.

The harbour city is thriving and that's good to see.


A bit chilly at the SCG last night, but well worth attending to witness the Swans despatching Geelong Cats by a record 110 points, beating the record of 109 points set way back in 1933.

And to think a month ago you could have gotten $1.80 on the Swans to make the eight!

That's now six wins of the run if I've added that up correctly.

Thursday, 29 May 2014

Capex continues to point to low interest rates

Expected capex OK-ish...

So, capex wasn't too bad in the end.

In terms of future expectations estimated capital expenditure for 2014-15 came in at $137,063 million, which is 12% lower than the corresponding estimate for 2013-14.

A 12% fall is significant, but not nearly as bad as had been feared, nor as bad as the estimates of the last quarter (-17%).

Perhaps more of a moderate decline than a capex cliff? Maybe.

The main driver of the fall was, of course, a decline in mining construction, but there were a few tentative signs of life elsewhere in other industries (though certainly not manufacturing) giving today's capex report at least a delicate flavour of rebalancing.

Let's face facts, though, total capex declined by 4.2% over the quarter and by 5.0% over the past year, so we now appear to have well and truly passed the peak of Australia's decade-long mining construction boom (click chart):

What does this all mean?

Well, GDP growth for the first quarter should remain solid enough.

It feels to be something like 0.7% for the quarter (and thus 3.0% for the year) though don't ask me for the back-of-the-fag-packet workings on that.

But as the year progresses we'll surely be fighting an uphill battle against the declining capital expenditure evidenced in the charts above, as well as declining commodity prices some of which have corrected quite dramatically since the beginning of the year.

Iron ore export volumes out of Port Hedland in the Pilbara (WA) have been soaring and shattering all manner of records as I charted here, but the commodity price has dropped by more than 30% in Aussie dollar terms since the start of the year, which must start to hurt income.

In short, interest rates aren't going anywhere fast on the back of this data, and even the very direction of the next movement in rates remains a coin flip. 

It could just as easily be down to 2.25% as up.

New home sales recovery is strong

New home sales increased for a 4th month on the bounce, by 2.9% in April and 6% over the quarter.

Commentators have called the peak on this recovery at least half a dozen times but the trend still looks good on a national basis.

Western Australia (+6.4%) and New South Wales (+5.2%) led the way. Victoria was up a bit (+0.5) but new home sales fell in Queensland (-2.1%) and South Australia (-6.0%).

The recovery since September 2012 has been both strong and broad based and with residential construction as reported yesterday increasing by 8.4% over the past year .

This bodes well for some level of rebalancing of the economy.

This is important, because as the capital expenditure release will likely confirm in the next ten minutes, mining construction could decline by as much as a quarter by FY 2014-2015 so residential and commercial building definitely needs to pick up some of this slack.

A strong result.

Source: HIA

Regions or capital cities?

Interesting tweet sent to me by Cameron Kusher of RP Data touching on the subject of whether capital cities or regional centres show stronger long term capital growth.

Some quite interesting results over 20 years here!

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I considered the role of gender in investment a little previously here, when looking at some of the reasons that women tend to make better investors than men.

Today, I'll look a little at another way in which the fairer sex has altered the course of investment, through the shifting composition of the workforce.

Property markets

As previously noted, while it's an interesting exercise to draw property market charts back to the middle decades of the 1800s it doesn't really help us to draw any logical conclusions about the future.

There is little comparison to be drawn from the slums in The Rocks of the 1900s where an outbreak of the bubonic plague was killing residents and the modern housing of today.

That would be like comparing Ken Rosewall to Rafa Nadal and concluding that Rosewall was rubbish. He wasn't, of course, but the rules have changed.

Perhaps a more useful starting point for housing market data would be 1986, which is when lending markets in Australia were deregulated in a sweeping move which won't be reversed.

A few other things have changed since then too. 

I was reading a book on commercial property yesterday written in 2003 which anticipated that Australia's population could "swell" to 25 million by 2051. 

Well, we're well past 23.5 million already in 2014 and heading towards a projected 40 million or so by the middle of the century.

That's one major shift.

Another has been the huge change in borrowing rates. Today it's possible to borrow for housing a rate close to 4.50%, which is unfathomably low as compared to 25 years ago.

Anyway, we've looked at the role of lending deregulation before.

Today let's consider...


Another major demographic shift in the last few decades has been the increasing role of females in the workforce.

The stats show that with total employment in the Australian workforce increasing to above 11.5 million, the percentage share of females has increased from around a third towards almost half at 46% (click chart):

This impacts property markets because there has been a dramatic increase in the number of dual income households which boosts purchasing power and loads the dice in favour of the couple with two incomes and over the single income household. 

This is where it's important to consider some specifics if you are looking at buying a property. 

Phrases like "many young people want to live near the city" and "many young people look at apartments" may indeed be true, but they are so generic that they don't really tell you a lot.

Similarly, saying that "there are many more dual income households" may also be correct, but it doesn't really tell you much about the impact on property markets unless you drill down to a localised level.

Demographics by suburb

Let's say I'm looking at buying an investment property in a prestige leafy harbourside suburb in Sydney such as Neutral Bay, which is one of the locations I bought in last year. That's around 10 minutes to the Opera House and Circular Quay on the ferry.

First, I'd take a look at the demographics of the suburb. The data below is from RP Data, but you can use other sources if you prefer.

This gives me a good idea of my target tenant. Intuition already tells me that it would most likely be a professional couple in a similar age bracket to myself, and the data says...yep, pretty much, 25-34 year olds are probably the go.

Note the impact of the dual income household in Neutral Bay, where the most households are in the $130,000-$180,000 household income bracket.

If you live in central Sydney, a lot of this is stuff is partly intuitive. In the type of inner suburb apartment blocks I've lived in over the years, the overwhelming majority are let to young two-income couples who work in or near the city. 

What the demographics of the suburb also tell me is that the target entry price for an apartment would likely be $650,000 to $750,000. 

That way, even couples with heavily geared 80% loans should still be able to service their mortgages in the unlikely event that standard variable borrowing rates return to 10% any time soon.

In that price bracket you'd likely be looking at a quality two bedroom apartment on a quiet street with parking, and ideally harbour or district views. 

Prolonged high levels of unemployment is a different issue for housing markets. 

The longer term data tells me that the population of Neutral Bay has not increased at all between Censuses  (it actually fell a little last time around) because the supply of new dwellings has been almost totally capped. 

The demand for housing in a glistening, prestige harbourside suburb will easily outstrip the available supply over the long term simply because there is very little new supply.

Median apartment prices have not done anything particularly spectacular, moreover they have simply tracked the growth in housheold incomes over the past decade, appreciating at around 4% per annum on average.

There will certainly be downturns in a suburb like Neutral Bay as there are anywhere, but they are unlikely to be severe in the price range identified above. The replacement cost of apartments is high, and a downturn in prices would likely quickly be met by new demand.

Naturally, you could alternatively look at a house in the suburb but the entry point would likely be very high at $1.5 million plus. The long-term capital growth outcome would likely be great, but the ride would be more volatile and the holding costs more painful.

Clearly, we're looking at a prestige Sydney harbourside suburb scenario here. If you were looking at investing in a distant location somewhere west of Narromine rather than Neutral Bay, you would be looking at different demographics and income profiles, and therefore a necessarily lower entry price.

Wednesday, 28 May 2014

Stocks brush with 6 year high

Aussie stock market closed up today, and hits a 6 year high.

Although it appears that the market is well below its pre-crisis peak, when dividends are included and on an accumulation basis Aussie stocks have recovered to all-time highs which is a great result for patient investors with an averaging approach.


The HIA released its Housing Affordability Index today showing affordability at a 12 year high.

The driver in the HIA's own words obviously being: "record low interest rates".


A decent construction work done release today, then.

Engineering construction (i.e. mining) was pretty much flat over the past year, so the long, slow decline still hasn't really got going yet.

Hearteningly for the Reserve Bank, there was a nice pick-up in other private sector building activity.

Total construction work done therefore actually remains a touch higher than it was a year ago, increasing moderately by a seasonally adjusted 2.6% (click chart):

The good news is that the increase has been driven by a strong pick up in the value of residential construction work done, which increased by 6.8% over the quarter and 8.4% over the past year.

A seasonally adjusted 12 month increase in the value of resi construction work done of 8.4% suggests that the theory of land prices being too high to prevent a housing construction boom will fade (click chart):

The main unanswered question is now rather just how brutal the mining capex cliff will be when it finally begins to gather some downwards momentum.

For all the reasons I discussed in my post this morning, the building rebound has largely been a New South Wales story, with an array of sizeable projects now underway (click chart):

This is promising, with the total value of building work done having rebounded by more than 40% since the nadir of March 2012.

It's good to see this reflected in the data, because it's certainly been visible around Sydney over the past year or two.

It would be good to see some other states starting to take their share of the heavy lifting in due course, though.

Property Observer: Dynamics

Read me on Property Observer today here.

Western flank

US confidence

Strong US sentiment overnight saw the gold price tumble as confidence continues to increase.

Consumer confidence surged to 83.0, house prices were resurgent up by 12.37% over the  past year on the Case Shiller 20 City Index, orders were up a little after a jump last month, and the Markit PMI services gauge (upon which a reading above 50 denotes expansion and below 50 contraction) roared up to 58.4.

Would it were that we had such heartening news domestically!

Today's data back home in Oz includes the Westpac Leading Index and CBA's Housing Affordability Index.

Particularly of interest today will be the construction work done release.

Construction activity

Typically the market is only moderately interested in this release, but today's figures will be seen as a potential bellwether for how severe the decline in mining construction activity is likely to be over the coming year or three.

To date other construction work for residential and non-residential building has only shown very tentative signs of picking up.

There may be some signs of life, though.

CBD - Western flank upgrades

This week Lend Lease unveiled its plans for another 1,400 units at Darling Square.

In fact, if my maths are right, Lend Lease and others are dropping well over $10 billion in development activity happening down in my neck of the woods:
  • Barangaroo - $6 billion (I mention it often, but this is a colossal development - the T1 commercial tower will be Australia's largest ever)
  • Darling Square redevelopment $2.6 billion;
  • Barangaroo Headland Park - $bn  cost not yet disclosed;
  • Barangaroo Hotel - $2 billion (final approval not yet received).
Meanwhile, the Green Square development has been badged as an $8 billion affair, but it would be no surprise if that ended up being another $10 billion spend when all is said and done.

Other Sydney developments

It would take too much space to list all the development that has been taking place and will take place in Sydney, but some of it includes:
  • The Star Entertainement Centre & Hotel ($860 million)
  • Sydney Cricket Ground revamp ($186 million)
  • The multi-stage Central Park ($2 billion development) to Circular Quay's Overseas Passenger Terminal, ferry wharves upgrade and 36 other government projects ($430 million) and corresponding private sector investment ($1.2 billion)
  • Randwick Racecourse upgrade ($150 million), the Sydney Showground works, the ICC (due for completion by 2016), the new SEC, UTS upgrade and the Dockside Pavilion
  • Hotel works: Shangri-La Hotel redevelopment, Four Points ($160 million), and Park Royal Hotels ($20 million)
  • And for travel, the 33km Connex Link motorway from Parramatta to Alexandria to be constructed 2015-2019 (cost: $11.5 billion), the Dulwich Hill Light Rail extension is now complete ($176 million), with the Light Rail line due to be extended from the CBD to the south east also at an estimated cost of $1.6 billion (but will probably be much more, let's face it). 
And a lot of other stuff besides. In particular, endless residential developments, particularly in the inner south of the harbour city.

In short, there's a heck of a lot going on and due to get underway in Sydney because low interest rates are encouraging it to be thus and allowing it to be so.

The cost of these respective projects will be spread out over a few financial years

But this does all go some of the way towards offsetting the fall in mining construction which is expected to drive total capex down from an annual peak of around $160 billion towards $120 billion by FY 2014-15.

Darling Harbour regeneration

The downside for those of us who live round here is the deafening construction noise which continues until even after nightfall and at weekends.

I believe it will be a truly amazing location when it's all finished, though; a genuinely world class development.

The Tumbalong Park area has been a massive success, and there has already been a marked effect on dwelling prices in the local area, with Pyrmont and Millers Point in particular benefiting from very strong capital growth over recent years.


Morning coffees at Harbourside remain very pleasant (this is 9.30am today):

Daytimes are deafening: hectic as...(photo as at 2pm yesterday)...

Evenings remain magnificent (this is last night at VividSydney)...

Tuesday, 27 May 2014


Next week is an absolute ripper for data. This week will be relatively slow, though there is one interesting piece of news out, that being the private new capital expenditure data from the ABS on Thursday.

The capex release is always an interesting one anyway, particularly for anyone interested in mining, but the data has taken on a more significant mantle in recent years because, as the below chart of quarterly capex hints at, it looks as though the mining construction component of capex is finally set to start tanking (click chart):

In the December quarter, total capex fell by a seasonally adjusted 5.2%, but the real decline hasn't even properly gotten started yet.

In volume terms we're still tracking around a seasonally adjusted $38 billion per quarter, which historically speaking is exceptionally high.

With elevated commodity prices around before the financial crisis, Australia went on a grandiose mining construction boom, but while there are always ongoing projects of varying scales, broadly speaking the capital expenditure is now expected to fall sharply over the coming years back towards from whence it came.

The ASX corporate presentations by the large mining companies fully reflect this: they're transitioning into cost-saving mode and scaling back significantly on construction.

This decline in activity creates a headwind for the economy, or a drag on economic growth.

I won't bother to chart the 'expected' figures until Thursday, but the mining component of capex could fall by, say, a quarter in FY 2014-15, taking the total capex down by perhaps a fifth.

The capex surveys are always a movable feast and a little bit hit-and-miss (as an accountant, deciding which respective periods to drop the data into can be an art as much as it is a science) but in numbers terms, we're talking about total capex perhaps falling from a peak of around $160 billion in 2012-13 to maybe $120 billion in 2014-15.

The worst case scenario might see the figures declining further again still.

All this is one of several issues which will give the Reserve Bank an ongoing cause to scratch its head, and is why there won't be any interest hikes for some time...or most probably, quite a long time (click chart).

Monday, 26 May 2014

Does property double every 7 years?

One of the greatest cliches in Aussie real estate: 

"Well located property doubles every 7-10 years".

I don't know where it came from, but it became one of the best known phrases in property circles (in this country, at least...I don't believe it's ever used elsewhere).

Of course, the phrase takes little account of the factors which caused the rapid growth in the first place, including the high rates of inflation prior to the introduction of the 2-3% target range in 1993.

With interest rates now already having hit generational lows, if property prices are to grow further in aggregate, they'll need incomes to push them along.

Thing is, wages growth is now slowing too as we pass the peak of the mining construction boom (click chart):

Ultimately, property owners aren't really sourcing  most of their value from the building - their house or flat. It's the land's scarcity where the value is predominantly stored, which is where some of the other great real estate cliches derived from:

"Location, location, location" - Harold Samuel.

"Buy the worst house on the best street".

If you want to experience property price growth, you'll need to own land which is in massive demand, which is why investors tend yo look for a well.-located house, or perhaps a unit in a boutique block
with a high land value content.

Leichardt wreck sells for $980,000

The press will have a field day with this, as they always do - a wreck in Leichardt just sold for $980,000 - taking "buying the worst house on the best street" to its ultimate conclusion.

The house at 80 Edith St, Leichhardt, sold over the weekend.

Even a fast-talking estate agent couldn't describe this dump as a "renovator's delight". It was, of course, sold as residential land, since the building itself has long since been trashed. 

The Leichhardt house attracted a lot of interest from builders and developers.

The property’s interiors have fallen apart.

It's not all that surprising, though, if you know the area, since that is what 278 square metres of land close to the famous Norton Street will approximately set you back in Leichardt.

Interestingly, the property on Edith Street last sold for $130,000 in July 1994.

So, in fact, the property has doubled even more quickly than every 7 years, its growth compounding at more than 10.6% per annum.

Being located in an attractive suburb only 5km from the CBD in a city with spiralling population growth, the prime location land in the city continues to increase in value much faster than incomes. 

However, it's highly unlikely that you will see that kind of long term land value growth in the outer suburbs, as the land there has inherently less scarcity value.

This is exactly what has played out in London, despite Britain having punitive inheritance taxes for UK residents.

Sydney rents leap

A lot of focus on Sydney house prices which Residex recorded as having jumped by 20.14% over the past year.

The tight Sydney market has shown itself in another way too: a surge in rents.

Rents for houses have increased by 9.73% over the past year according to Residex up to $620 per week:

Source: Residex

Meanwhile, rents for units have increased by 6.00% over the past year, to $530 per week:

Source: Residex

New dwelling supply is coming to the market in Sydney, but not quickly least, not according to what vacancy rates and rental values are saying.