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).

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 finest 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.

Tuesday, 28 July 2015

Investors to swamp Brisbane in 2016?

Fundamentals

I have been observing with interest for the past seven months the steady ramp-up in interstate and foreign investment in Brisbane's inner suburban property markets. 

Much of these observations are simply based upon what I see and hear at property inspections, at auctions, and from talking to buyers agents and selling agents.

See here for example. 

This is a contentious issue, and we do need to take careful account of macroprudential measures designed to slow investor lending. 

Economists would say with some justification that in many respects the fundamentals of the Brisbane economy and property markets aren't all that amazing.

But then again, economists are frequently wrong about the direction of property markets, largely because they spend too much time looking at charts and not enough time in the market.

In truth, over the short-to-medium term markets are far less predictable than we think.

Take a look no further than Sydney, where market economists have been predicting a slowdown for the past two years, whereas in fact the market has in fact accelerated over the past 12 months.

As I noted back in June, far from a slowdown, in some inner city markets prices have been rising at a pace closer to 25 per cent per annum.

And in fact, I believe that some property prices indices have not yet "caught up" to fully reflect this.

Employment markets sketchy

After a tremendous surge in employment through the mining investment boom, the city of Brisbane has added a "so-so" 30,400 jobs on  a net basis over the past two years. 

Not too bad, but in truth employment growth and labour markets have been somewhat sketchy, with the resources sector looking particularly weak.

The monthly data at the capital city level is somewhat volatile and is not seasonally adjusted, but I've added a trend line below.


One heartening piece of news has been that while the first quarter of 2014 saw some wretchedly high unemployment readings, the latest month of data showed the unemployment rate in Brisbane to have declined to just 5.2 per cent.

This is partly a result of population growth in Queensland having slowed from 2 per cent per annum to 1.4 per cent per annum as net interstate migration has waned.

In reality the monthly data is once again neither seasonally adjusted nor reliable, and thus I've inserted another trend line below (12mMA).

The good news is that the unemployment rate has been trending down since October 2014 on this measure.


Users should note that it would pay to be wary about this headline information. 

A number of outer suburban regions of Brisbane have been recording double digit rates of unemployment in the quarterly labour market releases, and therefore it is vitally important to drill down to the local suburban level to gain a better understanding of market trends.

Interstate investors - the trend is your friend

But the real reason the Brisbane market is set to do well - APRA's tightening measures notwithstanding - is that the city has become seen as the city with best immediate prospects for capital growth.

MRD's Partners Property Investor Survey for June 2015 revealed that over the next 12 months Queensland will be the most popular destination of choice for investors - and not only for those living locally in the Sunshine State itself, but also for those based in New South Wales, the Australian Capital Territory and the Northern Territory.

Elsewhere, Sydney and Melbourne are now beginning to suffer from erosion of gross yields after seeing strong capital growth in recent years.

Meanwhile, Perth and Darwin are markets in decline as resources investment declines.

Adelaide should be set to benefit from interstate investor activity too, but the city of churches also has a "spire-a-lling" rates of unemployment - or at least, the highest capital city unemployment rate in the country - as well as facing the challenge of its manufacturing industries being in decline.

With its property markets having failed to perform well since 2008, almost by default Brisbane is increasingly becoming the focus of interstate investors.

Investment activity increasing

Sure, all very spruiky and a few "soft" indicators, but what about hard proof?

Well, according to CoreLogic-RP Data, this week's preliminary auction clearance rate in Brisbane was the highest recorded since 2009.


Note that total investor loans written in May 2015 in Australia were still tracking at more than $13 billion, which is a phenomenally high figure in historical terms.

We might expect that this colossal figure will soften in time as APRA's dampening measures take effect.

Below I have charted the long run Queensland investor loans data.

Historically, Queensland has never attracted more than $2.1 billion of investor loans in an individual month, but if ever the state has had a chance to do so, now is that time.

Again, the monthly data at the state tier is not seasonally adjusted but the 12mMA dollar value of investor loans written is now at its highest level since June 2008 and rising by the month.

The March "Original" data result of $1.78 billion was the highest individual monthly result recorded for Queensland investor loans since November 2007, while the seasonally weaker month of May also came in at a similarly strong $1.73 billion.


Note that the investor loans data pertains to Queensland, not only Brisbane.

However, the capital city of Brisbane appears likely to fare significantly better than many of the regional areas which are suffering the full force of the resources investment bust.

Vacancy rates are concerningly  high in some of the more populous regional cities of Queensland.


Meanwhile banks requiring substantial deposits on property purchases could make life difficult for a range of other cities and regional locations, including Gladstone, Roma, Miles, Chinchilla, Blackwater, Rolleston, Cracow and Dysart.

Asset selection

It is an obvious truism so say that investors need to pay close attention to the type of asset that they buy if they want to outperform the wider market.

However, this is uncommonly true in Brisbane, where in certain sub-regions developers are busily constructing a stonking oversupply of high-density dwelling stock in particular.


The trend line once again tells its own story. 

Caveat emptor.