Charge of the white shoe brigade

SEQ in focus

When I first came to Sydney in the 1990s, there was a lot of talk about housing being expensive, although in truth it was still possible buy decent blocks of land reasonably close to the city, at least in the less fashionable inner western suburbs.

I can also remember years ago reading a blog by Property Update contributor Stuart Wemyss, which argued that although some parts of Melbourne were evidently expensive, most of the talk about oversupply and a property bubble was just short term noise. 

Wemyss highlighted a very similar point: you could still find decent blocks of dirt close to the city, for a price that wasn't absurd - demonstrably not the case in many so-termed 'global cities', which Melbourne aspires to become - and over the years he was proven right.

I feel a bit the same about Brisbane today.

Sure, there are some suburbs that are expensive, as you would expect with the Greater Brisbane population approaching 2.5 million. 

But you can still find blocks of land reasonably close to the city, within a 6-8km radius of the CBD, for a relatively good price. 

Of course, there will be ups and downs, but over the next couple of cycles the right property types and locations will likely perform very well, in my opinion, especially in good school zones. 

Although some areas have been overbuilt with high rise apartments, south-east Queensland will offer some of the best opportunities over the decades ahead, as it expands as a population hub and becomes more popular with Asian migrants. 

The forthcoming Commonwealth Games will be a plus too.

Slump, and rebound

Queensland has always attracted migrants from interstate, and as the resources mega-projects kicked off through the early years of the mining boom, the Sunshine State was pulling in tens of thousands of internal migrants per annum. 

These were unbridled boom years both for Queensland's economy and Brisbane housing.

From 2010, demand for Brisbane housing slumped, broadly in tune with internal population flows.

Unfortunately, with apartment projects often taking an age from approval to completion, this was also a time at which many interstate investors settled on new units, which are now under water, figuratively speaking (not only in Brisbane, but in other parts of Queensland too). 

More literally speaking, Brisbane experienced severe floods in 2010-11, which arguably exacerbated a downturn that was already in the post as LNG projects approached completion.

By March this year, estimated interstate migration to Queensland had risen to its highest level since 2009.

So, what's going on? It's partly a function of the housing market cycle, with Sydney now expensive, and congested.

Another boon for Queensland is that took its capex downturn medicine earlier than Western Australia, so although it was painful, the drag has now ended, with roads and other infrastructure projects having kicked off.

And, after a terrible lull, Queensland employment is suddenly now picking up, rising by an outsized +95,400 over the year to August 2017.

And population growth is in turn ramping up just as dwelling starts now collapse, helping to rebalance the ratio of demand to supply.

You didn't really need ABS estimates to tell you about the migratory shifts, since every second person in inner city Brisbane seems to have just relocated from Sydney, or from Perth in many cases. 

With the Sydney market now slowing, there will no doubt be a great surge in interest in Brisbane property - that's just the way the cycle goes. 

White shoes alert

A few caveats, however, if you're thinking of buying a Brisbane property investment.

Of all the capital cities, Brisbane plausibly has the patchiest housing market - some locations and dwelling types are experiencing strong price growth, while others are struggling big time.

Be wary about locations prone to flooding, and definitely watch out for white ants (termites)! 

Oh, and real estate laws are different up north, so you need to understand how to make offers subject to certain conditions. 

Personally, I would buy established not new property, for way too many heads have been burned buying new of off the plan up north. 

Finally, there is a long history of southern buyers getting brazenly fleeced on Queensland property deals by slick sales techniques - the famed white shoe brigade - so make sure you don't become yet another casualty. 

Nek minnit?

Low rent

There's been a long-running debate in Australia about what might or might not happen if curbs were implemented on landlords, particularly in the form of tweaks to tax legislation.

So the theory goes, nothing would change, because for every landlord that didn't buy, a renter would purchase a home instead. 

The real world isn't that simple, of course, and indeed the long run figures in Australia show three occasions when landlords were 'shocked' out of the market, and on each occasion rents spiked (at least on a national basis, if not everywhere). 

London calling

It might be interesting to watch London for an interesting test case, since there have been recent curbs on interest deductibility for landlords, as well as a 3 per cent stamp duty surcharge on second homes. 

Initially, rental markets looked pretty soft, with the widely-debated Brexit referendum leading to economic turmoil and fragile confidence.

Such changes to housing market policy take a while to flow through, however, so it will be interesting to watch how this plays out over the next few years. 

The latest ARLA figures don't look too promising for London renters, it must be said. 

ARLA is a vested interest, I get that, but still...watch this space. 

In other UK news, Hometrack reported that Manchester again notched the fastest annual house price growth, at +7.3 per cent over the year to August 2017. 

Aussie jobs boom poised to continue

Vacancies break records

Whoa, hello there!

Jobs vacancies really are booming now, up to a seasonally adjusted 203,700.

Vacancies are by +15.4 per cent year-on-year, and now sit at the highest level on record.

Bazinga.

These figures suggest that the unemployment rate will now fall towards 5 per cent forthwith.

Furthermore, some indicators and surveys are even hinting at rising wages growth. 

The trend number of unemployed persons per job vacancy has declined to its lowest level in half a decade, although there is still a bit of a way to go before this ratio rights itself in full. 

The improvement in jobs vacancies was fairly broad based, with increases seen in construction, manufacturing, education, transport, and elsewhere.

And just look at New South Wales go, and unprecedented boom in jobs vacancies to the highest level ever recorded.

It looks as though Sydney's booming economy has a few tricks up its sleeve yet as full employment hoves into view for the harbour city.

There were also notable improvements in Victoria, Queensland, and Western Australia.

The wrap

Overall, really strong numbers here, suggesting that the present rate of employment growth - at about +325,000 over the year to August - will continue over the year ahead.

Jobs vacancies tend to be a decent indicator of what's to come, at least in the immediate future, and with vacancies now approaching 1.6 per cent of the labour force, an improvement in the unemployment rate looks like a shoo-in.

Reduced mortgage stress should therefore also follow over the year ahead as the unemployment rate falls and wages rise.

Very much an upbeat data release for Australia. 

Property Couch

Catch me on the Property Couch with the legendary Bryce Holdaway and Ben Kingsley this week here (or click the image below). 

Sydney seminar

Come along and see me talk at the Money for Life workshop, just over a week from now.

There's a 2-for-1 deal for my blog readers available here.

Look forward to seeing you there!

Apartment gluts?

Overbuilding risk decreases

The latest population growth figures put an altogether different slant on Australia's assumed apartment gluts. 

In Melbourne, the risks have receded dramatically, at least for now.

In fact, with the state's estimated populated growth apparently tracking at the highest level in six decades, it would be all but impossible for the market to become 'oversupplied' until this rate of growth in the headcount slows down. 

Now Queensland really went on an apartment construction mission from 2014 forth, to the extent that there is a now a clear oversupply of units in some locations, particularly inner city Brisbane, with more supply still to come online. 

The latest figures show that although the glut will have an impact for some time to come, the market will right itself eventually.

Indeed, the reacceleration of population growth to +75,400 per annum is exactly what Queensland's housing markets needed to help absorb the stock, while new apartment starts are now understandably and visibly slowing to a crawl. 

In Hobart, commencements have yet to pick up dramatically, despite electric growth in house prices and rents.

Because the Hobart market demands houses and not apartments, in theory the supply response should come much more quickly (apartment projects can take ages to build, comparatively speaking).

And we know from previous cycles that the market has the potential to deliver much greater supply - but to date it hasn't happened.

Developers from the mainland are not that keen to get involved, perhaps, given the logistical challenges.

I haven't been down to Tassie for a while - and I got seasick when I last went - so I have no feel whatsoever for activity on the ground. 

First homebuyer demand

I noted here previously that the 2016 Census confirmed an enormous surge in 25-34 year olds.

Due in part to housing affordability challenges, many are not yet forming households, though they might begin to do so if capital city apartment prices do ever slide in any meaningful way.

ANZ research this week suggested that there is significant latent first homebuyer demand, and ANZ believes that this could potentially keep an effective floor under prices, which is what I concluded from the Census figures back in June too.

5-year low for Telstra

A rough run for Telstra.

Build, and they may come

Immigration picks up

The 2016 Census showed that Australia still has an ageing population, and the number of deaths continues to rise to record highs, in turn meaning that the natural increase in the population has been slowing. 

The ageing of the population has been combated through the immigration programme, which is largely - if not exclusively - tilted towards younger migrants into Australia.

While new government figures show that 457 visa issuance is falling, student visas are recording double digit rates of growth, and now sit at the highest level on record.

The rising tide of international students will largely impact the inner suburbs of Melbourne and Sydney. 

And annual net overseas migration has really picked up the pace over the past six quarters, up by +30 per cent to +231,890 in the March 2017 quarter. 

This surge in net overseas migration has pushed the annual national rate of growth in the estimated resident population back up to +1.6 per cent or +389,072. 

Population growth in the seasonally strong March quarter was particularly stark in 2017 at +126,138. 

Headcount growth remains a bit below the rate of growth seen during the headiest of the mining boom migration years, but is nevertheless very strong.

Apartment glut picked off

Moreover, there's a concentration issue afoot, with immigrants overwhelmingly heading to three main regions: Sydney, Melbourne, and south-east Queensland. 

Internally, migration continues to take folks away from Sydney (nothing new there, it's been happening for decades).

Some Sydneysiders are taking their boosted equity out to regional New South Wales - especially to the South Coast and to the Hunter - and others are heading north to Queensland.

Western Australia, Northern Territory, and South Australia continue to lose residents at a concerning rate, with internal migrants largely headed to Melbourne (for jobs) or south-east Queensland (for climate, lifestyle...and, well, hopefully a job).

A smattering of interstate migrants are also bound for Hobart and Canberra. 

The net result has been to send Victoria's annual population growth steaming up to a gold-rush-like +149,374 or +2.43 per cent, which is a staggering rate of growth, and renders predictions of a Melbourne dwelling oversupply meaningless, at least until population growth slows. 

From a year earlier, growth in the estimated resident population has also accelerated very strongly in New South Wales (+123,296) and Queensland (+75,372).

The capital cities account for the great bulk of the population growth in the two most populous states, and somewhat less so in Queensland's case. 

Annual population growth appears to have steadied in Western Australia, after some downward revisions to previous estimates. 

Build, and they may come

With the ageing of the population and an accelerating 'death bust', if that's not too dramatic a term, growth in headcount has become much more focused on net immigration than natural increase. 

It's interesting to note that the sharp increase in the estimated resident population over the past 18 months has largely impacted the apartment construction hotspots of Sydney, Melbourne, and Brisbane. 

A high number of apartment completions are expected in 2017, yet with the estimated resident population increasing by more than 126,000 in the first three months of the calendar year alone, the assumed apartment glut may not deliver the jolt previously anticipated. 

Australia's best apartment hotspots for 2018

Apartment hotspots

See my thoughts at Domain here (or click the article preview image below).

New Farm is a super location. 

I've lived in the suburb for a couple of years, and it just gets better and better as a place to live for young professionals. 

In fact, I just bought and renovated a large established apartment there, for investment purposes, with great views in two directions.

If you can buy something that needs a cosmetic renovation, such as adding a new kitchen, bathroom, air conditioning, carpets, or repainting, then you might be able to add some capital value (if not rent in the current market).

In particular, look for a point of scarcity, such as city or river views, or some outdoor space.

Stick to flood-free locations, boutique blocks, and whatever you do, don't buy into a complex with pernicious body corporate issues!

Domain reported that apartment prices in the City of Sydney increased strongly over the year to August, up by +13.6 per cent.

Unit rents in the City of Sydney also rose very sharply, up by +6.7 per cent. 

Money for Life offer

Our Money for Life seminar is happening very soon - see the details about this cracking event here, where you'll be able to ask the questions you really want answering. 

By the way, there's a special 2-for-1 offer available for here for my blog readers. 

Click on the image below to redeem your offer, and I look forward to seeing you there!

Crunch!

The dream run is well and truly over for iron ore stocks (click to expand chart)!

Ouch.

China's influence: growing, not slowing

China still rising

There is a bit of talk about a slowdown in China, a slowdown in Chinese interest in Australian property, and more broadly even an inference that China's influence on Australia may be waning.

It's true that local lenders have generally stopped financing offshore property investors, and this has changed the immediate dynamics in the Aussie housing market, slowing transactions and settlements, and eventually leading to a slowdown in apartment construction.

This had to happen sooner or later as apartment building was at unprecedented highs, driven by almost exponential investment from China.

Looked at through a different lens, however, the reach and influence of China on Australia may only be just beginning.

Lest anyone needs reminding, China's population is vast, the urbanised population is still growing at a rollicking rate, and it will be for years to come. 

And one thing we know about China is that when something becomes an entrenched trend, due to the sheer weight of numbers it really makes a massive impact.

More fluid movements

Permanent settlers in Australia were previously being recorded at about 20,000 or so per annum from China.

However, within the past few weeks the ABS has discontinued its data series on permanent settlers, and also drew a black line through its data series on permanent departures.

As I noted here in 2015, more than four-fifths of 'permanent' departures from Australia were returning within a year, so the ABS has decided to scrap that data series too - in today's more fluid world, the figures had lost their relevance. 

These changes were perhaps tacit admission that the notion of permanence has less relevance than it used to when it comes to residency.

I know a bit about this myself, since I spend time overseas every year, yet I am considered a permanent resident of Australia.

Many of the Chinese in Australia are present on temporary visas, visitor, family, or student visas, often with a view to achieving residency down the track. 

Fortunately the short term arrivals figures by country of origin are still recorded by the ABS, and they show that China's influence continues to grow, and grow...and grow!

Include those visiting from Taiwan and Hong Kong and the annual number of short term arrivals is now almost 1.75 million. 

Asian century

The 2016 Census recorded more than 3.5 million Aussie residents of Asian ancestry or heritage.

As I have shown here previously, new migrants are overwhelmingly flocking to the capital cities - and staying there. 

Incredibly, the Census data showed that Sydney is now more an Asian city than it is a European city.

Sydney is home to about half of the 509,500 Chinese-born residents in Australia, eclipsing the number of British-born residents of the harbour city, with many more from Taiwan and Hong Kong besides.

The Census noted that in total there were more than 1.21 million Australians of Chinese heritage.

These are astonishing demographic shifts in a comparatively short period of time.

Why do they come?

Chinese come to Australia to escape the political situation at home, and to enjoy the climate, clean air, beaches, and good schools and Universities.

It helps that Australians speak English, too, while the relative proximity to China can be viewed as a benefit. 

Beijing is dreadfully polluted, and has now become very expensive - only very well off residents can afford the overpriced apartments, and there is a risk that asset prices in China depreciate.

Contrary to the daily headlines, real estate in many parts of Australia's cities is comparatively cheap.

Chinese migrants to Australia can aspire to own a big house, on a big block, and with a big car in the garage too.

We know all of that.

But there are more subtle pull-factors besides these obvious points, some of which are not easy to put into words.

At least notionally Australia does not have rigid class structures, 'old money', or the perceived stiff attitudes of other parts of western culture. You can wear shorts and thongs in Australia, and nobody cares. 

A migrant to Australia is free to be someone, and there are already millions of Australians of Asian heritage doing exactly that. 

We know from experience elsewhere that migrants hailing from a certain region tend to beget more migrants, and we're certainly seeing that dynamic in the international student sector. 

Project these trends forward, and you can see that from Australia's perspective the Asian century to date is merely a nascent phenomenon. 

Bedpans, bitumen, & Bachelor's degrees

Employment boom

Australia has created an extraordinary ~325,000 jobs over the past year, including a boom over the past six months the like of which arguably hasn't been seen in decades. 

The question is how? And where?

Greater Sydney (+83k), Melbourne (+59k), and now Brisbane (+46k) have each seen a drive in employment growth over the past year. 

Greater Sydney now has a monthly unemployment rate of only 4.46 per cent, and the annual average unemployment rate across the harbour city continues to decline, as it has for 3½ years now. 

That's been partly driven by apartment construction and the associated multiplier effect, and a swathe of infrastructure projects. 

Increasingly Hobart is firing up, adding +6k jobs over the year to August 2017, with the median duration of job search continuing to decline. 

Where else?

Gold Coast (+21k) and Sunshine Coast (+12k) have been other contributors to Queensland jobs growth over the past year, presumably driven by tourism, while Toowoomba added a cheeky +5k of new jobs on a net basis. 

Emerging from the resources doldrums, meanwhile, Mackay (+10k) and Townsville (+17k) have clearly turned a corner of sorts lately. 

Construction still raging

Over the past quarter the greatest employment gains were to be found in construction (+64,600), healthcare & social assistance (+48,000), and education & training (+25,700).  

Between them these three industries have created net new employment of +263,000 since August 2016, which really is a huge number. 

Alongside tourism, a boom in international students and education has been a shining light of the economy in recent times - at least in terms of quantity, if not quality.

Offsetting this, some professional services and administrative employment has been scaled back. 

The construction employment surge needs to be viewed in the context of the preceding resources construction boom, which took construction employment to already unprecedented levels. 

And now total construction employment has elevated further - thanks to a combination of residential and infrastructure projects - to 1,168,000. 

The wrap

Sydney's economy is clearly relishing its stamp-duty-funded infrastructure boom.

At the industry level, healthcare & social assistance may well continue its structural uptrend, perhaps eventually accounting for ~15 per cent or more of the entire workforce. 

Construction now directly accounts for ~9.5 per cent of Australian employment. This is much more surprising, and it's never been higher.

This is why, in my opinion, it may pay to be sceptical about all the casual chatter about rate hikes.

Residential jobs account for about three quarters of total construction industry employment.

So once the residential building sector inevitably slows over the next year or two, total employment growth could be winching itself down to earth with a big, clumsy thump. 

Vacancies falter

Resources recovery

August 2017 was a softer month for job vacancies on the Department of Employment's index.

The trend is now +6.4 per cent higher than a year earlier, and +23.8 per cent below the October 2013. low. 

Despite the weaker month, Queensland and Western Australia still experienced double digit growth from a year earlier, with a decent lift in Victoria. 

The annual figure was down in Tasmania, but that's as likely related to a surge in employment uptake based on other indicators.

The wrap

It's good to see that vacancies in Western Australia are now well off the lows of 2016, at about 12 per cent higher.

But nationally, this was a softer result. 

Perhaps this is an early indicator that the economy is set to underwhelm in 2018.

Westpac's Bill Evans, always worth following closely, sees no rate hikes in 2018 on this basis. 

Mean dwelling price rises to $679,100

Dwelling stock rises to $6.7 trillion

Four times per year we get the unbridled pleasure of the official residential property price indexes. 

Here, then, is a 60-second overview of the June 2017 quarter figures. 

The total value of Australia's dwelling stock rose by +$631 billion or +10.4 per cent to $6.72 trillion in the 2017 financial year. 

That now represents a +53 per cent increase in dwelling stock value from the $4.4 trillion recorded at the end of 2011. 

I'd take the data series back further, but since it only begins in Q3 of that calendar year, I can't.

The annual stock value gains were mainly driven by the two most populous states. New South Wales (+$336 billion) and Victoria (+$215 billion) accounted for some 87 per cent of the total increase. 

Detached houses have outperformed attached dwellings on average since 2003, reflecting rising land values and a relative scarcity of this dwelling type in the thriving, landlocked suburbs of Sydney and Melbourne.

Over the June 2017 quarter the attached dwellings index performed strongly, however, helped along by the +11.7 per cent year-on-year gain for attached dwellings in Sydney (with the harbour city retaining a healthy weighting for that dwelling type). 

City by city

There were strong quarterly residential price index gains in June 2017 for Sydney (+2.3 per cent) and Melbourne (+3 per cent), with those two capital cities recording a twin +13.8 per cent annual increase. 

The Reserve Bank of Australia noted in its September Board Minutes released today that Sydney market conditions had eased in recent months, as reflected in softer auction clearance results and various other timelier measures. 

Annual price growth in Hobart notched up a pacy +12.4 per cent - with more to come later in the year - while there was steadier price growth in Canberra, Adelaide, and Brisbane. 

Perth and Darwin recorded further declines, but the pace of decline has slowed, and more timely measures suggest that conditions appear to be levelling out somewhat in these resources capitals. 

The mean dwelling price in Australia increased by $51,700 or +8.2 per cent in FY2017, to hit a record high of $679,100.

In New South Wales, the mean dwelling price rose to $903,700, possibly helped along by the sale of Sydney's most expensive house in the second quarter of the calendar year (the 'Elaine' estate in Point Piper, which transacted for a lazy $75 million or so - punchy). 

Finally, the number of dwellings increased by +2 per cent or +190,500 over the financial year to 9,906,100.

That's now well ahead of the rate of the official population growth, as the supply response hits its straps. 

There was a substantial increase of +2.35 per cent in Queensland's dwelling stock in FY2017, or +45,500 additional dwellings, reflecting the high volume of apartment completions in inner city Brisbane and elsewhere. The state population probably grew by ~75,000 over the same period. 

In absolute terms there was a robust uplift in the total dwelling stock of New South Wales (+50,900) and Victoria (+53,500), although in Victoria's case even this record rate of new dwelling construction is not keeping up with rollicking population growth.

The wrap

As always, the interesting stuff is in the detail, but the overview shows that Melbourne's housing market was still powering along in the second quarter of 2017, while Hobart will glide into top gear in the latter half of the calendar year. 

Trend new motor sales hit record

Car sales power on

The so-called "canary in the coalmine" that was falling new motor sales has turned out to be another rubbish indicator.

The canaries have long since carked it, but the trend result for new motor vehicle sales was 100,809 in August 2017, which was the highest ever.

Selfish Urban Vanity

Sports utility vehicles continue to drive the record results, although in reality today's small SUVs, such as the one I drive, is probably more akin to a passenger vehicle rather than anything more rugged. 

Alas, production levels domestically are destined continue their precipitous decline as the industry departs Australian shores. 

Finally, the state level data shows that Melbourne's burgeoning economy continues to power new car sales along.

New South Wales also saw nearly 398,000 units shifted over the past year, for yet another annual record. 

New motor vehicle sales were also higher year-on-year in Queensland, Western Australia, and the Northern Territory as the mining downturn draws to a close.

Strangely new vehicle sales were well down in Tassie in August, being some 12.1 per cent lower than a year earlier.

Maybe everyone's too busy buying houses down there to worry about cars right now.