Transactions continue to fall

Low turnover

The annual take from stamp duty and land transfer duty in New South Wales remained reasonably strong at around $8 billion over the year to May 2019, as bracket creep has pushed property taxes far too high. 

Those numbers are flattered by settlements from the tail end of the construction boom, however. 

And even still transaction levels have continued to plunge towards decade lows over the year to May 2019. 

Once the off-the-plan boom washes through the transaction levels will be at decade lows for sure.

While I agree that stamp duty is an inefficient tax at its current too-high levels I won't ever get behind the well-meaning but ultimately flawed push for a broad-based land tax (whereby the unimproved land valuations mysteriously yet inevitably rise vigorously every year, regardless of prevailing market conditions). 

Many investors already know about this all too well. 

For all its foibles at least stamp duty is a known dollar amount. 

If you trust governments to maintain annual property levies at a reasonable level, well...ha. 

No risks allowed

Reducing risk?

There's a lot of teeth-gnashing going on about the stalled economy right now, leading to ever-louder calls for record low interest rates, government fiscal stimulus, quantitative easing, helicopter money, and goodness knows what else. 

Goldman Sachs are now calling for the cash rate to fall 100 basis points this year to just 0.50 per cent, for example, while others expect QE to kick in sooner. 

OK, but let's take a step back and consider for a moment how all this came about? 

It's not too big a leap to conclude that at least part of the economy's slowdown was caused by the combination of a banking royal commission and a fairly savage crackdown on mortgage lending. 

The ADI exposures for the March 2019 quarter suggested that the five-year squeeze on higher-LVR lending may finally have run its course - at least as a share of the loans actually still getting written. 

However, the volume of loans written was some 19 per cent lower than two years earlier (despite a population increase of about 800,000 over that time). 

As for the 'mysterious' retail recession and abject lack of household consumption? 

Well, here's one way that more and more dollars have been sucked out of the economy: the lowest ever volume of interest-only lending on record getting through the net in the March 2019 quarter, now down by more than ¾ from the peak. 

The stock of outstanding IO loans fell to a fresh record low share of mortgages at 23 per cent, a colossal fall from 39 per cent only a couple of years earlier.

No wonder the economy has felt the pain, that's a tremendous reconfiguration of household finances in such a short space of time. 

Loans to investors were down by a third from two years earlier, rendering investor credit growth non-existent.

Mind you, owner-occupier lending was down 15 per cent year-on-year as well. 

Meanwhile, low-doc loans have essentially ceased to exist, and in fact other non-standard loans have by and large gone the way of the dodo too. 

Let it flow!

Many of us, including me, doubted there'd be such a resolve to crack down so effectively on the excesses in mortgage lending.

Fair play, and credit here where it's due.

But while many still seem to be cheering on ever-tighter lending criteria, it's also worth recounting the RBA's point that the appropriate level of risk in the mortgage market is not nil, and that there should always be an element of speculative demand in the market.  

After all, it's all a bit circular if the solution to the slowdown is interest rates being cut over and over and over again.

Better to get some credit flowing and let banks lend to willing borrowers while we still have some!

Tourism switcheroo, to the big cities too

Tourists flock to cities

Not content with dominating the other parts of Australia's services economy, Sydney and Melbourne are now cleaning up from a tourism perspective too.

The extraordinary boom in Chinese visitors to Australia has finally slowed to an annual growth of 3 per cent at 1.3 million.

But they're still spending more, with total spend by Chinese tourists ripping 10 per cent to a record $12 billion. 

Overall tourism spend hit a fresh high of $44.3 billion over the year to March 2019. 

Source: TRA

Visitor numbers have been mixed from the US, despite a favourable shift in the currency, and soft from Britain. 

The booming sector is now in Indian visitors, tearing another 15 per cent higher to 343,000, with total nights another 21 per cent higher year-on-year. 

More than half of Indian tourists (53 per cent) state that they are VFR - visiting friends and relatives - much higher than the norm for all international tourists (30 per cent). 

Source: TRA

The other growth sector is for education arrivals, up 7 per cent over the year to 586,000, with trip spend growing 9 per cent here too.  

Tassie has drifted back out of favour a bit, and so too have Perth and South Australia.

Sydney and New South Wales (4.3 million visitors) and Melbourne and Victoria (3.1 million visitors), on the other hand, are becoming effective Meccas for tourists looking to deploy their cash, with soaring spend of $11.2 billion and $8.5 billion respectively!

Source: TRA

Queensland saw a boost from the Commonwealth Games in Q2 2018, but this will drop off the annual figures next quarter and normalise the results for the Sunshine State somewhat. 

Here we go again

Easy money...

Bitcoin is now trading back up above $10,000, having begun the calendar year at under $4,000.

That makes for a year-to-date gain of 169 per cent.

A Libracoin bump? Who knows?

Still not dead, anyway.

Meanwhile in the US...

Overhang?

Construction boom

Sydney went through a record period for dwelling starts between 2014 and 2016, especially for new apartments. 

Measuring dwelling supply against demand is far from an exact science, as it depends upon population estimates and constantly shifting trends in household formation.

For example, it transpires that population growth in New South Wales was higher than previously estimated in recent years, as you might have guessed if you live in heaving Sydney. 

With commencements remaining high through much of 2018 there's going to be an apartment overhang for Sydney to work off, with many similar projects hitting the market contemporaneously. 

So you have suburbs like Carlingford, Epping, Ryde, Homebush, and Miranda with a lot of very similar apartments looking for tenants. 

Though with the state's estimated annual population growth accelerating to around +124,000 in 2018, there's no evidence of a structural oversupply of dwellings; rather it's a temporary glut to be worked off. 

By the beginning of this year the ratio of population growth to dwelling starts for New South Wales was roughly back in line with the 30-year average at just under 2 (new apartment projects tend to house fewer people per dwelling than we saw in historical cycles too). 

In Victoria it's an altogether different story. 

As the mining boom faded FIFO workers relocated interstate and many chose to head to Melbourne, so not only was the Victorian capital attracting immigrants from overseas it was pulling in economic migrants from interstate too. 

Lob in the natural population increase and the Victorian population went through its most striking boom since the Gold Rush, which has overwhelmed the lift in construction. 

With a credit squeeze and duty surcharges for foreign buyers quelling dwelling supply in 2019 and population growth across the state running at close to +140,000, Melbourne looks set to get very tight.

I looked at the trends for vacancy rates by city across recent years here.

Melbourne has a clear seasonal pulse, but has been steadily tightening for the past five years despite a period of record construction. 

Need some time in the Sunshiiiine

Time to shine

Queensland's population growth surged towards 90,000 for a growth rate of +1.8 per cent in 2018.

That's up from about 80,000 in 2018, for the strongest growth since the mining boom of 2012, and takes the population of the Sunshine State to beyond 5 million. 

As at December 2018 New South Wales had a population of more than 8 million, and in Victoria the estimated resident population moved above 6½ million. 

The increase for Queensland is being driven by net overseas migration as immigrants head for the south-east Queensland lifestyle and Aussie expats return from pastures elsewhere. 

The inner city of Brisbane saw an apartment building boom between 2013 and 2016, but things have visibly calmed down in this regard over the past couple of years. 

Measured on a statewide basis the ratio of estimated population growth to dwelling commencements has rebounded to the highest level in half a decade. 

Accordingly Brisbane's rental market is now steadily tightening, following a difficult period for landlords. 

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Weekend reads

The must read articles of the week, summarised for you here at Property Update.

Make sure you read the piece about Sydney listings at decade lows!

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Aussie stocks rally

Stocks fully priced

It's been a big period for Aussie stocks, recording a third straight week of gains in adding another +1.48 per cent this week. 

Aussie stocks are now just a couple of per cent from their historic highs of yesteryear. 

The accumulated returns - including dividends - are plotted below (courtesy of @Scutty via Twitter):

Almost by definition buy and hold isn't going to do as much from today's levels, as market valuation are no longer cheap. 

The US S&P 500 opened and closed at record highs yesterday as markets price for rate cuts in the US too. 

It's time to look further afield if you want better than average returns. 

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In other news major Aussie bank economists are now falling over each other to predict rate cuts in July and August.

And finally, if you've been short iron ore, look away now...

Have a great weekend!