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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.
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Friday, 18 July 2014
I blogged a little the other day here about the forthcoming resi construction boom.
Today, I'll break things down a little further for you, thereby proving what an all-round generous bloke I am.
Let's drill in just one notch further today into dwelling commencements by property type and by state to see what we can learn...
Commencements by state
Firstly, if we take a look at the quarterly number of dwelling units commenced by state, we can see that the number of commencements has picked up very strongly over the last couple of years, following on from dwelling price growth in this cycle.
This is particularly so in the major states, although building activity looks to have tailed off in South Australia at this stage.
That's all part of the cycle, of course, and South Australia's time will come again as upwards pressure on prices gradually returns (click chart):
The Chinese impact
We have seen article after article about a surge of interest in buying Australian property from Chinese, and this continues this week.
While the underlying tone of these articles is frequently negative, there are some genuine plus-sides to foreign investment.
Existing owners are happy when they sell to wealthy foreigners of course, but another plus to demand from foreign investment is that it creates new supply.
In particular, the new supply will likely be focused on the large capitals, and I believe that we will find over the coming years that an ever-greater proportion of new housing stock is of the attached apartment/unit type.
As I already briefly noted here, the number of houses commenced has picked up strongly, but it's actually apartment commencements that are really going to fuel the construction boom.
Drilling into the number of houses commenced by state, we can see that Western Australia is now in an uptrend, spurred on by low interest rates and a 10% uplift in Perth house prices last year.
In particular, note in the chart below the huge number of houses that have been constructed across Victoria since 2001 as prices have risen strongly, which in part accounts for why vacancy rates in Melbourne and other parts of Victoria are now so much higher than those in states elsewhere.
Comparatively speaking, New South Wales has lagged way behind on this front since the preceding Sydney property boom ended in 2003/4, and vacancy rates in Sydney are consequently considerably tighter on average, putting upwards pressure on prices.
Note that I have not adjusted these figures are not adjusted for seasonality by quarter...they just are what they are (click chart):
Units & apartments
Looking now instead at apartments and units commenced by state over the long run, this also shows Victoria as having built comparatively high number of units over recent years.
However, in New South Wales and Sydney in particular, activity is really picking up.
Sydney has both a dwelling and an infrastructure deficit, but there is no question that a construction boom is now underway on all fronts (click chart):
The implication of this is that there will likely be an oversupply of new apartments in certain suburbs of Sydney in the coming few years as new stock gradually comes online.
There are cranes on practically every street corner at present.
Although it would be drawing a long bow to suggest that there will be a city-wide oversupply with the Greater Sydney population expanding at around 80,000 per annum, property buyers should as always aim to be discerning in their choices.
Dependent on circumstance investors may be wiser to focus on established dwellings in landlocked suburbs, in particular those where new supply is heavily restricted.
Think of leafy garden suburbs with great transport links to the city where NIMBYism reigns supreme and not those in the Urban Activation Precincts (UAPs) where new high rises will now begin to dominate the horizon.
Dwelling commencements appear to have stagnated in South Australia, where dwelling price growth in this cycle to date has not been great enough to stimulate developer interest.
Note, however, vacancy rates have been tightening quite noticeably in Adelaide and Hobart over the past year (dwelling commencements have all but collapsed in Tasmania) which in turn suggests that the pressure may slowly but surely begin to rise in these markets.
This, of course, why it is known as a housing market cycle.
As for yesterday's post, the answer is that I was at Marina Bay Sands (Singapore).