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.

Sunday, 6 July 2014

Green for go in Sydney

Had some dinner out on Friday night down at the Sussex Street end of town, in the shadow of the first of the three colossal new commercial towers at Barangaroo.

The sheer scale of this $6 billion development is only now beginning to become apparent.

The central core of the first tower, which essentially only accommodates the lift shafts, is now up to around the 25th level, but even this is only half of the tower's full height to be.

The three commercial towers will be the new home to some 23,000 office workers.

Rumours are afoot in the city of a huge anonymous tender to swallow up a mass of new floor space, and the word appears to be that the company in question that is tendering is a forward-thinking corporation which specialises in internet search engines.

The net result of all the new office space is likely to include:

-higher vacancy rates for existing office rentals in the city; 

-falling yields for office space in Sydney CBD; and

-conversion of more older offices into new boutique residential apartment developments in the city square mile.

Generally, it's a better time to be a tenant of existing Sydney office space than an owner right now.

The central part of Harbourside is still a pleasant enough spot for a Saturday morning coffee.

However, the Haymarket end of the harbour vicinity is a veritable hive of construction activity for six days out of every seven, with a new hotel complex and International Convention Centre soon to be constructed here.

Way off to the right of the shot below will be the new Darling Square residential development. 

Owners of units in the One Darling Harbour building - a small coterie which includes myself, in fact - were apparently considering legal action against Lend Lease's use of name 'Darling One'. 

That all seemed a trifle pointless to me given that there is already a Sydney suburb called Darlinghurst, another called Darling Point, a Darling Harbour, a Darling Quarter, a Darling Park development, a Murray-Darling Basin, a Darling River, a Darling Drive, a Darling Street...and so on...but, hey.

One assumes that is why they decided not to proceed with with any legal action.

In any case, whichever way the developers try to dress it up, Darling Square is really more like North Chinatown, or at the very best you could tag it as Haymarket. 

It would be drawing a mighty long bow to draw any association with Darling Harbour which is a full kilometre away across Tumbalong Park.

You can actually make out the first of the commercial towers at Barangaroo in the far distance below, being the phallus-shaped development in the centre-left of shot. 

Construction goes on in the background, but Tumbalong Park continues with hosting its Cool Yule festival..a kind of Christmas in July event.

While the temperature has cooled, it is also expected that the residential housing market will follow suit, as it normally does at this time of year. 

As expected, there are to be far fewer listings during this seasonal lull.

However, despite the frequently referred to "cooling" of the residential market, Sydney continued to record a 73% preliminary auction clearance rate yesterday according to Australian Property Monitors (APM), and dwelling prices will doubtless still be recorded as rising in July.

Forecasting house BIS Shrapnel appears to take the same view that I do, that being that due to a huge ongoing demand from investors, Sydney apartment prices will likely continue to grind higher until such time as interest rates are normalised.

With many lenders dropping mortgage rates independently of the Reserve Bank and some standard variable rates now even available with a '4 handle', it's unsurprising that BIS forecasts another 15% price growth for Sydney units over the next two years.

People can forecast bubbles in the detached housing market until the cows come home - deliberately ignoring the role of cheaper debt finance and changes in household structure - but when it comes to apartments with $400,000 mortgages which fail to attract even $20,000 in annual interest charges, a material correction will not eventuate absent a shock from either normalised interest rates or much higher unemployment.

New South Wales currently has a headline unemployment rate of only 5.5%, or 5.7% seasonally adjusted (click chart):

High interest rates aren't likely to come to the party any time soon either (click chart):

If anything, soft economic data seems to imply that rates are as likely to fall in the next year as they are to rise (click chart):

From APM's weekend auction market wrap:

"Low interest rates will keep the auction market ticking over during winter and into spring although weekend clearance rates will continue to track lower than last year’s rates at the same time that climbed over the 80 per percent mark. 

This week the Reserve Bank predictably left rates on hold for the 10th consecutive month - the longest period of stable rates in over 8 years - and with no likelihood of a change for the foreseeable future.

Low interest rates also unsurprisingly continue to stimulate home building particularly unit development in Sydney. 
Latest ABS data unsurprisingly reported a surge in approvals over May following the holiday interrupted April results. 
The number of houses approved for building in Sydney has increased by 878 or 28 percent over the first five months of this year compared to the same period last year. 
Unit approvals in Sydney have increased at a higher rate - up by 2275 or 30 percent this year."


For this weekend's $11 movie at Broadway, I watched Jersey Boys, which is the Clint Eastwood directed film version of the stage show, which documents the lives and musical careers of Frankie Valli and the Four Seasons.

For someone who has no knowledge, or even particular interest, in that musical genre, I really enjoyed it.