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Wednesday, 30 September 2015

The high rise glut

High rise approvals ease

One of the most notable aspects of this building approvals boom has been that its focus on the building of high density housing to an unprecedented extent.

If you want capital growth from property then I suggest that you should be wary of high rise stock since proportionately far too much of it is has been approved.

Approvals in most instances do now seem to be pulling back, but the approvals pipeline has seen 4+ storey dwellings pushed through this cycle to date in unprecedented volumes.

In August the number of approvals pulled back in Victoria from 1,766 to as the new levy takes effect, but the 12mMA trendline tells its own story...

In Queensland the number of 4+ storey dwelling approvals at 895 in August was well below the extraordinarily high volumes approved in 7 of the preceding 9 months, and the trendline peak now seems to be in...

Being home to the largest capital city, New South Wales has typically approved the greatest number of high rise apartments, although here too approvals fell from an elevated 3,431 to 1,887 in August...

Overall it seems that the great flood of approvals of high rise apartments is now easing as developers take note of the looming oversupply.

The problem with the highest density tower blocks for investors is simply that there is no inherent scarcity value. 


Building approvals boom passes peak

Approved building work declines

The ABS reported that $5.86 billion of residential building jobs were approved in August, following three separate months in 2015 where more than $6 billion of residential jobs had been approved.

Thus while the rolling annual total of potential building work in the pipeline has hit a record $68 billion, the peak for this cycle is likely now in.

The three city economies which have benefited and continue to benefit the most from the residential approvals boom have been Melbourne, Sydney and Brisbane, in that order. 

Total approvals pull back in August

After a few bonanza months the total number of dwelling units approved slunk back to 18,710 in the month of August. 

The number of detached house approvals tends to be a steadier data series and increased by a solid +4.9 per cent over the month, but this was more than offset by a decline an -11.4 per cent decline in the number of unit and apartment approvals. 

The rolling annual total number of approvals is now at a record high of 226,417 - and both sectors are still tracking higher than they were 12 months ago - but the record 215,000 dwelling commencements seen in 2014/15 is now expected to decline forthwith.

Close to half of all dwelling approvals over the past 12 months were for units and apartments, which is historically speaking exceptionally high. 

The residential construction industry is presently operating at or close to its full capacity, which has resulted in marked inflation in the cost of of bricklayers, bricks, and other materials and trades.

The chart above does suggest, however, that the pipeline of construction work remains strong for the time being.

Capital city approbvals

Greater Melbourne continues to approve the greatest number of detached houses, with another 2,178 waved through in August. 

However there were declines in the month in Sydney, Melbourne, Brisbane and Perth, with most of the strength in detached house approvals taking place in regional Australia in August.

Greater Perth in particular now looks set to slow its pace of building with price action weak and population growth slowing.

The sharp declines were seen in unit and apartment approvals.

Melbourne previously experienced something of a pull forward due to the introduction of a new levy, but unit approvals fell back sharply in all three of the most populous cities in August, with a sharp decline in DA's in Brisbane in the first quarter of 2015 now also being reflected in weakening apartment approvals.

The wrap

Overall this was a fairly balanced result, and one which to some extent should counter predictions of sustained oversupply of housing glut in the capital cities, with building approvals falling back in most cases.

The oversupply risks are greatest in the "high rise" apartment sector, as I'll cover off in a separate blog post. 

Engineering construction rises in June quarter

A surprise result today as total engineering construction bucked its downtrend to rise rebound by +5.6 per cent in the June quarter in seasonally adjusted chain volume measures terms, driven by a +10.2 rise in private sector activity.

The stronger than expected quarterly result was held up by a renewed burst of resources construction in Western Australia with $11.4 billion of activity recorded for the quarter.

Looking below at the value of work commenced, however, the trend remains down.

The one bright spot was to be found in New South Wales where expanded government coffers will now allow some public sector infrastructure spending to happen.

More than $5 billion of public sector work was commenced in NSW in the June quarter on roads, highways and subdivisions.

Overall, a healthier-than-expected result, but one which only delays total engineering construction work reverting back towards its long run average.

Macroprudential fail as London prices rise again

London house prices rise

The UK Land Registry released its latest House Price Index for the month of August 2015, which showed prices rising in the East (+8.4 per cent year-on-year), South East (+7.6 per cent), and yet again, in London (+6.6 per cent).

The largest gain for the month was seen in the capital city of London (+1.7 per cent), while Cambridgeshire recorded yet another robust +7.8 per cent year-on-year gain.

On the other hand prices declined in the month in a number of the regions located away from The Smoke, including in t'North West, Yorkshire & t'Humber, and in the East Midlands. 

Prices have also remained relatively flat over the past year in Wales and the North East like.

Not shorting shortages

There have been some alarming statistics reported over recent years projecting dramatic housing shortages around London and the South East, and rarely is progess made on how the supply shortages will be tackled.

If there is one thing there has been a glut of over the past 20 years years it has been hapless experts trying in vain to pick turning points in the London housing market.

Meanwhile average house London prices have increased from £91,000 to nearly £500,000 (A$1,090,000), comfortably greater than a fivefold increase (today's average price is 5.4 times higher than in 1995, to be precise).

Different strokes for different folks, of course, but the single best investment decision I've made over the years has simply been to never sell a property, regardless of what the 'experts' in the media say.

Buy prime location capital city properties, never sell them. Sure you'll get cyclical downturns - see 2008, for example, which was quite a significant pull-back - but the long term trend is clear enough, provided you do buy in the right locations.

Down under

It is worth noting that cash rate futures markets in Australia are pricing in at least one more interest rate cut in this cycle, while implied yields already suggest that two further cuts by 2017 is a distinct possibility.

Even in the more bullish case scenarios, it appears likely that there are couple of years worth of slack in the labour market to be mopped up.

You can clearly see in the first chart of this blog post above the impact of the UK's macroprudential measures in 2014.

The City regulator the Financial Conduct Authority (FCA) "ran interference" with a series of measures known as the Mortgage Market Review last year, which temporarily disrupted growth in the London housing market.

Macroprudential measures can undoubtedly slow the market for a while - HSBC will be the next bank to put the cold freeze on new investor loans in Australia - but ultimately nothing gets to work on cooling a housing market quite like higher interest rates.

Unfortunately in Britain the emerging threat of an interest rate hike in 2016 (after a long hiatus since March 2009) now seems to be resulting in a surge of activity as buyers dive in before the Bank of England taps on the brakes.

The Bank of England's mortgage approvals figures released this morning revealed the highest number of approvals in 19 months and the largest monthly jump in borrowing since 2008, with a net increase of £3.4 billion smashing analyst expectations - so the market appears set to accelerate once again, fuelled by record low mortgage rates.

All of these are factors worth taking into account as the line of market observers trying to pick the next turning point in Sydney's housing market lengthens by the day. 

Tuesday, 29 September 2015


Expect there will quite a lot of blood on the streets for a number of self-managed super funds right now as stocks were absolutely rissoled again today, with the ASX 200 plunging by 195 points or 3.82 per cent.

The All Ordinaries index (XAO) was down by 3.62 per cent, taking the market back to where it was in August 2008, exclusive of dividend returns.

It was the miners again which once copped the worst of it, following on from huge falls in Glencore's valuation on international markets.

Rio Tinto (RIO) fell by 4.6 per cent to $46.52.

BHP Billiton (BHP) got absolutely smoked, down by 6.65 per cent to a seven year low of just $21.61.

Santos also fell by 9.1 per cent to just $4.28.

The banks were fairly hard hit too.

While cheaper share prices may be seen as a positive for net long term buyers, such volatility can be unnerving to the market and could easily send shares into full blown correction territory.

The Residex September property market update is due out shortly.

Services exports are ramping up

Services exports rising

Australia has run up some wicked trade deficits in the past few months - including one multi-billion-dollar ripsnorter in the month of April - a month which in truth seemingly included an exceptional item.

In theory the lower dollar should now be helping the trade deficit, though there have not been too many signs of that to date.

There have been some more positive snippets of news lately, though.

For example, Australia is gradually benefitting from a ramp up in services exports, as reported yesterday by Scuttman over at Business Insider - more evidence that the lower dollar in theory should be helping the economy to rebalance. 

Tourism & education

I looked here the other day at how foreign student enrolments have zipped to record highs, with more than 543,000 enrolments already recorded for the year to July 2015, an impressive +10.6 per cent year-on-year increase.

It is also the case that the lower dollar has encouraged a record 7.2 million short term visitors to head Down Under over the past 12 months, with tourists especially hailing from China and its provinces.

With the Aussie dollar having tumbled below 70 US cents, it is surely only a matter of time before more Aussies choose to holiday domestically too.

Every little helps, as the saying goes.

Commodities still dominate

Now it is true that despite the recent ramp up in the value of services exports, these continue to be dwarfed by the value of Australia's five main commodity exports - namely the bulk commodities of thermal and metallurgical coal, iron ore, gold, and natural gas.

And as you can see in the chart below value of these key commodity exports has been declining on a rolling annual basis since peaking in Q2 2014.

The prices of iron ore and coal have been crunched quite spectacularly since their respective bubblicious peaks, although particuarly in Aussie dollar terms the iron ore spot price has staged something of a fightback over recent weeks.

Merchandise exports

The Reserve Bank's weighted commodites index has shown that commodity prices have taken another serious hit over the past year, down by a thumping 20.9 per cent in SDR terms on a monthly average basis (although somewhat less in Aussie dollar terms, being down by 7.4 per cent).

The commodity index weights are as follows, with the aforementioned key commodities accounting for a crunching 71 per cent of the index.

Merchandise exports

It is worth remembering that exports are about both volumes and price, and also that Australian exports do comprise more than just these few commodities.

In fact, the ABS data series shows that these five key commodities are presently accounting for less than half of monthly merchandise exports by FOB value for almost a year now.

The ABS international trade data series lists hundreds of line items for exports covering anything and everything from crustaceans to spiegeleisen.

Some of the more interesting other merchandise or "non-services" exports of note include alcoholic beverages, dairy & other animal produce, cereals, medical equipment, medicines & pharmaceuticals, plant, telecoms & mechanical equipment...even aircraft & shipping equipment and, for the time being at least, cars.

The dollar value of fruit and nuts (not the chocolate bars, the actual stuff) exports are booming right now - in part thanks to the lower dollar - and shorters of companies like Select Harvests (ASX: SHV) have lost the proverbial "almond a leg".

So there are some good news stories buried in there.

International trade

The August International Trade in Goods & Services figures are due to be released next Tuesday, and will certainly be one to watch with interest.

Notably on a 12mMA basis estimated monthly merchandise exports appear to have stabilised lately at around $21.2 billion, having declined from a peak of $22.8 billion in Q2 2014.

July was the first time in 12 months that estimated monthly merchandise export FOB values came remotely close to the corresponding month for the prior year, following a horror run over the preceding 14 months.

It will also be interesting to see whether the now material decline in the Aussie dollar has had any discernible impact on imports.

Watch this space!

Monday, 28 September 2015

East hotting up

Read CoreLogic-RP Data's auction wrap here

Sydney's preliminary auction clearance rate rebounded to 74.2 per cent. 

Some of the big gains through this cycle have been seen in the inner west and certain lower north shore suburbs. but with outer suburbs now struggling, the eastern suburbs is now emerging as the standout sector with an 89.8 per cent preliminary clearance rate.

Sydney's inner west remains hot with a preliminary clearance rate of above 80 per cent, but the second tier regions are now fading. 

For example, the preliminary clearance rate in the south west was just 59.2 per cent and in Parramatta it was just 57.8 per cent.

Brisbane's preliminary clearance rate of 58.9 per cent was up from 48.9 per cent on the corresponding weekend last year, and appears to be closing in on multi-year highs.

CoreLogic's report is here.

Sunday, 27 September 2015

Long run resi prices

The long run

The ABS released its Residential Property Prices Indexes to June 2015 last week. 

As you can see in the first chart below, over the dozen years since September 2003 on average established capital city houses (+89 per cent) have outperformed attached dwellings (+73 per cent).

Since the full ABS indices only track back to Q3 2003, Sydney will naturally appear to be a moderate performer on this index, since the harbour city's preceding boom peaked on this data series almost immediately thereafter in Q4 2003.

The strongest performing cities through the mining boom were Darwin - by a huge margin - and Perth. 

A number of cities in resources regions also performed strongly through the mining construction boom, although that particular dream has turned on a dime into an illiquid nightmare for many owners of property in mining towns.


Looking in the second chart below at established houses only since Q3 2002, Sydney has been playing some serious catch-up over the past three years.

Melbourne has also had a solid run, while there have been some steady gains of late for Brisbane, Adelaide and Hobart.

The most interesting point of note is how the long run data since 2002 seems to imply a convergence of the results for all eight of the respective capital cities.

Attached dwellings

Meanwhile the attached dwellings only index below reveals a similar pattern, although on average it records a slightly less dramatic incline through the present cycle to date, but less impressive growth in a number of cheaper cities where demand for apartment dwelling is less robust.

Note that the ABS data for attached dwellings only runs back to Q3 2003 which partly accounts for the lower growth over the full history of the data.

Of course while these figures are useful indicators they are based upon averages and can mask any number of sub-trends.


The same holds true for long run analysis of median prices at the suburb level, where miniscule sample sizes can skew results materially.

There has also been the small matter of a once-in-a-century mining boom combined with a one-off structural shift to lower interest rates to take account of.

As as a result those "top 100 best performing suburbs" lists almost invariably include a number of remote suburbs that few people have heard of where median house prices are around $150,000.

Since $150,000 is more or less the cost of building a house today, it follows that the real appreciation in land values has actually been weak, and the strong "growth" results are just as likely to be quirk of sampling.

The house I grew up in is a great example, having apparently achieved incredible compounding capital "growth" of an amazing 9 per cent per annum for fully 35 years!

Thing is, you take off the cost of the extension, the replacement of the dodgy carport with a garage, and various upgrades to the interior, and the capital growth in real terms has been zero percent.

Cheaper properties can sometimes come with other associated problems - such as tenancy or vacancy risk - while any unfortunately substantial repair cost (e.g. for the roof) can wipe away years of returns at a stroke due to the lower base cost of the asset.

Moreover suburb median prices are by and large a waste of time - the only statistics that really tell you anything worthwhile when it comes to real estate are like-for-like sales. 

London house price gap to a 20 year high

It's not only Australia where capital city prices are leading regional prices in the low interest rate era.

Interesting research from Hometrack this week showed that London and Cambridge continue to lead UK house price growth in the year to August 2015, just as they did in the year to August 2014. 

Since the 2007 market peak house price growth has been led by Cambridge (+44 per cent) and London (+42 per cent).

Not so much doing elsewhere, with the honourable exception of another London "echo-boom" and famous university city, Oxford (+34 per cent).

Indeed, in many cities house prices remain well below the levels seen at the 2007 peak, particularly in Belfast (-47 per cent), Liverpool (-13 per cent), Edinburgh (-13 per cent), Glasgow (-12 per cent), Newcastle (-8 per cent), Birmingham (-3 per cent), Sheffield (-2 per cent), and Manchester (-3 per cent).

Which is all worth remembering when you hear people referring to a "UK property bubble".

It's really an under-supplied London and south-east boom with not a lot positive having happened elsewhere for nearly a decade now.

Hometrack also found that the price gap between London and the rest of the UK continues to widen due to its ongoing relative outperformance, with the differential now rising to a 20 year high.

Saturday, 26 September 2015

US growth revised up to 3.9 per cent

X+US GDP was revised up to +3.9 per cent for the 2nd quarter (from +3.7 per cent previously) according to the Bureau of Economic Analysis.

After a harsh winter growth in the first quarter had been recorded at only +0.6 per cent.

The stronger result reflected gains in consumption and construction. 

Although inventories are expected to subtract significantly from growth in the third quarter, a US rate hike before the end of the year at long last appears likely.

It's been a while coming!

2-speed Sydney

Dr. Wilson at Domain noted this week that Sydney's auction market is becoming a "two speed affair" with the lower priced outer suburban regions now evidently struggling.

On the other hand Sydney's Eastern Suburbs have been tracking very strongly in recent weeks.

Anything with a Bondi handle was seemingly selling like hot cakes this week.

There we also some ripsnorting results seen in Surry Hills, Darling Point, Maroubra and Bronte in particular, as well as some other prime suburbs to the east. 

Although there has been a swathe of commentary stating that the Sydney "boom is over", CoreLogic-RP Data does appear set to report a big improvement in its preliminary auction clearance rate to 74.2 percent, up from 70.7 per cent last week.

Turnbull bounce

Consumer confidence jumped by +8.7 per cent to 114.5 according to the latest ANZ-Roy Morgan survey.

That's the second largest jump since the survey began and takes consumer confidence to above its long run average since 1990, and close to the recent multi-year highs. 

ANZ-Roy Morgan provides a full analysis of the survey and findings which you can read here.

Weekend reads!

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Friday, 25 September 2015

Foreign capital helps drive record household wealth

Vital organs

Having grown up in the United Kingdom I can recall there were strong television marketing campaigns for folk to carry donor cards so that in the event of untimely deaths their organs could be used to help others live.

Despite this push, until recently only around a quarter of Britons effectively consented to organ donation. 

On the other hand the effective consent percentage has been close to 100 per cent in some European countries with similar cultures, including Austria, Sweden, Belgium, France, Portugal, Poland and Hungary. 

Is this because Brits are thoughtless and uncaring when compared to those on the continent? Hardly!

The real reason is that as Poms we've had to opt in to consent to organ donation while the inhabitants of the other aforementioned countries must instead opt out.

It's an interesting observation of behavioural economics that when faced with challenging and emotionally complex decisions we often lurch for the default option or the perceived safety of following the herd. 

Not opting out

As an analogous observation it has been fairly common for employees in Australia to choose superannuation fund managers based upon the default recommendations of their employer - checking the default option box without due consideration of the fund's past or likely future performance.

Interestingly a somewhat similar dynamic is impacting Aussie housing market right now, and in turn therefore the Aussie economy.

Mortgagees are often inclined to shop around or push for discounts when interest rates are rising, but when borrowing rates are declining - as they have been now for some years - borrowers can tend towards a much more laissez faire or "set and forget" approach.

With the cash rate having been slashed from 7.25 per cent to just 2 per cent since March 2008 existing homeowners have benefited from an enormous mortgage affordability dividend.

In the process it has transpired that a large number of Australians have taken what is effectively the default option of allowing their mortgages to be paid down at the same rate as before the financial crisis.

In turn this uniquely Australian dynamic has generated aggregate mortgage buffers on an scale unprecedented for this country, with the average home loan up to 30 months ahead of schedule depending upon your preferred data source.

Of course more recent entrants to the market have not experienced this luxury, although they have often accessed borrowing rates close to record low levels.

As a result of he above repeated cuts to the cash rate have not to date generated the boost to household consumption that might have otherwise been expected, which itself has served to maintain downward pressure on interest rates.

Gearing ratios decline

The latest Finance & Wealth figures from the ABS released this week for the period to Q2 2015 showed that the debt to assets ratio of Australian households has actually been declining for more than three years now from a peak of 22.1 per cent to 20.5 per cent.

Naturally rising share markets (until earlier in this calendar year at least) and house prices in Sydney and Melbourne have accounted for much of the decrease in the gearing ratio.

Similarly the ratio of residential mortgage debt to land and dwelling values declined further in the June 2015 quarter to 28.4 per cent from a peak of 30.7 per cent in Q3 2012.

Foreign capital 

Growing aggregate mortgage buffers have played a key role here, but perhaps so too has the volume of foreign capital pouring into our property markets since 2013.

We do know for certain that the value of approved foreign purchases leapt in FY2013/14, but data released by both APRA and the ABS in the past week has implied that significantly more foreign capital may have leaked into Australian housing.

The Foreign Investment Review Board's FY2015 Annual Report is due to be released soon, which will shed some further light.

Since dwelling prices are driven and set by leveraged activity at the margin - and because only a small fraction of the dwelling stock typically transacts in any given financial year - it is of course easily possible for total asset values to be driven higher by comparatively smaller increases in debt.

However the data over the past three years nows shows that residential land and dwellings asset values (+$1,245 billion) have outpaced the increase in mortgage debt (+$273 billion) by a surprisingly high ratio (4.6 times).

Although the figures not directly comparable for a range of different reasons, this is materially higher than the equivalent ratios we saw in the heady three years to December 2007, for example, while accounting for the fact that today we are springing forth from a higher base.

Although it is impossible to measure accurately this suggests to me that the level of foreign capital leaking into Australian housing markets may be somewhat higher than is commonly reported. 

Record household wealth

The ABS data series estimated the net worth of Australian households surged by +$225 billion over the June quarter to be 13 per cent higher than one year ago.

Remarkably household net worth has now jumped by +65 per cent to $8.4 trillion since the Q3 2009 nadir of $5.1 trillion.

It has been a torrid year to date for Aussie share markets with equities, superannuation and other financial assets essentially contributing zip to the net gains in household wealth this quarter.

On the other hand residential land and dwellings values ripped by a staggering +5 per cent in recording the largest quarterly gain since Q4 2009, adding another quarter of a trillion dollars to be a whopping $0.6 trillion higher than one year ago. 

Put differently, rising property markets accounted for more than 100 per cent of gains in Australian household wealth over the June quarter. 

It was widely opined that housing would be a dud asset class post financial crisis, yet since Q4 2008 the total value of residential land and dwellings has burst higher by well over $2 trillion.

The gains in the June quarter were driven by an explosion in land and dwelling values in New South Wales - refer here for my analysis of the Residential Property Price Indexes for Q2 2015.

Thursday, 24 September 2015

State population trends!

State versus state - demographic trends

Australia's four most populous states accounted for a thumping 93.4 per cent of Australia's population growth over the year to Q1 2015, with New South Wales (its total population increasing to 7,597,000), Victoria (5,915,000), Queensland (4,767,000) and Western Australia (2,587,000) being the four states in question.

You could more or less chuck a soggy beach towel over the rest. 

The greatest gains in headcount across the most recent 12 month reporting period were seen in New South Wales (+101,200), Victoria (+97,500) and Queensland (+61,100), and as we've already seen that the recent "births" figures are almost certainly materially understated for the two most populous states. 

Population growth rates have slowed dramatically in the resources states and territories, including in Queensland (+1.3 per cent), and particularly in Western Australia (+1.4 per cent).

Meanwhile population growth in the Northern Territory has dried up almost completely (+0.2 per cent), and with net interstate migration away from the Top End reaching its most rapid level on record (-3,400) population 'growth' is set to turn negative in due course. 

Population growth has also slowed in another state which is suffering from a "brain drain" - South Australia - where net interstate migration of negative -3,000 has helped to pull the rate of population growth down to just +0.8 per cent, though it still needs to slow further.

The 'Festival State' has not created a single full time job on a net basis since 2007 and the result has been a horribly increasing rate of unemployment.

Components of growth

Net overseas migration remains very strong in New South Wales (+67,000) and Victoria (+55,000), but has clearly slowed in the resources states as the mining construction boom begins to fade into the rear view mirror.

The most interesting trend for me over the last few years has been to note just how few people have been choosing to leave Sydney and Melbourne for cheaper or warmer climes (refer to the net interstate migration chart below), instead opting to stay put for the relative security of their capital city employment.

That said, I do know more than a few people - including myself, in fact - who have recently decided to relocate from Sydney to Brisbane.

Brisbane is not only comparatively inexpensive, it also has a warmer climate and is considerably less crowded - and thus if the jobs market is creating the requisite employment it should be a no-brainer from my perspective!

The data below shows that the trickle of Sydneysiders moving to Queensland has only been a trickle through this cycle to date, and most certainly not a flood.

That said, net interstate migration for the March quarter into Queensland (+1,300) was plenty stronger than we saw in the prior corresponding period (+700) taking annual net interstate migration into the Sunshine State back up to +6,200 from its recent nadir.

Totting that little lot up we can see in the chart below that population growth has slowed significantly in Western Australia (+35,300) and Queensland (+61,100), and has slowed further in South Australia (+13,900).

On the other hand annual population growth remains supremely strong in New South Wales (+101,200) and Victoria (+97,500) despite the under-reporting of births over the past six months.

Housing supply

On an obliquely related note, although I can't remember exactly where I read it, somewhere this week was a piece which suggested that the construction of 10,000 apartments over four years at Sydney's Green Square would form part of a "tsunami" of oversupply in Sydney.

I'm not sure if this was some kind of gee-up, but as you can see the in the figures above with the state population having increased by close to +400,000 over the past four years alone...hmm, I dunno.

Whatever the case, New South Wales has an existing stock of close to 3 million dwellings, and to my knowledge there has not been a recorded example of such a tiny fraction of additional construction having a material impact on a capital city property market.

Like London, Sydney is a city which is increasingly constrained in terms of its land supply in desirable locations, and is a city which is more or less permanently in a position of requiring new supply.

Now granted we're presently constructing proportionately far too many of those "shoebox" type developments - no arguments there - but as the Greater Sydney population continues to mushroom over time any such localised examples of oversupply are likely to be temporary in nature. 

Population growth surprise

Population grows by 316,000

Australia's estimated resident population increased by +94,000 in the first quarter 2015 to be +316,000 higher than one year ago.

This took the total resident population at March to an estimated 23,715,000, thereby implying in turn that the population of Australia today is now around 23,881,000.

The estimated quarterly increase for March of +93,942 was of course considerably higher than the +64,010 seen in the December quarter, but was some 17 per cent lower than the equivalent figure for the March 2014 quarter of +112,581.

That said, the recent figures for births have clearly been understated - particularly in New South Wales and Victoria - and probably by a significant number in my estimation.

As is almost self-evident from the data below, the New South Wales births registry transitioned to a new data processing system in September 2014...but (unless there is a new form of contraception that I haven't yet heard of) unfortunately the system doesn't yet appear to be processing data quickly enough!

The ABS acknowledged as much in the explanatory notes to its release and expects to see a rebound in the births figures for New South Wales and Victoria over the next quarter or two. 

Components of population growth

Consequently the natural population increase figures for the past six months at the national level are also understated as you can see in the population drivers chart below.

What we can say with some certainty is that net overseas migration was still pulling back fairly sharply as at March 2015 declining to a rolling annual total of +173,000, which is a long way below the cyclical peak of more than +300,000.

The latest overseas arrivals and departures figures imply that the rate of population growth now appears to be gradually consolidating, but it will likely be several quarters yet before the total population growth figures reported in this data series stop declining. 

As we will see when I look at the detailed figures at the state level later, many of Australia's resources focussed regions appear set for an uncomfortable demographic shock as the mining construction boom turns to bust. 

The wrap

Although the rate of population growth nationally was rounded to +1.4 per cent, the actual reported result of +1.35 per cent is the slowest percentage rate of population growth seen since June 2006, the errors in the recently reported births data notwithstanding.

On the other hand population growth in the largest capital cities continues to track at remarkably high levels. 

The good news for Australia and uts economy is that employment growth has lately been tracking at a considerably more sprightly +2.0 per cent, and therefore the trend unemployment rate has been steady for the past year.

One step forward...

Tomorrow morning the ABS will release its Household Finance & Wealth data series for Q2 2015.

I am expecting to see aggregate net Australian household wealth well over +55 per cent higher than its Q3 2009 nadir, which would be representative of a remarkable recovery.

That said, in the period since 30 June there has been something of a kinghit to household balance sheets with the ASX 200 index (XJO) having nosedived below 5,000 after dropping by a further 105.5 points or 2 per cent today.

As recently as April the market had been threatening to surge above 6,000.

Yet as things stand the "XJO 6000" caps have been gently stowed away (back into cold storage with the "FTSE 7000" scarves!) and the bourse is instead shaping to return to the same levels we saw a decade ago.

Thank goodness for dividends and franking credits!

Wednesday, 23 September 2015

London flats

Over the past dozen years established house prices have on average outperformed attached dwellings (townhouses, units and apartments) in Australia. 

On average, I expect this to continue on a national basis over the next dozen years too.

However, one should take care not to generalise too much. 

The latest figures from the UK show that the best performing property type in the country over the 10 years from 2005 was London flats (+67 per cent), followed by London terraced houses (+65 per cent).

It's no surprise that on average the English capital city has comfortably outperformed regional dwelling prices. 

On a country-wide basis flats also seemingly outperformed detached houses, bungalows, semi-detached houses and terraces according to the latest Halifax data.

However, closer inspection of the data shows that the real reason for this is that the figures for flats were skewed by London flat prices. 

I often take the view that investors in Sydney and Melbourne may be able to learn useful information from what happens in London, as it is a more developed and more populated market.

Some of the trends that have played out in London include a clear price premium being paid for properties located within a short walking distance of a Tube station, and over time detached house prices becoming chronically unaffordable.

In terms of what this is likely to mean for Sydney and Melbourne? 

For my money house prices will continue to outperform apartment prices for some time, but eventually affordability constraints could see that gap closing in Australia's capital cities too. 

Record foreign student enrolments

Slowing economy

With Aussie stocks sinking to a 2 year low - the ASX 200 sagging 2 per cent to close below 5,000 today - and APRA doing its darnedest to put the kybosh on the rampant hordes of property investors, there's not been so much to cheer for investors of late. 

Let's look at some demographic trends instead!

Tomorrow morning the ABS will release its latest Demographic Statistics for Q1 2015 which will likely reveal that the rate of population growth in Australia has slowed to around +1.35 per cent or somewhere closer to +315,000 persons over the past year, partly in response to the slowing pace of growth in the domestic economy. 

Dollar to drive record foreign student intake in 2015

The declining Aussie dollar will have a number of positive impacts for the economy, however, which over a period of time will contribute at least something to a rebalancing of growth.

More Australians will gradually opt to holiday at home, for example, while the tourism sector is already benefitting from record Chinese visitor numbers.

Of course, the weakening of the Aussie dollar can be of help commodity exports too, particularly those typically denominated in US dollars.

Another type of "export" is the education of foreign students. 

I noted on this blog recently that the number of monthly education short-term arrivals had jumped to its highest ever level in July at some +86,700.

Naturally enough this is a highly seasonal data series with the bi-annual spikes roughly coinciding with term time commencements, but the rising trendline said to me that 2015 will be the greatest ever year for foreign student enrolments in Australia.

This will continue an uptrend which has been in place since 2012, with the stronger dollar having previously been one of the causes of a slowdown in international student enrolments from 2009.

Enrolments are surging

Sure enough, the latest data from the Department of Education and Training confirmed that the July year-to-date foreign student figures are tracking at unprecedented levels with a massive 543,123 enrolments. This is +10.6 per cent higher than the equivalent year-to-date figure for July 2014. 

If you've ever mused that most new foreign students in Australia appear to hail from Asia, then your musings were accurate, with China (27.1 per cent), India (11.3 per cent), Vietnam (4.7 per cent), Korea (4.3 per cent) and Malaysia (4.0 per cent) accounting for more than half of year-to-date enrolments. 

The year-on-year growth in enrolments from India (+20.9 per cent) and China (+13,6 per cent) in particular has been spectacular, while there has also been double digit growth in the numbers of student enrolments from Hong Kong, Taiwan, Nepal and Pakistan.

At 276,087 year-to-date new foreign student commencements are also tracking +8.3 per cent higher than they were over the year to July 2014.

47.7 per cent of commencements were in the higher education sector, with China (36.3 per cent) and India (12.4 per cent) once again accounting for a great bulk of the intake. 

In the schools sector Asia accounted for a whopping 83.7 per cent of enrolments and 76.8 per cent of commencments, with China alone accounting for all but 50 per cent on student enrolments. 

A capital phenomenon

Finally, the impact of foreign student enrolments will be felt most keenly in the largest capital cities - Sydney, Melbourne and Brisbane - with New South Wales (201,171), Victoria (166,014) and Queensland (86,640) the major recipients of the year-to-date headcount.