Everything You Need To Know About Australia’s Property Market Cycles

Jan 10, 2018 | Australian market

Most markets in the world consistently go through periods of growth contraction, and the property market is no different. While some might feel that this constant shift means that getting the most out of their property investments will be difficult, it is the opposite. If you are looking to make a property investment in Australia understanding the property cycle is one of the best ways to ensure that you are ready for any changes. After all, an event that you know is going to happen, is an opportunity.

The cycle

In short, the cycle takes place over four stages:

Boom, where the market experiences a lot of growth over a given period of time
Bust, in which the market becomes saturated, and prices begin to stagnate
Bottom during which prices fall back to lower levels. This part is also called a correction.
Recovery, where the market begins to stabilise, and growth resumes

It should be noted that the contraction phase of the cycle doesn’t mean that prices plummet, and are actually closer to a slowing of overall growth.

In Australia

Australia, like many other countries, is not relegated to a single cycle. Instead, various locations go through their own localised cycles. The best way to show this is to look at Brisbane’s current growth, versus Sydney’s moderate to slow growth over the past couple of month in terms of its suburb’s median house value.

Experts normally state that these cycles take place over various years, but after the financial collapse of early 2000, some of these cycles have been occurring more frequently.

One of the biggest reasons for the increase in cycles is the changes made to monetary policy, although it’s not the single determiner of growth. Unemployment, consumer sentiment, job security and other socioeconomic factors also play a role.

Your opportunity

The increase in frequency of the property cycle means that if you keep a close eye on these changes, that you can optimally invest in property that’s ready to go into a boom phase, ensuring that you achieve maximum return. If you don’t have the time to keep your finger on the pulse of Australia’s real estate market, why not let us do the hard work for you.

Contact us today to kickstart your property investment returns.

THE NEW RBA 1.5% RATE: WHAT THIS MEANS FOR AUSTRALIAN PROPERTY INVESTORS

Aug 12, 2016 | Australian market, Interest Rates

As I speculated last Monday, the June quarter CPI report gave the Governor enough ammunition to act.

The Reserve Bank said a rate cut will create “room for even stronger growth” as the inflation rate is set to remain below its target range and risks in the housing market abate. read more..

The Reserve Bank of Australia (RBA) reduced its official cash rate to a new record low of just 1.5 per cent at its August board meeting.

We expect this move to stimulate the country’s property market further, given that the RBA’s decision to trim the rate was mainly aimed at stimulating the economy and boosting employment. Notably, inflation data for the June quarter showed that consumer prices increased by only 1 per cent year-over-year. This pace was well below the Reserve Bank’s target of 2 to 3 per cent.

What’s remarkable in the RBA’s recent rate cut is that the monetary agency has apparently adopted a relaxed stance about the east coast’s housing market. Reserve Bank Governor Glen Stevens was quoted as saying in the rate cut announcement that home price increases are “rising only modestly” so far this year, thus allaying some fears that the Australian real estate market is overheating.

Stevens also noted the apartment construction boom in the east coast cities which would boost housing supply in the next two years. In this context, upward pressure on prices can be expected to diminish and hence the need for the rate cut to pump-prime borrowing as well as consumer spending.

The RBA governor likewise stressed that lending growth in housing has slowed somewhat this year. This slower pace suggests that the probability of lower interest rates increasing the risks in the housing market has lessened.

Prospective property investors and home loan borrowers who wish to take advantage of the recent interest rate cuts, however, need to be selective and shop around for the best products and rates. The same is true for homeowners with mortgages, as not all banks are passing the recent RBA rate reduction on in full.

The big banks, in particular, are passing on less than half the cut. The reduction in interest rates ranges from 10 basis points (NAB) to 14 basis points (Westpac). Notably, NAB and the other big banks passed on the full cut when the official rate was cut in May this year.

At least one smaller bank, on the other hand, passed on the rate cut in full, while customer-owned Bank Australia trimmed its standard variable mortgage rate to 4.74 per cent. It is therefore vital that people with mortgages re-examine their current home loans to check how much of the interest rate cut is being passed on to them.

In one estimate, some $16,000 could be slashed over the entire life of a $300,000 mortgage having an average variable rate of 4.93 per cent which received the full 0.25 percentage-point interest rate reduction

Offset mortgages likewise present windows of opportunity for prospective investors and property buyers. Blending a traditional mortgage with a deposit account now looks quite attractive as together with the rate cuts, major banks are passing on a rate increase of as much as 50 basis points on new term deposits.

Moreover, here’s the thing. There are expectations that while interest rates may remain steady at 1.5 per cent this year, the RBA could cut the rates twice more during the first half of 2017. We are certainly abreast of these recent market developments and definitely have more to share on the opportunities that the current RBA interest rate regime presents to investors.

Best Regards

Dr Andrew Unterweger

MBBS, CFP®, Dip FP,FPA, AFA, SMSF
Chairman

2016 Investment Outlook and Australia’s property market implications

Jan 15, 2016 | Australian market, Australian property, Newsletter

2016 Investment Outlook and Australia’s property market implications

by Dr Andrew Unterweger | 15th January 2016

I would like to wish everyone a wonderful 2016 and every success in navigating what should be another challenging year ahead in terms of making some prudent investment decisions given the somewhat uncertain global macro-economic backdrop that we are faced with.

If I look at the newsletter I sent out at this time last year and the predictions for the year just passed, I think the only outcomes that were unforeseen, were the extent of the continued increases in property values in both Sydney and Melbourne. From a global perspective, similar themes that existed in 2015 will continue this year with the main change being the long anticipated lift off in the Fed Funds Rate and the likelihood of a further three or more such increases during the course of 2016.
The other main concern, especially for Australia and with a direct impact on the Australian property market is China, which, as everyone is aware is Australia’s major trading partner, however, the IMF forecasts suggest that China’s GDP growth could slow in percentage terms over the coming years (from double-digit rates to still rapid high single-digit rates.) and that US growth could pick up, but it still expects China to be the single largest contributor to global GDP growth in USD terms over the coming five years. Also, China’s economy is now much larger than it was when it sustained double-digit growth rates, which makes it harder to grow as quickly as it did and means that even high single digit growth rates deliver significant additions to global demand.

China’s growth is expected to have slowed to around 7% in 2015 from 10.6% in 2010, but because China is a lot larger than it was in 2010 (89% larger in USD terms and 69% larger in local currency terms) the IMF estimates that this year’s GDP growth is estimated to be equivalent to USD1,028 bn, which is slightly more than the addition to GDP in 2010 of USD 980 bn . More importantly, China’s recent Fifth Plenum, which included a significant focus on the 13th Five-Year Plan (2016-2020), saw policymakers set economic growth as a top priority. Policymakers reiterated the goal of “doubling GDP and people’s income by 2020”, which implies a minimum growth rate of around 6.5% a year over the next five years which bodes well for the Australian economy at least in the medium term although I expect this position to continue into the foreseeable future. The major risk that I can see facing the Chinese economy is the expansion that has occurring in their banking system over recent years and hence the potential for a large increase in bad debts if economic growth slows too much, which would then have a global impact.

What we as property investors need to always be mindful of is the likely interest rate environment and, as we saw in the last few months, the impact that regulatory pressures from the likes of APRA can have on both the cost and availability of bank funding to enable us to continue with our investment strategies. I think the RBA will have an even more difficult time in 2016 in terms of setting monetary policy to cope with the continuing decline in the mining sector of the economy, the resilience of the AUD and trying to manage the price growth of some of the nation’s property markets. We have seen the banks come to the aid of the RBA in terms of increasing borrowing rates out of cycle and I anticipate this could well be repeated during the year as they face more margin pressure and slowing lending growth. I am sceptical that the Banks will pass on any interest rate cuts if the RBA does cut the benchmark rate and I think the present scenario continues to favour longer term fixed rates from an investor’s viewpoint.

To summarise, I think the continuing decline in commodity prices, a strengthening USD and weakening AUD combined with a supportive monetary policy from the RBA should assist the Services and Tourism sectors of the Australian economy to continue to expand, which will be broadly supportive for the residential property market. This will continue to drive quite different outcomes for the property markets of the various states of Australia and we should see some easing in the growth rates for Sydney and Melbourne. We continue to favour Brisbane and in particular the inner middle ring ( 3 to 10 km from the CBD ) as being better placed to find value and scope for sustainable longer term growth.

We will continue to monitor all these factors over the year and share some insights along the way.

I wish you every success for 2016.

Best Regards,

Dr Andrew Unterweger

MB BS, CFP®, Dip FP, Dip FNS, MFAA, AFA, SMSF, REA

Meet Dr Andrew Unterweger

Dr Unterweger is a highly qualified financial and property adviser, experienced venture capitalist and successful investor

RATES FORECAST TO FALL TO 2PC

By Smart Property Investor Staff Reporter

Friday, 06 February 2015

Two prominent economists have praised the Reserve Bank of Australia’s decision to reduce the cash rate and have predicted at least one more cut to come.

Domain Group senior economist Andrew Wilson said the Reserve Bank had made the right decision to reduce the cash rate from 2.5 per cent to 2.25 per cent.

Dr Wilson also said that another cut is likely, given that the economy received minimal stimulus from the succession of rate cuts between October 2011 and August 2013.

“We haven’t had much action from cutting from 4.75 per cent to 2.5 per cent, so I’m not sure what a 0.25 per cent improvement is going to do,” he told Smart Property Investment's sister publication Real Estate Business.

“Certainly the Reserve Bank had to act – it’s really the only tool in the box that we’ve got left.”

Sydney property bubble to pop when rates rise, says HSBC

Wednesday, 11 Feb 2015 |

James Mitchell

0

·

· A fresh round of cheap credit is further inflating Sydney’s investor-driven property prices.

In a research note released yesterday, HSBC economists Paul Bloxham and Daniel Smith predict strong national housing price growth to continue at seven to eight per cent, driven by record-low mortgage rates.

“We see Sydney prices rising by 9 to 10 per cent in 2015 and expect that, when rates do eventually rise, there is now a high risk that Sydney will see price falls,” the economists said.

“Although we do not see a national housing bubble, we believe that growth in Sydney housing prices is currently running at an unsustainable pace and that any further growth is likely to be met by housing price declines in future years, when interest rates do begin to rise,” they said.

A signal of the growing risk of overinflation in the Sydney market is the high level of investor demand, according to HSBC.

JESSIE RICHARDSON | 10 FEBRUARY 2015

Melbourne growth to stand out in 2016: HSBC's Paul Bloxham

Melbourne will see the highest price growth of any capital city next year, HSBC has forecast.

In the latest HSBC Australia Downunder Digest report, HSBC Australia chief economist Paul Bloxham forecasts 4% to 8% price growth in Melbourne for 2016, after 7% to 8% growth in 2015.

Bloxham expects that in 2015, Melbourne and Sydney will "continue to outpace the rest of the nation", noting that from its mid-2012 trough, Melbourne's housing prices have increased by 20%. Read more

http://www.propertyobserver.com.au/finding/residential-investment/40049-melbourne-growth-to-stand-out-in-2016-paul-bloxham.html

Commonwealth Bank posts 8pc half-year profit rise to $4.5b

By business reporter Michael Janda

Updated 11 Feb 2015, 5:49am

PHOTO: The Commonwealth Bank has posted its half-year results. (ABC News: Nic MacBean, file photo)

The Commonwealth Bank has reported an 8 per cent rise in half-year profit to $4.54 billion.

The bank's preferred cash measure of net profit, which adjusts for some accounting items, also rose 8 per cent to $4.62 billion.

CBA said its improved profit came on the back of a 5 per cent increase in revenue, despite subdued conditions in the lending market.

It also said it had lowered its cost to income ratio by 70 basis points to 42.2 per cent, as productivity initiatives continued to contain business expenses.

http://www.abc.net.au/news/2015-02-11/cba-half-year-profit-result/6084926

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