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

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

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

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

 

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

2016 Investment Outlook and Australia’s property market implications

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.”

read more...

Pricing gaps across product types and capital cities are widening

by Cameron Kusher

30 January 2015

The cost of Sydney housing relative to other capital cities is widening and the cost of buying a house as opposed to a unit is increasing as a record number of units commence construction.

The cost of Sydney housing relative to other capital cities is widening and the cost of buying a house as opposed to a unit is increasing as a record number of units commence construction.

According to median selling prices over the three months to December 2014 published in the CoreLogic RP Data Home Value Index report, the gap between capital city house and unit prices has never been greater. As at December 2014, the capital city median house price was almost 20% higher than the capital city median house price. In dollar value terms, median house prices are $100,000 greater than unit prices. read more...

 

John McGrath ignites Sydney's "hot forever" inner ring debate

by Jonathan Chancellor

1 FEBRUARY 2015

John McGrath has always been passionate about the property prospects of Sydney’s inner ring suburbs. But last week he went a little further, saying suburbs close to the city are becoming so desirable that they will be “hot forever”

But last week he went a little further saying suburbs close to the city are becoming so desirable that they will be "hot forever".

The high profile agent stopped short of declaring inner city property prices were immune from price falls.

But the chief executive of McGrath Estate Agents told Fairfax Media these areas would always be attractive to buyers.

"There is just no end of demand from overseas and local buyers who want to live in those precincts," McGrath said.

read more..

 

 

 

 

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.

Read more…

https://www.mortgagebusiness.com.au/breaking-news/8152-sydney-property-bubble-to-pop-when-rates-rise-says-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.

Read more…

 

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

 

 

 

 

 

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“Where to the Aussie dollar”

“Where to the Aussie dollar”

Where to the Aussie dollar?

 

by Dr Andrew Unterweger | 8th December 2013

This is still a quandary for most observers as it is both a volatile and highly traded currency. It is also important for investors in the Australian property market as the strength of the currency will have a significant bearing on the course the Reserve Bank of Australia takes with monetary policy in 2014.

We recently saw increased efforts by the governor of the RBA, Glen Stevens to talk the currency down , including market chatter about RBA currency intervention, rising anticipation of Fed tapering, and the Federal governments decision to reject the foreign takeover of GrainCorp

The article below from CheckRisk, the UK based investment risk analysis firm shares the view I have which seems to be at odds with the view shared by most commentators at present. I think the RBA will need to use monetary policy to maintain further downward pressure on the currency as rhetoric will not be able to do so sustainably, so I dont think interest rates will be going up for some time, and we may well be able to look forward to another rate cut in 2014.

CheckRisk believes that if the Aussie dollar were to start to rise toward parity with the USD again then the RBA will drop rates by further 0.25 per cent. This could happen as soon as next quarter and the RBA remains in an enviable position of still having room to manoeuvre when compared with the ECB and the Fed.

For the last year, the strength of the A$ has been an irritant for the RBA. But since October, a lower A$ appeared to go from a modest aspiration to the top of the “most wanted” list. At the time of the October Board meeting, the RBA said that “a lower level of the currency than seen at present would assist in rebalancing growth in the economy”. This is consistent with the RBA’s rhetoric over much of the past year.

Since then, we have seen a steady increase in focus on the A$. Consider the following timeline:

– 29 October: RBA Governor speech. “These levels of the exchange rate are not supported by Australia’s relative levels of costs and productivity.”

– 5 November: RBA Monetary Policy Decision. “A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy.”

– 8 November: Quarterly Statement on Monetary Policy reiterated the comment that “A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”

– 11 November: RBA Assistant Governor Debelle speech discussing policy responses to capital flows.

“In the end I see the model in this paper as proposing capital controls to address the distortion of the exchange rate moving out of line with the fundamentals…But other potential instruments are not considered in the paper. For example, intervention in the foreign exchange market in the form of reserve accumulation, which has been used in many emerging markets. This is helpful on the way in, in terms of dampening the inflows, but it is also helpful in dealing with the outflows when they come.”

– 19 November: Minutes of the November Board meeting reiterated the earlier conclusion that a lower A$ was likely to be needed.

– 21 November: RBA Governor speech. “…foreign exchange intervention can judiciously be used in the right circumstances, be effective and useful.”

And over this period, the A$ has fallen from substantially, from US$0.97 to below US$0.92. Obviously, the RBA’s rhetoric has not been the only factor responsible for this. But surely it has contributed to that performance.

I have also included the CFS market overview for our readers to give a more global snapshot of what has transpired in other asset markets over the last month

Best Regards,

Dr ANdrew Unterweger


Where to the Aussie dollar?

http://login.brandmail.com.au/download/files/41049/1687454/5%20Nick%20Bullman_alt.jpeg

The RBA could drop the official interest rate by another 25bps as soon as next quarter, according to the latest assessment by CheckRisk, the UK-based investment risk analysis firm.

In its latest bulletin, CheckRisk says Australian investors have had a good year and the outlook remains positive. This has led to two interesting behavioral expectations that these returns will continue into next year and a reduction in investor perception of risk as measured by volatility and implied volatility measures, according to the research firm’s chair, Nick Bullman.

“On a standalone basis Australia continues to look like a relatively lower risk environment. The RBA has dropped rates by 2.25 per cent since 2011. Rates now stand at 2.5 per cent and while expectations had been that the next move in interest rates would be a move higher, CheckRisk has long felt that the RBA would seek to reduce rates further as the main mechanism with which to ensure that Australian dollar remains competitive in global currency markets,” the bulletin says.

read more…


 

Latest market update from the Economic and Market Research team at Colonial First State

Market and economic overview
Australia
 The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.5% at the 5 November Board meeting.
 The Bank said that the Australian dollar was “uncomfortably high”, noting that “a lower level of exchange rate would likely be needed
to achieve balanced growth in the economy.”
 The RBA was fairly upbeat in its assessment of the non-mining sectors of the economy, suggesting that “there was mounting evidence that monetary policy was supporting activity in interest-rate sensitive sectors and asset values.”
 Economic data released in November was mixed.
 The Westpac consumer confidence index rose by 1.9% in November, to be around 7% above long-term average levels.
 The NAB business survey showed that business confidence fell back in October, after a post-Federal election surge (to +5pts +12pts in September). Business conditions were unchanged at a below average -4pts.

read more…

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