Mark Mendel

UBS Property Outlook – Undersupply Increasing

by Mark Mendel, on 2nd March, 2010 • No Comments

Extracts from a recent UBS Research report: 26 February 2010

We have been arguing since 2008 that the combination of a long-standing structural under-supply of housing, coupled with a cyclical improvement in affordability – via falling prices in 2008/early 2009, government stimulus & lower rates in 08/09 – would see activity rise strongly in 2H09 and 2010. Indeed, the very strong 10%+ rise of house prices in 2009 – and the 59% leap in building approvals since January – is symptomatic of rising demand.

For house prices, after correctly forecasting the 5% peak-to-trough decline through Q109, our forecast for a 3% rise through 2009 was well short of the actual 11% gain. Looking ahead, while we continue to expect a moderation beyond 2009, we take this opportunity to formalise our forecast for 2010 and 2011 price growth at around 6% (broadly in line with the economy’s trend income growth), up from 3% previously. This also partly reflects the likelihood that bottom-end prices should be softer given the expiry of the FHOB.
We have also updated our forecasts of underlying demand from 180k-185k to 200k over the next few years – incorporating the record pace of population growth over the year to Q209, as well as the Government’s upgrade to population forecasts contained in IGR3. This in turn, highlights the chronic undersupply of physical housing in Australia.

Our estimate of the ‘cumulative gap’ of under-building is currently a shortfall of around 75k, doubling to a record 150k by end-2011. As an aside, these estimates are more conservative than the National Housing Supply Council’s (medium scenario) estimate of the cumulative gap being 85k as at Q208, rising to 155k in 2011 (and then continuing to deteriorate to 203k in 2013 and 316k in 2018).

RBA Gov Stevens also recently noted the ‘under-hang’ of housing construction. One obvious solution is the creation of higher-density housing, both in terms of urban density (ie more units compared to houses), and more persons per household.

 

Housing Starts

Underlying Demand

Vacancy Rates Rising Rents

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Mark Mendel

Rental Yields to fall in 2010

by Mark Mendel, on 31st January, 2010 • No Comments

Although rental yields are expected to fall in 2010, this is actually positive for property investors as growth of property prices are expected to exceed that of the rental market.

We need to look at the whole picture to understand what is currently happening in the market.

Many First Home Buyers were sucked into the market last year due to the Government incentives. Those that were on the edge of buying would have bought and those thinking about it would have rushed to take advantage of the grants made available. This has been the case and supported by the reported record number of first home buyers in the market through 2009. Towards the end of 2009 we saw the rate of First Home buyer lending fall as they moved out of the market as grants started to disappear and interest rates started to rise.

Rising interest rates are another major factor that is going to keep first home buyers out the market now. With affordability becoming an issue for home buyers, property investors will take their place as they are able to take advantage of negative gearing tax benefits.

Property Investors are all focused on property that is high in demand. This includes the 1 and 2 bedroom new apartments, townhouses and house and land packages. They are all affordable and demand for rental of these property types is going to grow as First home buyers stay clear of buying. It is also important to remember the high migration levels to Australia and those from interstate are putting pressure on the states property markets.

The property market is expected to move up substantially this year, possible even more so that last year which means that although property prices will grow, and rental prices will increases, the growth or property prices will exceed the growth in rentals thus reducing the investors yield.

How to ensure you get the best of both worlds… Buy sooner and hold for longer.

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Mark Mendel

Australian Property Outlook for 2010

by Mark Mendel, on 18th January, 2010 • 7 Comments

Australian Property Outlook for 2010

I hope everyone had a fantastic break over the festive season. We at Find Investment Property wish everyone all the best for 2010.

In the first week of the year, the Australian Financial Review had a summary of each of the property markets across Australia. Below is a brief summary from each of the stories that appeared in the paper from the 4th January through to the 8th January 2010. The articles cover the Melbourne Property Market, Sydney Property Market, Queensland Property Market, Western Australian Property Market, Tasmanian and the Adelaide Property Markets.

In each of these articles, the journalist has interviewed a few people in the relevant states property industry that may have some bias towards each state, thus all pushing a positive sentiment for their respective property markets.

Having said this I do think they all have good arguments for why buying in each area should see capital growth occur in 2010.

Melbourne Property Outlook 2010

Comments below are from Cameron Anderson, a Director at Red C and Canopi Homes. He previously was in a senior management position at Stockland.

  • 2009 property market was fuelled by federal government grants and Melbourne’s appetite for new homes (Due to Stamp Duty Savings)
  • Cautious outlook for 2010 – median growth expected to be 3% before the market picks up steam in 2011.
  • RP Data stated Melbourne’s median price grew 15% for the first 9 months of the year
  • Little supply of apartments in the pipeline at the moment
  • Rental pressure in Melbourne and it’s growing because the banks have been reluctant to lend money to high-rise developers
  • Big drivers for property prices include supply constraints and population growth

Other comments on the Melbourne property market from Angie Zigomanis at BIS Shrapnel and Tim Lawless at RP Data Research

  • Expected to have solid growth through the year as upgraders and investors take over from first home buyers
  • Higher interest rates will slow growth down from the highs of 2009
  • Late recovery in 2009 may show that first home buyers are less sensitive to rising interest rates
  • New development in Melbourne is falling short of Melbourne’s migrant-driven population growth
  • 2009 price growth was helped by cashed up Chinese buyers which is expected to continue into 2010

Sydney Property Outlook 2010

Comments below are from Brian Haratsis from MacroPlan Australia and Rob Ellis from Property Insights

  • Population boom to lift prices
  • People that can afford to buy now will stand to benefit the most
  • Sydney expected to see the fastest population growth in 15 years
  • Climbing prices in South-East Queensland have slowed migration from NSW to QLD
  • Same levels of international migration plus high birth rate levels
  • Employment generated population growth – young brains from around the world will come to work in Sydney-based financial services, IT and Business services
  • Apartment market is being starved of stock owing to tight lending practices that restrict developers by loan to value ratios plus high levels of pre-sales
  • Rents poised to soar even higher due to the shortage of rental accommodation, especially with rising interest rates deterring some people from buying
  • Prestige property to remain flat for the next 24 months before a potential boom in the high end market
    10% price growth for 2010 wouldn’t be a surprise

Comments below are from Louis Christopher of SQM Research and Jason Anderson from BIS Shrapnel

  • 6 – 8% price growth expected in the next 12 months
  • Nothing to indicate buying trend will stop or slow
  • Price growth in 2009 was 11.6% but affordability was its lowest level since 2002 because interest rates were so low
  • Prestige prices (those over $2m) to rise by 12 to 15% in 2010
  • Sydney will face an ‘extreme’ shortage of rental properties, worse than any other state
  • Rental demand would boost demand for properties in outer suburbs which could result in price growth of 10%

Perth Property Outlook 2010

Comments below are from Nigel Satterley from Satterley Property Group, Western Australia’s largest private residential property developer.

  • Perth property prices poised for a decade of strong growth
  • 6% expected in 2010 with increases of 7 – 10% over the next 7 to 8 years
  • Perth property prices fell by as much as 25% during the downturn
  • Population growth and growing confidence affecting the market
  • Demand is increasing for premium property
  • Medium house price in Perth in September 09 was $462,000
  • Prior to 2008, Perth’s property prices doubled in 4 years as demand outstripped supply
  • Bank funding for property developments will remain constrained

Adelaide Property Outlook 2010

Comments below are from Michael Brock, Managing Director of Brock Real Estate and president of Real Estate Institute of South Australia.

  • Enormous untapped potential in the real estate market
  • Adelaide soon to assert itself as one of the most attractive investment destinations in the country
  • 2009 saw house prices jump 5% and growth is predicted to double in 2010
  • Adelaide’s median house price in September 09 was $421,765
  • Property investors now taking the place of first home buyers
  • Population Growth expected from skilled migrants and those serving the defence and mining industries
  • Adelaide vacancy rate is 1.2% while North Adelaide is only 0.2%
  • Many new apartment projects on hold due to finance obligations which can’t be met by Developers

Tasmania Property Outlook 2010

Comments below are from Tim Lawless, Research Director at RP Data

  • Could perform well in 2010 due to lifestyle buyers entering the market
  • Houses in Hobart are $140,000 cheaper than the national capital city average with an average price of $330,000
  • Units average $270,000, $120,000 cheaper than the capital city average
  • Tasmania does not have strong population growth or a large economic base
  • Rental returns in Tasmania are above 5% with vacancy rates below 2%
  • Population growth is just over 1% driven by migrants, retirees and younger families seeking affordable housing

Queensland Property Outlook 2010

Comments below are from Wayne Rex, President of The Property Council in Queensland

  • Brisbane property prices increased 6.9% in the first 11 months of 2009
  • South East Queensland has seen a stabilisation of prices and turnover
  • Building Approval levels have dropped to low levels not seen since the 1980’s
  • Many house and land packages still available in South East Queensland for under $425,000
  • Release rate of new stock and lack of competition is affecting prices
  • Queensland property market will be steady for the first 6 months of the year as people will still remain cautious
  • Funding still difficult to attain along with substantial pre-sales

Other comments from Bill Morris, Rod Cornish (Macquarie Capital Advisors) and Lachlan Walker (Colliers International)

  • Still not enough homes being built in Queensland
  • South East Queensland saw a population increase of 75,000 in 2008-09 with a need for 30,000 homes, yet only 17,000 were built
  • Interstate migration has dropped in Queensland (Victoria now leading the way), there is still a high number of people coming from overseas
  • Developers still finding it difficult to attain finance
  • Developers can’t buy land at the right price meaning they can produce a home at affordable levels (under $500,000)
  • QLD suffering from a shortage but Sydney supply shortage is more severe

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Mark Mendel

Government Debt… and you thought your mortgage repayments were high!

by Mark Mendel, on 9th December, 2009 • No Comments

Some comments from Ross Greenwood earlier this year:

Right now the Federal Government is at pains to tell everyone – including us the mug-punters to the International Monetary Fund that it will not exceed its own, self-imposed, borrowing limits.  

How much? $200 billion. And here’s a worry. If you work in a bank’s money market operation; or if you are a politician; the millions turn into billions and it rolls off the tip of the tongue a bit too easily.    

But every dollar that is borrowed, some time, has to be repaid. By you, by me and by the rest of the country.     

Just after 5 o’clock tonight I did a bit of maths for Jason Morrison.  But it’s so staggering its worth repeating now. First though … here’s what Chairman Rudd has been saying about – what he calls – these temporary borrowings. Remember those words … temporary deficit but the total Government debt could end up around $200 billion.    

So here’s a very basic calculation … I used a home loan calculator to work it out … it’s that simple.

$200 billion is $200,000 million. The current 10 year Government bond rate is 4.67 per cent. I worked the loan out over a period of 20 years.   

Now here’s where it gets scary … really scary.   

The repayments on $200 billion come to more than one and a quarter billion dollars – every month – for 20 years. It works out we as taxpayers – will be repaying $15.4 billion in interest and principal every year …$733 for every man woman and child – every year.   

The total interest bill over the 20 years is – get this – $108 billion.    

And remember, this is a Government that just 18 months ago had NO debt. NO debt. In fact it had enough money to create the Future Fund to pay the future liabilities of public servants’ superannuation … and it had enough to stick $20 billion into the Building Australia Fund last year….

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Mark Mendel

Now Brisbane has the transport Itch

by Mark Mendel, on 3rd December, 2009 • 1 Comment

Queensland’s premier, Anna Bligh, has indicated a new underground Metro for Brisbane and surrounding suburbs could be built by 2030.

Not to be outdone by Sydney’s CBD Metro fiasco, the premier has launched a vision for an underground light rail project linking Toowong, West End, the CBD, Newstead, Bowen Hills, Bulimba and Bowen Hills by 2030.

Queensland Rail is already midway through a $20 million feasibility study for an underground rail tunnel to replace the Merivale Rail Bridge at South Brisbane, which would allow extra trains to connect some new CBD underground stations by 2016.

But Ms Bligh said Brisbane’s Rapid Metro is beyond the cross river rail link – which is all heavy rail. She is talking about an underground metro system like you see in some of the great cities in the world, such as London.

She states that Brisbane needs an entirely new metro system just to support the CBD and will run completely separate from the heavy rail system already in place with further expansions in the pipeline.

“This is a new way of thinking about Brisbane that takes us to 2030.”

The rationale behind the vision is the indication that twice as many people will be trying to access the Brisbane CBD in the next 25 years with employment in the area expected to double from 200,000 to 400,000.

A prediction / forecast like this can cost any city an enormous amount of money, especially if it is wrong. I think we need to consider how we are going to be working in 25 years time. With the advancements in technology and with businesses looking for cheaper accommodation to house their businesses, the growth in CBD employment is unlikely to be anywhere near what it has been in the past. If anything, it may even remain stable. We are already seeing a number of high profile businesses moving their staff to middle ring and outer ring business parks where rent is cheaper and travel times are reduced for many of the staff.

We also need to factor in the possibilities that businesses, due to technology development, may not need to house all their staff in one location with the possibilities of business hubs being created along with the option that many of us may be working from home.

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Mark Mendel

Landlord Insurance

by Mark Mendel, on 25th November, 2009 • 4 Comments

For every property investor, Landlord Insurance is essential. Buying an investment property is usually part of a wealth building strategy and being the landlord, you would not want to see that disappear. Landlord’s insurance is important to help protect you from certain aspects of owning an investment property including:

  • Rent default – Loss of rent
  • Legal liability
  • Theft and malicious damage by tenants or their guests
  • Accidental loss of damage
  • The extra costs of rebuilding such as architects fees and removal of debris

It is important to have proper protection for not only the investment property but also the belongings you provide to your tenants. The Landlord insurance is generally a relatively small cost but could save you thousands of dollars should something go wrong.

So why is it that many landlords in Australia don’t protect themselves accordingly? If you don’t organise it yourself, your property manager should make you aware of it and even offer to organise it for you. The two main reasons that a landlord should take out a landlord insurance policy in Australia is to protect them from rent default and theft & malicious damage by tenants. There seems to a be a reliance on most tenants doing the right thing, however sometimes it may not be the tenant but rather one of their guests.

The rule of thumb with risk is to insure what you can’t afford to lose. So, be sure you are protected and take out the necessary landlord’s insurance. Failure for a tenant to pay rent for a few months could see significant financial stress on your circumstances which could ultimately lead to forced asset sales.

Eynas Brodie states “Seeking cover for buildings and contents, loss of rent and legal liability needs to be at the top of your list of priorities and so does understanding the policy terms and conditions that are set out in the policy because the types of loss for which you are covered are defined clearly and it’s only those losses that are covered.”

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Mark Mendel

A run of interest rate rises on the cards

by Mark Mendel, on 11th November, 2009 • No Comments

There seems to be a lot of hype in the media at the moment about rising interest rates. Personally, I’m not sure why. Australia has had the lowest cash rate in decades and all of a sudden they are shifted slightly and everyone gets nervous. Through all the recent property booms across the country, they have all occurred when interest rates have been higher than they are now.

In 2008 when the term ‘GFC’ was part of nearly every conversation & headline, the RBA responded accordingly dropping interest rates faster than they had ever done before and lower than they had done for the last 40 or so years. This to me was a true sign of an active board that should be applauded for their swift movements, leading Australia almost unscathed out of what was a turmoil period for the world economy. There is no doubt Australia did suffer, however to a lesser extent than that of other developed countries around the world. The GFC is not over, although journalists are calling an end to it although I do believe the effects of it will linger for some time. In particular, I think every new and existing investor will make their decisions with the GFC in the back of their minds as a very real possibility to consider in both the short term and beyond.

So now we have seen what could happen and how it can be managed. The share market is up over 50% from its lows in March, the property market has pushed up over 8% this year alone and unemployment levels are nowhere near the levels that were once expected at the start of the GFC.

So what does rising interest rates actually mean? Well, for starters, I think we should be happy about them. Rising interest rates are evidence that our economy has survived AND is showing signs of growth. So, in order to slow down inflation, which the RBA is very wary of, interest rates are required to rise.

My concern though is not that interest rates are rising but more importantly that interest rates may rise too quickly. Everyone seems to think that we are over the worst and that there is only positive news to come, but, with such a fragile world economy at the moment the slightest hint of bad news could bring the economy crashing down (again, although I don’t believe it will be anywhere near the levels we saw in March 09).

The NAB has suggested that there will be an interest rate rise of 25 basis points in every board meeting until March 2010. This means the cash rate should hit 4.25% within months. NAB’s chief economist Alan Oster said growing consumer confidence and an improvement in business conditions had increased the likelihood of further rises. The business conditions index surged nine points over the last month to a reading of +12, which is substantially above the long run average reading of +3 index points.

“While confidence has surged in recent times, business conditions have remained significantly below long term averages. That has now changed. In many ways, very high business confidence readings appear to be bearing fruit,” Mr Oster said.

Now although the business conditions index is reading +12, much higher than the long term average of +3, it doesn’t take into account the fact that we have just been through one of the most serious financial downturns in history, so human psychology will tell us that any glimmer of hope to escape the negative sentiment in the world would be exaggerated. So although there is a reading of +12, it needs to be taken into context against the backdrop of the reading as I do think its hard to agree that business is 4 times better at the moment than our past average years.

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Mark Mendel

Sydney Home Buyer Show (Pre-Show Guide)

by Mark Mendel, on 28th October, 2009 • No Comments

Sydney Home Buyer Show (Pre-Show Guide)

 

Don’t miss the largest event in Australia dedicated to educating home buyers & property investors of all levels.

Buying a home or investment property is one of most important financial transactions you will ever make.
So if you’re looking to buy property but keen to make the right decisions and avoid costly mistakes – then you simply can’t afford to miss the Sydney Home Buyer Show being held at the Sydney Exhibition Centre from Saturday 31 October to Sunday 1 November.

It’s the smart way to buy property and the largest event in Australia dedicated to helping people finance, find and buy their next home or investment property. We’ll help you get on the right path to the right property with over 30 free seminars and workshops on offer each day – delivered only by impartial experts from government and industry associations that you can trust including free seminars from John Symond, Aussie; Mark Bouris, Channel 9’s The Apprentice and Effie Zahos, Channel 9’s Money for Jam.

A major exhibition will showcase over 120 leading companies with everything the home buyer or investor needs under one roof, including new and established homes, apartments, townhouses, units, builders, house & land packages, holiday houses, land estates, home loans, real estate agents, property investment advice companies and much more.

Heaps of New Products and Show Specials will also be on offer plus there’s dedicated Zones for Apartment Buyers and Property Investors.

For further information including the comprehensive educational seminar program and full exhibitor list visit: http://www.homebuyershow.com.au/home/sydney

As part of a special promotion we are pleased to offer all our Blog Readers, family and friends FREE TICKETS to the Sydney Home Buyer Show which are normally $15. Simply visit the website www.homebuyershow.com.au and quote the special promotional code FINDIP when purchasing your tickets.

Visitors to can also attend the Trading & Investing Seminars & Expo next for free – tickets are normally $15. For full details visit the Trading & Investing Seminars & Expo website: www.tradingandinvestingexpo.com.au

Event details:
Sydney Convention & Exhibition Centre
Saturday 31 October to Sunday 1 November 2009
Opening Hours: 10am to 5pm daily

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Mark Mendel

Transport Troubles in NSW

by Mark Mendel, on 16th October, 2009 • No Comments

Why can’t the NSW State Government get their act together and start making some decisions that are going to benefit the people of Sydney rather than cause more chaos? They just can’t seem to get their transport agenda right. First let’s look at the new CBD Metro which they wish to build under the city… they bring in the experts and they make recommendations and then our Government doesn’t seem to follow them. Does this Government have any idea? They want to spend a small $5.3 billion (now rumoured to be over $7 billion) but don’t get it right the first time and they don’t listen to the real experts on the job to determine the best solution for Sydney’s crippling transport problems.
Transport around Sydney (and any other major city for that matter) is one of the city’s most important elements and has a direct impact on the value of property in surrounding and outlying areas.

Before we look at the Sydney CBD Metro, let’s understand exactly what a “metro” is. A ‘metro’ is a fast single deck passenger train with more doors than traditional heavy rail (CityRail). They are lighter than modern double-deck trains and can accelerate faster and handle steeper gradients. As they have more doors they can also load and unload passengers at a faster rate. Therefore, they can move more passengers than traditional heavy trains as they can provide a more frequent service and thus a more efficient people-mover solution over the short-medium distances. This, however, only really works for distances of 10km or less and the city needs to have a highly dense inner city population. This isn’t something that Sydney really has compared to most other major cities around the world that use the ‘Metro’ style transport system. For example, London’s population is close to 8m, New York have a population of 19.5m and Paris with a population of almost 2.5m, although the density of Paris is about 5 times higher than Sydney.

So what is the CBD Metro…
Transport NSW - MEtro

…it is expensive, it covers a short distance and only a few people will actually use it. This all sounds bad… but what’s even worse is the impact it will have on any vital CityRail expansion plans… IT WILL BLOCK THEM. CityRail has the ability to increase capacity by up to 50% meaning more services to the 250 stations currently in the network. They can do this by using a vital corridor under Pitt Street, however the new proposed metro will block the partial use of this tunnel in the future.

It seems everyone is against the development of the CBD Metro except the NSW government… so why won’t they listen? They didn’t listen when they built the Cross City Tunnel, which is hardly used, very expensive and has cost the state millions of dollars.

The most recent transport debacle has just occurred with the introduction of the new CityRail timetable on the 11th October 09. The NSW State Government has identified the Ku-ring-gai region as a major population growth corridor pushing for population growth of 25 -33% with an increase in housing density, which explains the number of new developments that are occurring in the area. Thousands more people have now moved into the newly completed developments and were all looking forward to extra transport
services… but the Government did the complete opposite by cutting 10% of the train services to the very suburbs where they were planning big population growth. I’m not sure if I am missing something in not understanding the lack of logic.

The new timetable – introduced to accommodate the Epping to Chatswood line – means more trains to the lower north shore, but fewer services from Waitara to Roseville, where up to 18,000 new homes are planned.

I really think the NSW State Government needs to sort themselves out and start looking out for all of us that live in the state and are subjected (on a daily basis) to their poor management of what is already a basket case situation. Instead, it seems their focus is more on their political positions.

I look forward to the time where our state infrastructure is capable and efficient enough to cope with the with the increasing population.

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Mark Mendel

What will happen when the First Home Buyers Boost ends?

by Mark Mendel, on 21st September, 2009 • 1 Comment

There has been much speculation about the first home buyer’s grant halving at the end of September and ending at the end of the year. On one day the media talks about prices diving and the next it tells us that prices will be steady, while the next it tells us of prices rising. What about interest rates… what if these are raised? Then there will be no boosted Government Grant and no low interest rates… will this make property unaffordable? With everyone guessing what will happen next I thought I would share my view.

Owning a property is not easy… it’s a long hard slog of ups and downs. Interest rates up and down, the economy up and down, tenants in and out, employment on and off, ongoing associated costs etc etc… So why do we do it? Owning your own bricks and mortar is the Great Australian Dream. It doesn’t matter what you own, whether it be the home you live in or an investment property, the satisfaction of owning your own property for many is worth the pain required in saving, repaying the mortgage and one day having the home paid off.

In 2006, 32.6% of Australian homes were owned outright, that’s 2,478,264 households with no mortgage to pay. There were also 32.2% of Australian homes, 2,448,205, that were in the process of being purchased and had a mortgage which they were currently repaying. There were also 27.2% of households that were owned by investors and had tenants renting them. That’s 2,063,947 Australian homes. The remaining 8% were unaccounted for.

We also are aware that most capital cities currently have very low vacancy rates, although this has been eased over the last 12 months as more home buyers have entered into the market due to low interest rates making the purchase of a property more affordable. Increased rents has also meant that the gap between rental repayments and mortgage repayments was closing and the Government had boosted the First Home buyers grants, encouraging more First Home Buyers to take the plunge into property ownership.

The supply of future development is also going to be limited while developers fight with local councils and banks for approval and funding.

So when the boosted First home Buyers Grant expires at the end of December this year, many previously thought that low interest rates were going to continue to propel the number of home buyers into the market as the record lows have greatly assisted with the affordability of property, HOWEVER, if the economists are right and the RBA (and the banks) start to move interest rates higher before the end of the year and start to scare people into thinking that we will be back up to 7% before the end of 2011, then this will cause more future home buyers to pull out of the market and look for rental accommodation. Rents will increase thus creating a better return for the property investor thus bringing the property investors out of hiding and back into the market to reap the rewards of greater returns while still having the ability to take advantage of the tax deduction incentives of owning an investment property.

What does all this mean…. Higher rents, higher property prices and greater demand with less supply.

Will this happen? I don’t know but it sure could and all the elements of a mini property boom are on the cards.

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