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Catherine's Chat

Wholistic Financial Solutions provides information and updates regarding the property investment industry. Learn more from Catherine's chat here.

Is now a Good Time to Buy?

Wednesday, November 13, 2013

 

 

According to a recent RP Data survey, 74% believe that now is a good time to buy a property. And Brisbane and Regional Queensland are deemed to be in the Top 4 locations of where to invest.

Conversely, 74% of Sydney-based respondents though that, with the over-heating in the market, now is a good time to be selling Sydney property.

Australia's Top 4 Capital Cities are outperforming our regional areas for capital growth - ANZ Bank

The ANZ Bank recently released findings confirming capital city markets are outperforming regional areas. It said that Australia's non-capital city house price growth has underperformed that of the capital cities since the beginning of 2013.

Great News for QLD Resource Cities

Friday, November 08, 2013

Business confidence in the boom QLD resource cities of Gladstone, Mackay and Emerald has taken a battering over the last 12 to 8 months. But now that the election is behind us and the new Liberal govt is slashing red tape confidence has returned to the regions.

The massive GVK-Hancock coal mine to be built in central QLD has just been given the green light and is staggering in scale. Its very likely for the India funded Adani project to also get approval by early next year. Its estimated that between these 2 unprecedented projects around 25,000 new jobs with be created and should see the rental markets in the regions above go well beyond their former peaks.

Massive central QLD coal mine gets the green light;

http://www.sunshinecoastdaily.com.au/news/gvk-hancock-coal-mine-gets-federal-green-light/2071577/

Boulder Steel back on;

http://www.gladstoneobserver.com.au/news/steel-plant-out-of-administrationgladstones-propos/2071657/

Over $89 Billion in projects still to commence;

http://www.gladstoneobserver.com.au/news/port-city-shows-optimism/2070491/

Business confidence bounces back in central QLD;

http://www.gladstoneobserver.com.au/news/confidence-back-in-cq/2071380/

All investors in  these regions who have seen their rental returns diminish can be confident that Gladstone, Mackay, Emerald and many other cities and towns in Central QLD have a very bright future.

Queensland in the Spotlight

Monday, November 04, 2013

Queensland was in the spot light again last week.

 There is some great news covering the QLD investment scene that is valuable for residential investors.

  • Removal of the mining tax has begun
  • The commsec State of the States report found QLD leading in business investment with spending in the June quarter 37% above the decade average
  • 1400 exploration permits were granted in the last week - the red tape is removed so mining companies can get on with business.

Please see these 3 articles for more information:

  1. Queensland "The Big Mover"
  2. Government Releases Draft Legistlation Repealing the Mining Tax
  3. QLD Grants 1400 Exploration Permits in a Week

State of the States Reports talks up Queensland's Economy

Monday, November 04, 2013

By 'The Observer'

THE latest CommSec State of the States Report shows Qld is the best place in Australia to invest, employ and grow business, according to the State Government. 

Treasurer Tim Nicholls said the report, released today, noted improvements in business investment, unemployment, housing finance and building starts as positive signs for Queensland.

"Queensland now leads the nation in business investment, with spending in the June quarter 37 per cent above the decade average," Mr Nicholls said.

Mr Nicholls said Queensland was ranked the second-best performing state on four of the eight economic indicators used in the CommSec report.

"Economic growth is 19.3 per cent higher than the decade average, retail spending is up 15.3 per cent and construction activity is 45 per cent higher than it was 10 years ago," he said.

"Importantly, Queensland continues to experience population growth above the national average.

"This is solid news, as population growth bolsters the labour force and creates greater demand across all sectors, especially retail and housing."

Mr Nicholls said the State of the States Report was the latest in a string of positive economic releases for Queensland.

"The Deloitte Business Outlook, also released today, notes that Queensland continues to out-perform the national economy," he said.

"Preliminary results from the State Accounts show Queensland's economy growing by four per cent in 2012-13, compared to an average of 2.6 per cent across the other states.

"By 2014-15 Queensland will have the fastest growing economy of any Australian state.

"With these positive signs emerging there's never been a better time for businesses to invest, employ and grow in Queensland."

 http://www.gladstoneobserver.com.au/news/state-government-shines-light-queensland/2057594/

 

Investor Focus Should Switch to Queensland

Monday, November 04, 2013

By Terry Ryder:

Changes in sales volumes are usually a forerunner to changes in prices, both when markets are rising and when they are falling.

On that basis, Queensland can expect good price growth. The state has recorded big changes in the number of house sales over the past 12 months or so.

The REIQ’s market report for the June Quarter shows sales activity in the state improving. House sales statewide rose 22% in the June Quarter, compared to the March Quarter, and were 40% higher than the June Quarter of 2012. (We don’t yet have figures for the September Quarter but anecdotal evidence indicates the trend has continued).

“This is the fourth consecutive quarter of positive news,” said REIQ spokesperson Anton Kardash. “The September Quarter last year was a particularly strong one for the Queensland market and that momentum has been sustained in the following three quarters of sales activity.”

The numbers of house sales in Brisbane increased markedly in the June Quarter: up 32% on the March Quarter and up 44% over 12 months. The median house prices in Brisbane City, Logan City, Moreton Region and Redland City all increased in the June Quarter.

In the regions, Toowoomba posted yearly median house price growth of 4.5%, the Gold Coast rose 3.1% and the Sunshine Coast grew 2.3%.

“REIQ estimates of Queensland investor activity also shows that the numbers of investment dwellings financed is tracking at about the historical average,” says Kardash. “No doubt, investors have recognised the strong rental market, including low vacancy rates and are taking the plunge while first home buyers remain relatively absent.”

The Home Value Indexes published by RP Data show that Brisbane’s house price index has risen 1.7% since the start of 2013, lagging some of the other capital cities but nevertheless showing signs of growth. The unit price index has recorded a similar rise.

Most of that rise was in the past three months, confirming the usual pattern whereby prices rises follow increases in sales volumes, but with a lag of 6-9 months.

Brisbane’s market overall declined in 2011 and 2012, in line with the capital city trend, but with the double whammy brought by the 2011 floods. There has also been impact from the State Government’s cost cutting and sacking of large numbers of public servants.

Brisbane is not an auction city so it has not been caught up in the short-term frenzy that periodically afflicts Sydney and Melbourne.

It is, nevertheless, showing signs of a return to price growth – which is inevitable following the significant increases in the number of home sales.

Outside the state capital, we can expect growth in Rockhampton, Townsville and Toowoomba, as well as some of the tourism-based areas that have been poor performers in recent years but are now mounting revivals, headed by Cairns and the Sunshine Coast.

Locations moving in the opposite direction, mostly because of over-supply by developers, include Gladstone, Mackay and Emerald.

Chinese Investors Flocking to Australia

Monday, October 28, 2013

Chinese buyers are showing strong interest in the Gold Coast property market and are willing to pay a premium, adding pressure to an increasingly heated local market.

Gold Coast real estate agents report the number of sales has doubled in recent months with properties fetching tens of thousands of dollars more than the expected price.

Asian investors are spearheading the interest with many being bought by Chinese investors, sometimes sight unseen. When Chinese buyers see what they want, they are willing to pay a premium.

One agency has sold more than $30 million worth of property this month, including nine homes in just three days. One Currumbin property sold for 26% above reserve last month while Chinese buyers snapped up 50 properties.

It's the strongest month the Gold Coast has ever seen - it is up about 50% on previous months. About 15% buyers of buyers at Gold Coast  are currently Asian. And the Gold Coast is within the Top 3 areas of interest in Australia.

Gold Coast sales to Chinese this year are up by about 50% this year and it keeps gaining momentum. The Chinese do their research and when they can see the capital growth prospects, they buy.

Another agency has said that enquiries from South-East Asians had tripled in the past six months, with Chinese investors showing strong interest in off-the-plan developments.

According to the AFR, Chinese property listing website AC property is showing that the most searched for Australian cities for Chinese buyers are Sydney, Brisbane, Melbourne and Gold Coast, in that order.

 

By Catherine Smith

New Wealth Drivers: SMSF's and China

Monday, October 14, 2013

By: Jon Giann

 

There were quite a few comments on my last piece that i thought were worth fleshing out a bit.

If you missed it, the argument in a nut shell is that self-managed super funds (SMSFs) are now sitting on a massive pile of cash (bigger than Westpac). They have a fairly small exposure to residential property, and surveys suggest they’d like to increase it. If they did, and took advantage of rules that allow them to leverage, we could see a huge surge into property.

First of all, thanks to Greg M for picking up on a mistake. I said that SMSFs could leverage against assets. As he correctly points out they can’t. SMSFs are allowed to borrow to invest, though the exact rules have changed a few times in recent years.

My reading is that it works the same for SMSF as it does for you and I, with certain deposit and loan to valuation ratios enforced by the banks. This means that SMSFs can leverage, but only off cash holdings.

I got a bit lazy with the distinction between cash and assets there. But it doesn’t change the numbers at all. SMSFs have more than enough cash to cover the kinds of property exposure they’d reportedly like, so those quick back-of-the-envelope calculations I did still hold water.

But thanks Greg for keeping me on my toes. It’s good to know my readers won’t let me get away with intellectual sloppiness.

Second, Amanda was wondering that if there was a demand for 700,000 properties from SMSFs, who would fill them? As she rightly says, “they have to fill those houses with tenants to see a return on investment… 700,000 or so more tenants need to be found in a very short time…”

The answer to Amanda’s question is exactly the dynamic that is going to drive prices higher.

If SMSF demand suddenly caused an increase in supply of 700,000 homes, then that’s right, there would be a glut of rental properties, and rental and property prices would fall.

But that’s never going to happen.

It’s funny. I write around 1,000 words per article and some people get a fixation on one single point like the 700,000 homes. The reason I mention it is to highlight how much money is in SMSF’s and what potentially is possible.

Here’s the reality…

As I said, we build about 70,000 homes a year at the moment, so unless we really start cranking up production, it would take ten years to build that many homes.

And as Amanda says, SMSFs are going to want to see a return on their investment. So the most likely scenario is that the SMSFs will just go after existing properties that are tenanted already.

That means they’re going to start competing for the existing investment properties already out there. Maybe some will build off the plan, but typically investors favour established dwellings.

But there’s only a limited number of those. So that means that all this extra demand is just going to jack up the price.

Remember it’s 700,000 properties at current price levels. As the price level goes up, SMSFs will need fewer actual homes to get the exposure they want. Some other investors will cash-out or get squeezed out of the market, and at some point, the market will find a new equilibrium.

I don’t know exactly what that end point would look like, but the only guarantee in that scenario is that prices will be a heck of a lot higher.

My mate John Fitzgerald pointed me to some back-of-the-envelope calculations he did. Now John is worth squillions, and has over 5,000 property transactions to his name. When he talks, I listen.

John agrees with the basic maths I’ve got. But he compares the SMSF appetite to the value of sales. He says that in Australia we sell around $190 billion in residential property each year.

With gearing, he reckons 30 percent of SMSFs alone could buy every residential property sold in Australia, for the next three years!

As he says, almost 3,000 SMSFs are being set up every month! In his mind, it’s a total game changer.

He reckons this is one of the factors that helps explain one of the property market puzzles of recent times. We’ve seen prices, particularly in Sydney growing strongly (if we annualised September’s growth we get something close to 30 percent!).

But credit is only growing at 4.7 percent. How can that be? How can we have a boom without credit growth? That’s never happened before.

He reckons the answer is that there are new buyers in the market that we’ve never seen before. One is SMSFs.

The other is the Chinese.

And he reckons it’s taken the market by surprise, because 6 years ago, neither buyer existed.

As he says, “I look at China and you can take my numbers on SMSF and quadruple them and still not come near the capacity there. John McGrath told me that one of his Sydney auctions in September had 16 registered bidders – all Chinese origin and all cash buyers.”

“The top two house sales in Australia this year were for $52m and $33m, both to the Chinese and both in cash.”

I’ve been saying this for a while too. I don’t think most people realise the kind of wealth machine that China has become.

Before the GFC, to make the top 50 wealthiest list in China you needed $6 million. Today, you need $3 billion. These days, they’re creating 25 billionaires per month!

China’s top 20 percent had $1.4 trillion in bank savings last year. John notes that just 13 percent of that would buy every house in Australia, in one year.

Thanks John. That’s some serious food for thought.

(And I think this probably answer’s Tom’s question from the last post, right?)

We’ve got a cyclical upswing combining with a massive paradigm shift in the make up of the market, with the twin giants of China and the SMSFs letting their presence be felt.

It’s going to be HUGE!

And thanks everyone for the comments. I don’t often have time to respond but I do follow them closely, and I’m always impressed and humbled by the intelligence and knowledge that’s on display.

As I said, it definitely keeps me on my toes. I can’t slack off with you lot around!

20 Reasons to like Rockhampton

Tuesday, October 08, 2013

by Terry Ryder.

 

Most questions I get asked by Investors concern location. That's unsurprising, because that's my business.

But specific locations tend to dominate. Eighteen months ago many were asking about Moranbah. A year ago there were more questions about Gladstone then anywhere else. Over the past six months Perth has dominated.

You may notice the surge in interest in a particular spot usually comes well after the best time to buy there.

Now the focus is switching again. In Queensland, interest in former favourites Gladstone and Mackay is fading, as consumers get the message that those markets are declining, weighed down by over-supply at a time when resources-related demand has eased.

Rockhampton is now attracting attention and I'm getting more and more questions about it. Do I think it's a good place to invest?

The short answer is yes, and here are my Top 20 reasons why I like it.

  1. It has economic diversity and is less reliant on the resources sector.
  2. It’s the admin capital of Central Queensland.
  3. It gets plenty of oomph from its reputation as “the beef capital of Australia”.
  4. It has a military economy, a power station, a university, plenty of tourism and two big abattoirs.
  5. It’s affordable - considerably cheaper than both Mackay and Gladstone.
  6. Several suburbs have median house prices below $250,000.
  7. It’s not hard to find rental returns above 6.5% on houses.
  8. There are plenty of older Queenslanders for those who like to “add value”.
  9. Sales volumes have been rising since late in 2012, with prices starting to follow.
  10. The long-term growth rates are strong, with most suburbs averaging 10% or more annually for the past decade.
  11. Considerable spending on infrastructure is under way or planned.
  12. $250 million is being spent on expanding the hospital.
  13. Plenty is being invested in property development, including shopping centres and industrial estates.
  14. It has a population above 100,000 and is growing steadily.
  15. It services a region with close to half a million people.
  16. Unemployment rates have improved markedly in recent years.
  17. A $1.2 billion export port is in planning (a second port project of similar size was proposed but Xstrata abandoned its plans in May).
  18. Projects like the $600 million development on Great Keppel Island and the expansion of the Keppel Bay marina will help the tourism industry.
  19. Quest Serviced Apartments, which targets locations with growing business traffic, has just opened a new hotel there.
  20. Resources industry workers are settling in the Rockhampton area and going to work on a fly-in-fly-out basis
And here are a couple of things to be cautious about: dwellings approvals almost doubled in FY2013 so investors should keep and eye on vacancies; and it would pay to check the flood maps for signing a purchase contract.

More Reasons for Property Prices to Rise

Friday, October 04, 2013

Housing supply seems to be falling further and further behind demand.

Each year we build fewer and fewer houses. And over the last ten years, growth in the housing stock failed to keep pace with population growth. This is the first time this has happened since WW2!

This has a few really important implications.

The first is that all this talk of a bubble is completely over-blown. (hey? How’s that for a pun? Put that in a Christmas bon-bon.)

Because unless there’s a glut, then there can’t be a bubble, and unless there’s a bubble, then there can’t be a bust. This is one of the most important differences between the Australian story and what happened in America.

We also know that if supply is falling further and further behind demand, then there must be upward pressure on prices. This is as true of housing as it is of any market.

And so this supply shortfall goes a long way to explaining the trend increase in house prices we’ve seen over the past 50 years or so. Not the full story, but a fair bit of it.

And supply doesn’t look like it’s going to come bouncing back anytime soon. This means we can expect to see continued upward pressure on prices.

And all that is true for a given level of demand. But the truth is that there are major structural and demographic changes happening on the demand side that mean the supply and demand gap is getting even bigger.

Which of course means we’ll see bigger and bigger price increases.

So what’s happening on the demand side?

Well, in a nut shell, we’ve seen a bunch of changes that means we need more houses for the same number of people. That means that actual demand for housing is actually growing even faster than population growth, which itself is already growing faster than supply.

Over the past 50 years there have been significant changes in the way we live. Take average family sizes for example. As fertility rates dropped, average family size has been on a steady downward decline for decades now. That means we need more houses to accommodate the same number of people.

At the same time, family breakdowns have split many families in two, effectively doubling that family’s need for housing.

And what’s more, a steadily ageing population has resulted in more people living alone, again meaning we need more dwellings to house the same number of people.

And according to the 2011 census data, of the homeowners aged 70 and over who live alone, 62 percent have a house with three or more bedrooms. That adds up to 238,078 houses with at least three bedrooms occupied by just one person.

Among houses owned by older couples (with at least one partner aged over 70), 82 percent – or 332,752 houses – have at least three bedrooms.

And the Australian population is only getting older, so we’re going to need more and more housing. Some older people might downsize into something more practical, but people are generally reluctant to leave their communities and the family home.

Together, these structural and demographic factors – smaller families, more split families, more older single-person families – mean that the average number of people per dwelling has been on a long-run downward trend for over a hundred years!

That’s what this chart here shows:

 

What’s interesting here though is notice the small pick up between the 2006 and 2011 census. That’s the first rise in at least 100 years!

How do we explain that? Well, I don’t think there’s been any change in Australian preferences. What I think it reflects is tighter economic conditions through the GFC.

As money became tighter, people started share-housing, kids moved back in with their parents, or delayed starting out on their own.

If that’s true, what it points to is even more pent up demand. As economic conditions continue to solidify around the country, people will look to head back out on their own, and the average household size should return to trend.

And ultimately what the downward trend in household size means is that actual housing demand is growing faster than population growth. So if we know that population growth is growing faster than supply, then we know that actual housing demand is growing even faster than supply.

And this of course means more upward pressure on prices.

Of course, the other important factor here is the expansion of investor demand over the past 30 years or so. I’m planning to write a bit more about that later.

And so looking back at the past 30 years, it’s not hard to see demand for housing to live in, combined with demand for housing to invest in, running far, far ahead of supply.

And so when I look at the prices rises we’ve seen, I just don’t see a bubble. The price rises we’ve seen make perfect sense.

And I see these dynamic continuing to drive the market going forward. Unless there’s a slow down in the rate of population growth (unlikely) or an increase in the average household size (very hard to see where that would come from) OR there is suddenly a lot more supply brought to market (how?), then undersupply and growing prices will be the norm for many years to come.

Add to that the lowest interest rates in 50 years and a cyclical upswing out of a prolonged soft patch, and you’ve got all the ingredients of a boom.

Simple as that.

by: John Giaan

Mackay Property Market on the Rise

Tuesday, October 01, 2013

 

It appears the Mackay property cycle is on the up, with respected property commentator Michael Matusik and independent property valuation and advisory group Herron Todd White recently indicating the Mackay market is in the 'recovery' or 'rising market' phase of the property cycle.

Click here to view the attached article for the stats and figures.


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