For my next trick: The great property 'bubble' illusion

Spare a thought for property writers in Australia; it has become increasingly obvious that the pressure of having little to write about is taking its toll.

The cash rate together with the inner workings of Australia’s Reserve Bank (RBA) has always remained a fascination for many, although with the next rate rise possibly not until sometime in 2016 – a new search for a property headline has begun in earnest.

Enter the rise and rise of the ‘property bubble’ – although I am quite sure in my 30 years of working in the real estate industry, I am mystified. I have never seen a ‘property bubble’, although I have seen plenty of booms. When a bubble bursts it simply disappears so what can we then expect with a ‘property bubble’? The simple truth when I advance this line of questioning is "well you know what I mean". Well, sorry I don’t, because there is no such thing as a ‘property bubble’ and if you knew anything about the intricacies of property machinations you wouldn’t be writing that in the first place.

We need to go back to find where this recent illusion otherwise known as a ‘property bubble’ emerged from. It has made cameo appearances for over a decade now in Australia despite never bursting. Australia’s mortgage market currently sits at around the $1.3 trillion mark with the Big Four banks holding approximately 80% of the book value. The Murray financial system inquiry has created plenty of argy bargy between the RBA, the Australian Bankers’ Association and the smaller lending institutions as to exactly what is the best practice that Australia needs to adopt – the final recommendations will be delivered to the federal government in November this year.

We can’t ignore Lindsay David’s thought ‘bubbles’ either, who recently penned a book Australia: Boom to Bust, where he warns that Australia has three shaky pillars which he believes are all in a state of collapse – real estate, resources and our banks.

No housing bubble, is the big bank economists’ conclusion which is exactly where I sit given collectively when you have 80% market share their internal data would provide them with the most accurate positioning – over those who are simply speculating.

To further this train of thought I looked at Roy Morgan Research who are constantly drilling down and probing the Australian property markets.

"In July the satisfaction level of the personal customers of the banks remained close to the record high of 82.2% set in June, falling only marginally to 82.1%."

If the borrowers were having problems with their lenders the approval ratings would be plummeting not increasing. Although we need to put this into greater perspective – given there are too many property commentators distorting the truth – their anger and resentment is at an unprecedented level.

Back to Roy Morgan Research – “Over the last four years the number of investment loans in Australia has grown by 37% compared to an increase of only 4% in the number of owner occupier loans. In 2010, just under a million (954,000) Australians [aged] 18 plus had an investment property loan compared to 1.31 million as at March 2014. This growth represents an increase of 37%. Over the same period the number of Australians with an owner – occupied home loan increased from 4.66 million to 4.83 million, an increase of only 4%.”

Based on this information the ‘property bubble’ must be our Baby Boomers running amok by boosting their self-managed superannuation funds care of a very generous federal government who encourage investment in Australian properties by offering substantial tax relief via negative gearing. Then of course we must not forget that old chestnut that Australian property holdings can be approximately divided into thirds – one third rent, the next third own with a mortgage and the final third own without a mortgage.

As recent sales have clearly proven there is no shortage of people wanting to invest in Australian real estate – both local and overseas. So then apply the 'KISS theory' (keep it simple stupid) – when you see an oversupply of properties on the market then market conditions are moving from a vendor to a buyers’ market.

RWM Research started recording the number of properties on the market weekly back in mid-2011, so it’s interesting to see what the highest number of properties on the market since then have been:

• Mosman Houses – 168 on 10 November 2011. Today 69.
• Mosman Apartments – 138 on 10 November 2011. Today 51.
• Cremorne Houses – 24 on 16 December 2011. Today eight.
• Cremorne Apartments – 44 on 3 November 2011. Today 15.
• Neutral Bay Houses – 22 on 1 March 2012. Today five.
• Neutral Bay Apartments – 101 on 17 November 2011. Today 31.

It is very clear that based on the current numbers the banks should have absolutely no concerns given it is very clear that what we have today is very much a vendors market.