Let's keep it simple - it’s supply v demand
The reasons being offered at present as to why consumption and confidence are down make for compelling reading, given there are so many theories being offered. I don’t believe blame should be cast at the Reserve Bank of Australia (RBA) for holding the official cash rate too high for too long. Rather I believe the main reason why so many businesses are not doing well lies with their very own business strategies that thus far have failed and will continue to do so.
Over the last decade I have watched aghast at how so many businesses have continued to ignore the all-powerful online cataclysm, which explains why business confidence is down. Transitioning your business online is just the beginning, the most important move is aligning the business with consumer sentiment.
The Australian Bureau of Statistics (ABS) has recently released its first estimate of the amount Australian shoppers spend on overseas based retail websites. The ABS believes about $6.23 billion of goods worth less than the government’s low value threshold were imported in the 2011/12 financial year. I suspect the amount would have increased a further fifty per cent in the 2012/13 financial year. One would have to think with the upcoming federal budget that the Treasurer will be closely looking at grabbing this revenue.
Heeee’s back! Harry Dent keeps predicting that Australia’s property prices will be slashed by half – and by the way he has a book you might want to buy. I’ve lost count how many times he has predicted this and to a certain degree he is probably a little bit right as some of the overheated areas will face value calibrations.
I am of the belief that the only logical and feasible way you can predict a value correction is when supply exceeds demand. We are not seeing that anywhere (that I can see) given the market roar is that there is not enough properties on the market.
Source: Digital Finance Analytics Blog
An interesting point I noted from the author of this graph was “Some have argued recently that house prices have not really grown that much, if you take inflation into account: The important thing to keep in mind however is that when you consider inflation, dwelling values remain lower than their previous peaks in every city.”
Source: Digital Finance Analytics Blog
Another contributing factor is that state and federal governments are behind approximately 300,000 houses in their new housing construction quota which again puts pressures on the housing markets. The simple fact that investors are hording real estate in their self-managed superannuation funds (SMSF) adds another dimension to the supply v demand debate.
Again as the federal budget gets closer we will see strong arguments presented for the abolition of negative gearing: “In Australia owner occupiers compete with investors for housing property; and there is also competition within these groups. A small increase in the number of superannuation funds and foreign investors purchasing property can have a significant impact on demand; while first home buyers are finding it increasingly difficult to enter the market. Each of these groups is impacted differently by the tax system.”
In 2010/11 the tax statistics revealed that 2.5 million property schedules were lodged by individuals, identifying nearly A$30 billion of rental income received during that year. The deductions claimed against this income amounted to A$37.8 billion, of which A$22 billion was interest on loans.
On that basis if the federal government were to look at abolishing negative gearing (and I don’t believe they will simply because of the gearing) property prices would crash and in turn the banks would too.
Again, Mosman houses are a long way off hitting triple figures given in 2013 it hit and bettered that number on 33 occasions. In 2012, it managed triple figures on just four occasions which were February 21 and 28, and March 7 and 13. So based on that data there is a very strong possibility that in 2014 we won’t see Mosman houses breaking the 100 mark.
It really is not that hard to analyse property trends when you break it down suburb by suburb. The only problem for so many real estate commentators is that such an exercise is all too time consuming.
Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985.He has also been writing real estate blog Virtual Realty News since 2000.
The RWM real estate model has sold in excess of $1 billion in database sales globally.