About 40% of property price direction is dependent on the cycle, 60% on what you buy
It might just be a coincidence, but this week is the 13th one of the year and last night I delivered my 13th presentation for 2012.
The first quarter of the year is usually much quieter for such proclamations than later months, so either this year will be full-on speech wise or things are just topsy-turvy. I hope the former, as our bank account can do with the speaker fees!
Last night’s gig was for a Brisbane-based public development company, and while I have left out my recommendations to said business – you will just have to employ us if you want our strategic input – the bulk of my short address might be of interest.
It corrals many of the current themes into 13 paragraphs.
Ohhh…. the synergy is just killing me!
1. 40/60 rule
40% is the cycle.
South-east Queensland went into downturn in early 2008 – exacerbated by Suncorp’s exit, the flood and the Labor government. Since 2008, property values have fallen by 6%, new starts dropped by a third to 26,000 per annum across Queensland, and sales volumes across the state have halved to 35,000 per year.
Now we have the LNP in State Parliament and for at least two terms, maybe three; an undersupply – statistically speaking – of new housing; $135 billion worth of resource projects underway across Queensland; and $29 billion worth of new infrastructure being built across south-east Queensland. The property clock sits at six o’clock for Brisbane and between four and five o’clock for the Gold and Sunshine coasts. Other Queensland regions sit higher up the cycle, and some of these areas have experienced boom conditions over the last three to five years, e.g. Gladstone, and to a lesser extent, Mackay and Rockhampton.
60% is what you buy.
Last year, 25% of the dwellings bought across Australia were four-bedroom stock; 55% three-bedroom; 15% two-bedroom; and 5% one-bedroom stock.
Close to two-thirds of the new housing starts and sales take place in our capital cities – and there has been little change in a decade. In our capitals themselves, about 60% of the action takes place in the outer suburbs, with the middle-ring getting a quarter of the play and the inner suburbs just 15%. The middle ring’s market share has dropped from 40% since the late 1990s.
A recent ABS survey shows that just 4% of the Australian population moved over the last five years because they wanted a smaller home, compared with around 20% who moved for a larger property. The desire for a smaller home is highest with older Aussies, with 14% moving for such, but in Queensland, this proportion is half the national average.
Nine out of 10 sales are now resales, with new sales dropping from a 30% market share before the GST to 11% today. For mine, new product is too expensive when compared with established stock; is either too tall or small (apartments); or too skinny and too far away (new detached product). In contrast to new built sales, housing refurbishments now take up half the total dollars spent on housing across the country. This spend has doubled over the last decade or so.
2. Outlook
Due to demographics and mild panic (negative press about how far Australian property prices could fall), there is an unprecedented amount of resale stock on the market. It is now starting to drop across Queensland, but this overhang will keep prices keen in coming years.
We anticipate that rents will continue to rise, between 5% and 8% per annum, which in turn will lift some first-home buyer interest and get investors back into the market. Price growth will occur, but this cycle will remain very subdued, lifting nationally by between 2% and 4% per annum. Across parts of Queensland, including Brisbane, this lift could be close to double the national average.
Rental returns will attract investors first and not capital gains, which will be treated as a “bonus”. Investor activity will come from brokers and financial planners, and not via traditional means such as real estate agents or local “walk-ins”.
One in two buyers need to sell something in order to buy. It’s very hard to make new sales to this market without signing “subject to” contracts. One in every seventh buyer is a first-home buyer, and around 40% are investors. The investor component is the only real growth market over the next cycle.
3. End comments
Valuations are and will remain a challenge. Proactive programs need to be put in place to help ensure a better result. Rental evidence should be the basis for new dwelling valuations. Supporting evidence is crucial.
Baby boomers – which make up 25% of the population, but 38% of the households, and hold half the housing wealth in the country – will also shape the next 10 years, placing a drag on house price appreciation. Two-thirds of them live in middle-ring or inner-city suburbs, and in order to have financial retread (many won’t retire but retread, to quote Neil Young), they will facilitate the redevelopment of the middle-ring rather than continue to stop redevelopment via NIMBYism.
The capitals are where the action is, and it gets pretty skinny outside of Sydney, Melbourne, south-east Queensland and Perth – these four cities hold two-thirds of the sales and housing starts across the country. In Queensland, the volumes drop away very quickly outside of Townsville, Mackay, Gladstone/Rockhampton and Cairns.
Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 500 new residential developments come to fruition and writes the weekly Matusik's Missive. The Matusik Missive is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.