The only talk of property bubbles should be about popping champagne: Robert Simeon
Last week, Louis Christopher from SQM Research declared the “Sydney though is turning into a beast unto itself. We have a strong conviction that the ABS will record 15% to 20% house price rises next year for that city. Such a rise will create a large dilemma for the Reserve Bank of Australia (RBA), especially if the national economy is running below average growth.”
What a bold announcement given he left out what will actually influence this price proliferation. Even more remarkable is that Sydney consists of approximately 650 suburbs – so what a huge call!
This then prompted the dialogue to move to the words “boom and bubble.” Personally, I believe the word bubble is best left to describing champagne given the Sydney property market has been defying analysts for decades. Over the global financial crisis Mosman property prices fell up to 30% – smaller at the lower end and much greater at the top – end. So projected increases of 15 to 20% would realign the market back to where it was in 2007.
If you really want to look when Sydney had its last (what I call property boom) cast your mind back to 1988 – when the bubbles were really popping as Australia celebrated its bicentenary – in that case under the influence.
Prices rocketed by 75% to 100% which then led to the “recession we had to have”. When I look back to 1988 I can identify just five agents in Mosman who were selling back then of which Steve and I, nearly make up half. The cash rate back in 1988 varied from 13.50% to 15.00%. In 2004, we had another buoyant market with the cash rate remaining stable at 7.50% and again in 2007 where the cash rate bounced from 6.25% to 6.75%. One would not need to be a genius to see that with a cash rate of 2.50% eventually (despite ongoing conflicting global influences) we will see a stronger return back to bricks and mortar.
Alan Kohler wrote last week “investing in property is a no-brainer at the moment. Prices have bottomed, auction clearance rates are on fire, especially in Sydney, and you can get a fixed rate of 4.8% with 100% gearing, 70% in your super fund.” The dominant players in the current market are definitely the investors with an insatiable diet for apartments.
This week marked the fifth anniversary of the day Lehman Brothers hit the canvas and stayed down which destroyed the modern theory that banks can’t go broke.
Of greater influence five years later, we’ve learned nothing from the financial crisis which then fuels speculation – why the financial crisis could return.
When we look at what’s influencing the top-end of the Mosman market our RWM Research can reveal that over the last twelve months there have been twenty sales over $5 million. Of those twenty sales Chinese buyers have acquired 40% and growing.
Richardson & Wrench Mosman (RWM) posted 7 of the 20 sales including the top three sales. The Chinese buyers purchased five properties in Beauty Point and three in Balmoral.
A strong week’s activity for sales in Mosman with house volumes still down 33% on this time last year and apartments down 40%.
The RBA stepped into the ‘bubble and boom” debate this week although it was also quick to issue a warning on cheap credit and say that it was worried about SMSF property gearing given investors are by far the biggest players in the current property run.
Just as interesting was momentum building for home loan limits so it would be fair to say that this time around our regulators have their respective eyes – wide open.
What I would add is that the vast majority who keep pushing the “bubble and boom” are more than likely under the influence.
Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985.
The RWM real estate model has sold in excess of $1 billion in database sales globally.
He has also been writing real estate blog Virtual Realty News since 2000.