Bad news sells papers but little else + Strata implications for owners + Investors remain bullish

Bad news sells papers but little else + Strata implications for owners + Investors remain bullish

Highlights from this week:

  • News that terrifies buyers
  • Who wears the blame in a strata scheme – owner or tenant?
  • Conveyancers nervous about new technology
  • Investors not concerned about possible taxation changes
  • No slowdown in new home building

Transcripts:

Who wears the blame in a strata scheme – owner or tenant? – Grant Mifsud

Kevin:     Quite often when we talk about Strata rules, we think only of the owner, but what about the tenant? Who has liability? Let’s have a look at a couple of the things that if you are a property investor, you’ve got tenants in your property or if you’re a tenant in an investor’s property, then you might find this quite enlightening.

Kevin Turner:     Grant Mifsud who is from Archers, the Strata professionals, joins me. Grant, thanks again for your time.

Grant:     Thanks for having me, Kevin.

Kevin:     Yeah. It’s one thing for a resident to know about the body corporate rules, but some of them can be really strange, as strange as not being able to change the curtains in an apartment. How does that work, Grant? Grant Mifsud: Yeah. Well, I suppose, if we set the scene, a body corporate has its own set of rules because it’s effectively the fourth layer of government beyond where you go from your federal, state and local. You’ve got specific legislation that allows that Strata titled community to put a set of bylaws in place. Now t hose bylaws are effectively in place to maintain the peace and harmony in the community, but also protect the values of the properties.

Grant:     So when you’re talking about the backing of the curtains, if there’s no rules or regulations in place, it leaves it open slather for occupiers of the lot, be it an owner or a tenant to change them to whatever they like. Now, that could have a significant impact, particularly if it’s facing the street frontage. And, yeah, the Strata schemes are usually looking for a bit of a uniform appearance also.

Kevin:     Yeah. I know that a major sticking point is, you know, putting clothes out to dry on a balcony as an example. I can understand that, but just let me ask you then, these Strata bylaws, these bylaws that are made. Can a Strata community just make up their own laws and how binding are they?

Grant:     Well, yeah. They do make up their own laws, but there’s strict guidelines for how those laws can be made. So they’re there to regulate. They’re not there to prohibit. So, in terms of like if we talk about the curtain side of things, it will specify that they need to be of a certain manner. It won’t say that you can’t do all these different things. It’s just this is what you can do.

Kevin:     Grant, I’m just keen to know if I’ve got a rental property. I’ve got a tenant inside that and they break these bylaws, obviously they’re not going to be going to the Strata meetings because tenants by and large don’t go to them. How will the Strata community or the committee communicate? Will they do it to the agent? Will they do it to the tenant or do they do it to the owner?

Grant:     Well, all three is most effective, but it is the actual tenant that is responsible for adhering to those bylaws, and it’s a requirement for the, within the tenancy agreements as well, that they are given a copy of those bylaws. And although usually in the excitement of moving into a place and everything else you need to take care of, we understand that they don’t always read this multi page document that sets out all the rules, so yeah …

Kevin:     Well, as a property owner therefore I would think it’s pretty important that I get that message across to the managing agent because they would be the one who’ll be briefing that tenant on what they can and can’t do and then enforcing it, Grant.

Grant:     Exactly. Well, the body corporate themselves do issue what’s called a contravention notice and that’s a prescribed notice under the legislation, and that is then enforceable by way of dispute resolution through what’s called the commissioner’s office. And then it takes it to another step of enforcing those orders within a magistrate’s court if they don’t adhere to what has been ordered by the office of the commissioner. That can come with fines as well.

Kevin:     Yeah, I imagine that if a tenant doesn’t want to go along with it, doesn’t want to abide by those bylaws, therefore the agent would need to give them some kind of a breach notice, wouldn’t they?

Grant:     Yeah, that’s right. So there’s two separate things that you’d be looking at, so one would be the tenancy arrangements and agreements in place, but those, it’s a requirement that the tenancy agreement also states that they must adhere to the bylaws.

Kevin Turner:     Yeah.

Grant:     It’s a two prong approach. But what we at Archers always like to advise is that you should speak to them to begin with because they may not be aware that it’s not even a rule. And we try not to just accept that ignorance is something that you should just let them get away with, but if you speak to them to begin with in an approachable or friendly way, you usually find that they’re not aware and that they can quickly fix the problem, particularly if it’s just parking in the wrong spot or something that’s easily fixed.

Grant:     More serious things, if they’re having parties and it’s just getting out of control. They should be well aware that that’s just not on, and yeah, you need to be a bit stronger with it, giving them formal notices.

Kevin:     Yeah, we’ve seen some pretty strict rules around smoking too, passive smoking or smoking in public areas would also, could also be a bit of a problem, I would have thought, and pets as well.

Grant:     Yeah, well the passive smoking issue keeps flaring up, excuse the pun, but it is still a private residence, so people can smoke within their home, on their balconies as well is the major contention because that can then have smoke drift affecting fellow neighbours. But because it’s a moving object, it’s not something that can be enforced to say, well, you smoked and then the smoke drift went into our property in this quantity. You can’t really quantify it, so it’s not something that can be enforced.

Kevin:     So Grant, I guess the bottom line is this, make sure that you as the owner of the building are familiar with all the bylaws as well as your tenants. Just read them up, it can’t be all that hard.

Grant:     Absolutely, It’s, you know, it’s a specific section. It’s given to everybody. What we do is we send it to the owner. It is then the owner’s responsibility to send it on to their tenant, but it doesn’t take a long time to read it. Just get yourself familiar with what the general rules are and if you’re not sure, have another read and a lot of it just comes down to common courtesy and consideration to your neighbours.

Kevin:     Grant Mifsud. Thank you very much for your time. Grant is from Archers, the Strata professionals. Thanks for your time, Grant.

Grant:     Thank you, Kevin.

News that terrifies buyers – Cate Bakos

Kevin:     It’s so easy to get nervous when you pick the paper up or watch television and the fear mongering is on. We see things like prices are about to drop by 40%, market is about to crash, it’s no wonder that people get disenchanted with the reporting. We try and give you a consistent view of what’s happening with the market, and we don’t use emotive terms like price crash and so on. We generally look at things like what’s happening with buyer sentiment, what’s happening with conversion rates, and we look at some analytics.

Kevin:     Joining me to talk about this, because it is a big subject, Cate Bakos who is a Buyers agent out of Melbourne, probably has to deal with this quite often.

Kevin:     Hi, Cate, welcome to the show.

Cate:     Hello, Kevin, It’s great to be here.

Kevin:     Yeah, I despair sometimes when, even on television news, you can watch someone reporting about a market crash, and then they’ll tell you in the next breath that these are the areas you can go to to make massive profits, these are the hot spots. It just, to me, does not make sense.

Cate:     Yeah, news sells and that’s the issue but-

Kevin:     Or bad news.

Cate:     Any news, but yeah, obviously bad news is quite punchy, and in this climate, it’s terrifying a lot of buyers. So we field questions, as you said, all the time. People can easily get wobbled when they’re about to do something or have just done something and then see a headline like 40% price crashing in a city like Melbourne or Sydney. And we have to remind ourselves that that’s an enormous figure, and it would be unprecedented.

Kevin:     I think John Cunningham recently came out, John was the president of the real estate institute in New South Wales. I’m pretty sure he is the past president, always makes a lot of sense, and he actually came out and felt he had to say something about that. And I’m so glad he did too, because quite often we just let these people get away with it. They come on, get their five minutes of glory, and then we never hear about them again. No one ever holds them accountable for the fear mongering that they put out there.

Cate:     And also looking at the integrity of the data, and data can be manipulated in so many ways that when we look at headlines like that, there’s not a lot of integrity there in that data. We certainly have data to suggest that areas have come off, and it’s clear that we’re in a buyers market. When we contrast it with the height of the sellers market last year, the figure is always a median price. So we’ve got to remember that that’s a midpoint or we’re looking at median figures. And that doesn’t mean that every single property is treated the same.

Cate:     In fact, in some areas, properties hold firm or demonstrate a little bit of growth. It’s not just post codes, it’s dwelling types as well. So more than ever, we have to look at the data carefully, understand the integrity of it, and also look at it specifically because markets can’t just be defined with one figure.

Kevin:     Wonder why we’ve got this fixation with medians because as you rightly point out, amedian is the midpoint. It’s an indication of where the majority people are buying. It’s got nothing to do with values.

Cate:     Yeah, it’s a good point. And you can have a month where you’ve got some houses that are large family homes in established areas with high land value. And that can drive a median price because of the nature of the sale. It might be that you get more houses like that selling towards the end of spring because families are gearing up for a change for Christmas. So there’s lots of market nuances and seasonal changes that can affect median, and we have to be really careful about how we cut the data. And also, when we look at how houses and units are qualified, units can incorporate a broad array of property types. And it’s also down to how the agents record the sale.

Cate:     So some of our data that we rely on is very flimsy indeed, and it really pays to have a careful look at the data and also understand that when you’re looking at an area that’s not exhibiting enough data points to draw a trend line. So you might see these hotspot areas in little suburbs you’ve never heard of, and it’s because somebody sold a farm site or they’ve sold an enormous piece of land, and all of the sudden, the area is showing a sale that’s an anomaly result.

Kevin:     Yeah, and we don’t ever hear about that. We don’t ever hear what goes to make up that median. And the other point too, Cate, is that sometimes these measures are d one over short periods of time. How month to month, you can track what a market is doing is beyond me. I can look at figures over a year and even say, “Well, I’m not even sure that that is giving me an accurate indication about what people are doing.”

Kevin:     Sometimes, the best way is to look … someone buys a property today or … or sorry, 10 years ago, they sell it today. What’s happened in that period of time? What improvements did they make? How did they impact the value of that property as to where it is today? That’s the only accurate measure in my view.

Cate:     I think you’re spot on. And every now and then, you’ll see a sale type that had a different set of circumstances around it, and even that can skew the data. So for example, when we’re looking at recent comparable sales analysis, we might see some results that stand out as though it might be much higher than we would’ve anticipated or much lower. And so we can call the agent and say, “Hey, can you tell me about that sales result? Why was it so high?” And they might say there were two really emotionally driven bidders there at auction that day, and they had very emotional needs to have that property, and they took it well beyond reserve.

Cate:     Or if it was a bargain buy, we might ask them why it was so low. And it could be that the vendor needed a very fast sale, or they had really tricky settlement requirements, or it could’ve been a badly tenanted property, and the tenant was a nightmare and presented badly. There’s so many behind the scenes reasons for the data anomalies, and it’s impossible to cover them all. But if you’re doing careful due diligence, you’ve got to be prepared to pick up the phone and have a chat.

Kevin:     Keep your feet on the ground and don’t believe everything you read all the time. Yeah.

Cate:     Absolutely.

Kevin:     Hey, Cate, great talking to you. Cate Bakos is the Buyers agent of the year for Your Investment Property, and she joins us as a regular contributor on the show.

Kevin:     Cate, always good talking to you. Thanks for your time.

Cate:     You too, Kevin. Thank you.

Conveyancers nervous about new technology – Lee Bailie

Kevin:     Well, technology takes us on an incredible journey and it just marches so quickly. Effective from October one, practitioners in Victoria, these are conveyancers, much launch certain conveyancing transactions using electronic lodgment network. Now, we’ve spoken about this in the show in the past, but legislation requires for practitioners to really get up-skilled very, very quickly. It brings along a challenge, I guess, for people who’ve been around for quite some time seeing how this is all changing.

Kevin:     Joining me to talk about this, Lee Bailie. Lee is the general manager of product and innovation at InfoTrack and they have just launched Settle It. S-E-T-T-L-E-I-T. Very clever name Lee, and welcome to the show and thanks for your time.

Lee:     Thanks Kevin, nice to be back and chat to you again.

Kevin:     Yes, tell me what concerns are there around this … Has the industry, and I’m talking here about conveyancers, your clients, how are they reacting to this?

Lee:     So, it is a challenging environment for a lot of the conveyancers and in Victoria where the first of October mandating came into effect, they are seeing some of the biggest challenges with regards to the, I guess the day to day activities of their business and their staff.

Lee:     What we’re trying to do at InfoTrack Is assist them with that by providing them a solution which is essentially called Settle It, as you outlined. What Settle It does is enables them to continue the normal course of their business and the engagement with their clients and providing the professional service that they do, but actually outsource that challenging end of the transaction to us where we’re able to assist them with that settlement process, very similar to what we’ve been able to do today through our manual services.

Lee:     Being able to move from outsourcing your settlement business to a settlement agent, which a lot of our conveyancers have done for a number of years, to now having to do it themselves in a workspace that they’re not used to, that they haven’t been able to use or sometimes get the requirements and the training requirements has been very concerning for quite a few of them.

Lee:     To a degree, we’re seeing in the market some of them are actually considering not doing conveyancing anymore and then to some degree, that means some of them are actually considering closing up shop.

Kevin:     So to keep this in perspective. How big is your business? In other words, how many clients do you have? Let’s move out of Victoria, because I know you’re in New South Wales as well and soon to be in Queensland. How many clients are you dealing with and what number of transactions are you settling a year?

Lee:     So, InfoTrack currently deals with clients all over the country in Australia. We’ve got about 7,500 legal and conveyancing clients to which we provide services from ordering searches and titles and certificates and property inquiries all the way through to settlement services. Last year financially we probably settled just over 200,000 property settlements and we want to continue to provide that service to our clients in a manner of which they want to receive it.

Kevin:     And once again, just to clarify your clients are conveyancers and solicitors. How would consumers? Will consumers see Settle It at all or will they be impacted in any way?

Lee:     Not from our point of view. Our Settle It service is purely for the conveyancing and the legal practitioners who operate in the conveyancing space. Where I do think it will assist consumers is that hopefully some of the feedback we’ve got from some of our users of Settle It, it’s enabled them to re-prioritize staff to be on the client facing side. When I say that, I mean from our clients, the conveyancer when speaking to the consumer and they’ve been able to pass over that more administration and processed based work to ourselves to be able to provide the settlement process.

Lee:     Hopefully, what we’re able to see is that the consumer gets a better quality of service, is able to have more open channels of communication whilst the conveyancer is able to actually move some of that work that they find quite challenging at times through different mechanisms and also a very administration based process, they’re able to hand that across to InfoTrack.

Kevin:     All the research I’m seeing about consumer sentiment and how they’re wanting to be dealt with is that they want speed and they want transparency and they want to have a better contact or a better feel for the transaction. It seems to me that this delivers on all of those fronts, Lee.

Lee:     Absolutely, Kevin. And you know, currently we are completing road shows around the country and we’re actually out talking to our conveyancing clients and we are getting exactly that feedback. The consumers expecting the opportunity to be able to access technology, the opportunity to be able to get a seamless transaction and that transparency, and what we have endeavoured to do with Settle It is provide that solution to our clients to enable our clients to speak to the consumer in real time at a quicker pace, provide them with more information and at the end of the day, this is a particularly stressful period of time for most consumers, buying and selling property. They only go through it every five to seven years, and so the more information we can give our clients, the better informed they can be when they’re speaking with the consumer.

Kevin:     Great to hear, and good product called Settle It. You as a consumer might not come across it, but certainly you can ask your solicitor or your conveyancer about it, and I’ve been talking to Lee Bailie who is the general manager product and innovation with InfoTrack, and they’re behind Settle It. Always good talking to you, Lee. Thanks very much for your time.

Lee:    Cheers Kevin, thanks a lot.

Investors not concerned about possible taxation changes – Peter Koulizos

Kevin:    The Australia property investors are shrugging off finance issues concerned about taxation policy changes and the market slowdown in Sydney and Melbourne. With a growing majority believing this year is a better time to invest than last. That’s according to the 2018 Property Investment Professionals of Australia Property Investor Sentiment Survey which has just been released. Joining me to talk about that, the PIPA president/chair Peter Koulizos. Good day Peter, how are you?

Peter:    Very good, thank you Kevin.

Kevin:     Are you the president, the CEO, or the chair? What are you?

Peter:    Chairman. Chairman.

Kevin:    Chairman. Okay, that’s good. We’ll give you a correct title. Peter, congratulations on the survey, biggest one done. I think it’s the biggest survey conducted in Australia amongst professional investors, about 820 people. That’s a very good representation.

Peter:    It is. We’re really happy with that. It’s a record number, and next year we want to crack the magic 1000 because then it will give us an even better indication on what investors really feel.

Kevin:     Yeah. It’s a great benefit to investors too, because it lets them know that they’re not alone and maybe their sentiments are very similar to others. Let’s have a look at some of the … And I just hit on one there about pushing away concerns and believing that next year is going to be better than this year. All good signs. Tell me about some of the other insights, Peter.

Peter:     Yes. Other than the fact that like you just mentioned, 77% of investors believe now is a good time to invest in residential property. Some of the other surprising and very pleasing aspects were that 86% of investors use mortgage brokers, which I found phenomenal. The vast majority of investors are using mortgage brokers which is great because it gives them a range of choices so far as their mortgages are concerned. From a personal perspective, I love that 2/3 of investors are looking towards houses as an investment option rather than units because generally speaking, houses do perform better than units. Once again, Brisbane is the hot favourite for investors. I think a lot of people go up to Queensland and love having a holiday there and, “Oh, this might be a great place to invest.” Which is fine provided they do their research. And the other very, very pleasing news, that being is 95% of investors want to see greater professional standards amongst their property professionals. So if we could get the federal government to listen into that, it would be great if we could have some regulation and minimum education standards, not only to get into the property investment advice industry, but to stay in. So continuing professional development.

Kevin:    Yeah. Much needed indeed. Can we talk about one or two other issues that I think are on the horizon, too. That is to do with lending policy. Investor lending policy and how difficult the banks are making it for investors. Almost making it … Almost penalising them for wanting to increase their portfolios, Peter.

Peter:    Yeah. It is surprising. Interestingly this week what really alarmed me is when a colleague of mine showed me an article on the Finn Review website where Westpac were saying they don’t want investors that have interest only loans and have a LVR of greater than 80%. But what was more remarkable is that they were going to help them. Westpac, which includes St. George, BankSa, and Bank of Melbourne. They were going to help them find a different lender. I have never heard that before. Interestingly two days later, Westpac have come out and said, “No, no, no. That’s not correct.” But good sources tell me that people have received those letters. They can show in black and white that they received a letter from Westpac saying virtually that they were no longer wanted.

Peter:     Assuming that that is not correct, or Westpac have retracted it, my concern was when I first saw it, if the other big banks catch on, that would be very worrying. The good thing is that second tier lenders would come into play, but if you’ve got your major banks shrugging off investors who only want interest only loans or only have a deposit of greater than 20%, that would not be good, not only for investors but more importantly the whole property industry and the whole economy.

Kevin:     Yeah, indeed. I agree totally. I was at a breakfast meeting this morning and one of the major banks, I won’t name them, but they were there and they were talking about how they’re really tightening up and they’ve made the decision that sometimes they just turn their book off. They’re just not interested in taking any more risk. Can I also ask you about negative gearing, because this is something that I think the survey said 45% of responders indicated that they would reconsider their future investment plans as a result of any proposed changes. This is definitely on the agenda, because the labour party have been quite transparent about the fact that if they get into power, they certainly are going to play with it.

Peter:     Yeah, they certainly are. That is also very worrying. Almost half of investors surveyed would seriously consider buying investment property if those negative gearing options were taken away or reduced because the other thing that’s going to do is that’s going to reduce demand for property which is going to put pressure on property prices to go down, which doesn’t help anyone. I can understand, especially from the labour party’s point of view that they may want to limit negative gearing benefits. I understand that. But to blanket, put restrictions on most people that own one investment property to those that own 50, I don’t think that’s fair because that’s not really helping the mom and dad investor look after their own retirement. Because that’s what most investors get into property for, as was pointed out in the survey. They’re doing it to help them in retirement.

Kevin:     It would seem to me too, another result out of the survey was a good indicator about what investors are doing that 60% of them say that their portfolio will be positively geared within five years. So they’re obviously preparing themselves for a tighter, tougher market Peter.

Peter:    That’s right and the reality is negative gearing is a necessary evil. People do it because they have to. But the property’s not negatively geared forever, otherwise it’s a hopeless investment. So the first few years are negatively geared, but then if they keep it safe for that 30 year loan period, the majority of those years are positively geared. I don’t think the federal government has thought this through properly, because if less investors get into the market and they collect less capital gains tax income, surely they must collect much more in capital gains or income tax from investment property than they fork out in the first few years in tax benefits. Surely that must be the case.

Kevin:     I was interested also, and you touched on it right at the start there, about Sydney and Melbourne. Those market slow downs not concerning property investors at all. That would indicate to me that they believe there’s still more underlying growth in those markets, Peter.

Peter:    Yeah, sure. Investors that do their research know that there’s more than one market even in Sydney. There are pockets, there are suburbs, there are precincts within those suburbs that would do better than the average. So Sydney investors in particular who are looking to invest locally would have very good local knowledge to help them outperform the average.

Kevin:     Rentvesting, we’ll just touch on that before we close off, is an increasing popular strategy. Explain how that works, Peter.

Peter:    So rentvesting is for people who want to live where they want to live, so they might want to live in an expensive area with lots of facilities and amenities such as a café, and restaurants, and a 24 hour gym, and whatever else there might be there, but they can’t afford to buy there. So they will rent there, they will invest somewhere else where they can afford to. So they’ve got one mortgage where the rent is obviously helping to pay off the mortgage, but they also have the lifestyle. So they have their cake and eat it too. Live where they want to live and also providing for their retirement.

Kevin:    It’s a great survey. As I said very representative of what’s happening in the market. 820 respondents. It was produced by the Property Investment Professionals of Australia. My guest has been Peter Koulizos who is the chairman of PIPA. Peter, thank you very much. Congratulations and happy to support it again next year when you run it as well.

Peter:    Thank you very much Kevin and can I say once again thank you very much for your support of PIPA. It is greatly appreciated.

No slowdown in new home building – Tim Reardon

Kevin:    Interesting insight now into the housing market, the HIA-Colorbond Steel Housing 100 Report just released, reveals what’s really happening with home building in Australia. Bit of a mixed reaction. I’m talking now to Tim Reardon from the HIA about this report.

Kevin:    Tim welcome to the show. Thanks for your time.

Tim:    Thank you, thank you very much.

Kevin:    Mixed results here, but it does actually show that the top three builders actually built more homes in the last 12 months, headed up by Metricon, I think their number of new homes.

Kevin:    Is it the second or third year in a row they’ve been the top builder?

Tim:    Back to back to back, three years in a row.

Kevin:    Three, yeah. It’s a great result for them.

Tim:    It’s a remarkable achievement.

Kevin:    Yeah, I think the top three, I think, as I said all built more. But after that, it tended to tail away. What did you find from the top 100? What are they doing, what’s their activity?

Tim:    This was the first time in a number of years we’ve seen the number of homes build by those top 100 builders has fallen back. And that’s a very telling sign of what’s happening out in the market at the moment. The housing 100, the largest builders in the country are very heavily exposed to the Melbourne and Sydney markets.

Tim:    In the Sydney market in particular, we know who’s been pulling back for the last 12 months. And we also have seen the very early signs of the Melbourne market as pulling back as well. It’s been pulling back since March. We know that from new home sales have declined every month since March. And that’s the first time that’s happened in Melbourne, I’m going to say probably for close to ten years now.

Tim:    That’s a paradigm shift for them. I suspect in years to come we’re going to look back and say February was the best year that Victoria has seen, or the 12 months to February, the best 12 months Victoria has seen for decades. It may be a decade or more before they see those sorts of numbers again.

Kevin:    Just slicing though the report too, I noticed, and pull me up if you think I’m wrong, but a couple of the major builders, Metricon Homes, as an example, GJ Gardner, they also build a lot in regional areas as opposed to the cap city areas and they’ve both shown a healthy increase in numbers.

Tim:    That’s right. So, at the moment whilst we’re seeing the new residential suburbs in Sydney pull back and the expected new residential suburbs of Melbourne to pull back, it’s not true of the rest of the country. It’s not true of the rest of New South Wales or Victoria as well. When you look at the Hunter, it’s one of the strongest growing regions in the country. The ACT’s got a lot of activity. The south coast of New South Wales, and regional Victoria’s very strong as well.

Tim:    Those two metropolitan cities have moved ahead of the rest of the curve. Sydney’s certainly leading the way. They’re 12 months ahead of Melbourne, I suspect. And we’re starting to see the declines that we’ve seen in WA over the past three years are beginning to ease. Although if you’re a builder in western Australia at the moment, you’re probably seeing some of the worst conditions you’ve ever seen in that market.

Kevin:    JG King another one of the builders, I think that’s jumped up on the list, in certainly the top 20, probably for the first time, they’re a good regional builder as well. And a substantial increase, almost up by about 30% on last year.

Tim:    Yes, I’m not sure all the reasons behind that one, whether it was acquisition or expansion of their existing housing stock, but one of the unique features about this report is that for the first time since we’ve been running this report, which is more that 18 years, that every Victorian builder increased their number of starts. We’ve not seen that universal increase of one state over all of the others previously. And that just reflects how strong the market has been in Melbourne, in particular, over the last five years.

Kevin:    Meriton pulled back remarkably. They’re on the record as saying they’ve been very concerned about the Australian market, particularly the number of apartments coming on. Interesting to see their numbers fall year on year to, from what, 2,900, or close from 3,000, to just over 2,000. So that’s a major fallback, isn’t it.

Tim:    Yeah, that’s very true. So, the error in the market that’s pulling back the most at the moment, is the Sydney apartment market. And the reasons for that are varied, particularly the APRA interventions in 2016 and again last year, are seeing investors withdraw from the apartment market quite rapidly. We’ve seen at least $6 billion of investment exit that investor market.

Tim:    We also need to look at what’s happened to foreign investors and state governments have been very focused on forcing foreign investors out of the market. New South Wales imposed almost $100,000 additional stamp duty fee on foreign investors. The federal government imposed fees on consideration of overseas investments. And also the Chinese government has placed restrictions on the outflow of Chinese money.

Tim:    All of those things have come together, at the same time that we’ve seen a depreciation in the dollar which means that in Chinese Yuan, we’ve seen a 12% decline in Sydney house prices, and that’s going to continue to ward off Chinese investors from returning to the Sydney apartment market.

Tim:    From that perspective, that’s why we’re seeing that slow-down in Sydney apartment numbers and almost certainly the slow-down in Meriton’s numbers there as well. And I think there’s been a little bit in the news from Meriton in regards to that decision on their part. So I don’t think that’s a particular surprise. I think they’ve shown that they’re very shrewd investors in the market. I think … and possibly moving ahead of any changes that we’re going to see in the numbers.

Tim:    The other thing to say, is that when you look at rental price inflation, rental price inflation is a much better indication of supply and demand equilibrium than house prices. House prices are telling us that supply exceeds demand at the moment, but rental price inflation has now moved to zero. And that’s the first time we’ve seen that since 1994. It’s not a coincidence that I mention 1994. Because it was until 2016, the highest number of homes that we’d ever built in the market before. So we can see from that, that when you increase the supply of new homes, that rental prices slow down. It’s happened in this cycle. And when they reach zero, that’s the best indicator we have that the market’s at equilibrium.

Tim:    So, if you’re heavily exposed to Sydney apartment markets, knowing that there’s a very high volume of them still to come on over the next 12 to 18 months, then, yes, it would probably be a point at which it starts showing some level of caution about continuing to increase that number.

Kevin:    Yes, certainly those signals coming from Meriton were a sign for us and that was happening about 12, 18 months ago. So, yeah, good sign.

Kevin:    But I do think that the report gives us a really interesting insight into the health of the building industry in Australia and good to see it seemed to be going quite well in some of those regional areas. You highlighted Victoria there, but it seems to be in all the regional markets.

Tim:    Yeah, lots of them, unfortunately, North Queensland is still experiencing quite a significant slump. It will be some time there before we start seeing some return to their mining boom or pre-mining boom days, but with the prospect of a few new mines up in the north, we’re hopeful that we might see some better numbers there. The WA, however, is probably still two years away before we start to see a substantial increase in their building activity. And the NT too, is still on its way down, as that gas project continues to wind up.

Kevin:    Good insight. Thank you very much for your time. Tim Reardon there and that report is out from the HIA. It’s actually called the HIA-Colorbond Steel Housing 100 Report. Thanks for your time Tim.

Tim:    Thank you.

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Kevin Turner
kevin@realestatetalk.com.au
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