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Doom and gloom for property market?

Discussion in 'Property Experts' started by Small_investor, 12th Jul, 2016.

  1. Small_investor

    Small_investor Active Member

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    I think some of you guys must have read the following article but for others I am putting this link. What are your expert opinions on this article?
    from the Australian

    Homeowners and property investors are facing steep falls in house prices and a weakening rental market as a new wave of apartment development combines with stalling population growth to create a glut in some areas.

    In perhaps the bleakest assessment of the local housing market so far, BIS Shrapnel analysts have predicted median house price falls, an oversupply of apartments and serious vacancy issues which will bite all capital cities by June 2019.

    Homes in Sydney, Melbourne and Adelaide are likely to sustain falls of 2 per cent in nominal terms, and steeper drops of 10 per cent in real terms — which takes inflation into account — as population growth plummets to 10-year lows and more than 220,000 new homes started this year approach completion.

    The data has shone a light on a growing disconnect between detached housing and apartment markets, with apartments tipped to suffer price falls more than double those of detached homes, and analysts questioning whether rental demand was strong enough to mop up new supply.

    “Nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand,” BIS Shrapnel senior director Angie Zigomanis said.

    • [​IMG]No buyers’ remorse
      “As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion.”

      Sydney’s median apartment price is predicted to fall by 5 per cent by 2019, while Melbourne apartment prices could fall by as much as 8 per cent.

      Brisbane apartment prices will fall by around 6 per cent, followed by Darwin at 4 per cent, and Adelaide and Perth winding back 2 per cent. The new data adds weight to concerns aired by executives and analysts about the stability of house prices, property investment and the local banking sector, given settlement risk is climbing higher and Australian households are now the most indebted in the world.

      Stockland chief executive Mark Steinert told The Australian he believed the predictions were too bearish, but he agreed with the report’s appraisal of the difference between the performance of apartments and houses.

      “With apartments, there will definitely be pockets of oversupply ... you’ve got some areas like Sydney’s southern precinct — the one between the airport and the south of city — where you’ve had a lot of development in a very short amount of time,” he said.

      “In those sorts of circumstances, I think you can expect a limiting impact on demand, and there could be retracement (in prices).”

      Other analysts believe apartment falls could be steeper. “I think the BIS economists are being a bit too optimistic,” said AMP Capital economist Shane Oliver. “My own view is that in the next few years we’ll see bigger falls, perhaps 5 or 10 per cent for house prices around 2018 or 2019, and for apartments, I won’t be surprised if they come off by 15 to 20 per cent ... the only question is how much they’ll go up beforehand.”

      House prices have risen 8 per cent during this year to date, despite a drastically tightened lending environment and predictions that the 12 per cent price growth recorded in 2015 would halve.

      Against that backdrop, buyers and investors have told The Australianthey’re not prepared to delay buying property in fear of a downturn and they will capitalise on an accommodating lending environment and low interest rates while they can.

      Economists dismissed the suggestion that widespread price falls could undermine the stability of local banks.

      Balance sheets were strong, and most loans had been issued on sufficiently conservative terms, said former bank chief executive David Murray, and while the prospect of Australia losing its AAA credit rating could put some pressure on loan books, that represented only a small component of the funding mix.

      HSBC economist Paul Bloxham pointed to rising rental vacancies that he believes could place pressure on some owners, as a slew of new investment properties hits the market and joins competition for tenants. Australian Prudential Regulation Authority measures to tighten lending to investors in place for 18 months meant investors were well-enough positioned to weather short-term vacancy or rent issues, he said.

      “There’s a collection of things which have been happening to help make sure that if we do see apartment prices fall, borrowing won’t cause too much of a risk to the system.”

      Mr Oliver agreed: “To have a big problem, you’d need to have unemployment or a recession that causes them to default on their loans ... the experience to date is homeowners can manage price falls and keep servicing their debts if there’s no recession. The real risk is for developers who might have come to market at the wrong time, but we’re yet to see that unfold.
     
    Last edited: 12th Jul, 2016
  2. Leo2413

    Leo2413 Well-Known Member Premium Member

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    "Small_investor, post: 247044, member: 5967"]I think some of you guys must have read the following article but for others I am putting this link. What are your expert opinions on this article?
    from the Australian

    Homeowners and property investors are facing steep falls in house prices and a weakening rental market as a new wave of apartment development combines with stalling population growth to create a glut in some areas.
    Agreed, so simply don't invest in these markets.


    In perhaps the bleakest assessment of the local housing market so far, BIS Shrapnel analysts have predicted median house price falls, an oversupply of apartments and serious vacancy issues which will bite all capital cities by June 2019.

    Again, don't invest in oversupplied unit markets. As for median house price dropping, so what? Buy in areas with above average demand, using a proactive investment strategy and your already way ahead of the pack.

    Homes in Sydney, Melbourne and Adelaide are likely to sustain falls of 2 per cent in nominal terms, and steeper drops of 10 per cent in real terms — which takes inflation into account — as population growth plummets to 10-year lows and more than 220,000 new homes started this year approach completion.

    Again, don't buy homes in markets that are likely to experience a 10% dip. Buy bmv and add value if you can. There are thousands of markets across Australia and they wont all drop 10%.

    The data has shone a light on a growing disconnect between detached housing and apartment markets, with apartments tipped to suffer price falls more than double those of detached homes, and analysts questioning whether rental demand was strong enough to mop up new supply.
    As per above comment, avoid this market. Its investing 101 basics.




    Sydney’s median apartment price is predicted to fall by 5 per cent by 2019, while Melbourne apartment prices could fall by as much as 8 per cent.

    If that's all it falls then it calls for a celebration! Also, when they say 'median' this and median that, its all vague nonsense imo. If you know how to do DD and buy in the right markets, you won't have to worry about all the scare stats stuff imo.


    .

    “With apartments, there will definitely be pockets of oversupply ... you’ve got some areas like Sydney’s southern precinct — the one between the airport and the south of city — where you’ve had a lot of development in a very short amount of time,” he said.

    True, but only the silly bought there and paid a huge premium with massive strata. Again, investing 101 page 6 would tell anyone how to avoid this. Just most don't read it.

    OK have to stop here, the article is too long and same repetitive stuff. I've been hearing doom and gloom for property since the day I started 16 years ago. Always doom and gloom.

    Learn the basics, know how to do thorough DD well and you will eliminate so much of the risk and put yourself in a much better position to buy good investments that take you closer to your goals.

    Just my 2 cents.
     
    Francesco, Perthguy, Player and 4 others like this.
  3. Small_investor

    Small_investor Active Member

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  4. House

    House Well-Known Member Premium Member

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    Golly gosh imagine that, prices dropping after the biggest bull run in history! :eek: @Leo2413 summed it up nicely.

    Can't find the graph but it showed apartment approvals before, during and after the various booms over the last two decades. There was always a point of oversupply but it was quickly absorbed (Pyrmont is a good example). I think the same will happen again but will just take a bit longer than before. Or maybe not? Pete Wargent blog: Population absorbing new dwelling supply

    Plenty of people overpaid for huge developments over the last couple of years across the major Caps and now post-APRA, increasing vacancy rates etc, they're going to have to come up with a lot more of their own money.
     
  5. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    In many places the overbuilding does all eventually get taken up, but not everywhere. Plus they will be harder to attract tenants to (too much choice!) and hard to sell because there are so many other properties on the market, buyers are spolit for choice so they end up having the power in negotiations. Then you have high strata kicking in, which means some people are desperate to offload... it becomes a race to the bottom.

    Talk to agents at Airlie beach QLD for example. If the demand isnt there for the units, prices will stay depressed. Very difficult to sell.
     
  6. House

    House Well-Known Member Premium Member

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    Well if you're buying in Airlie I really wouldn't expect much else!

    True the supply won't be absorbed in all areas but that's a given. If you have to drop your rent $50/wk to get a tenant it's not the end of the world. Even $100/wk could be bearable over the short term. Lucky they'll have sweet depreciation benefits (and probably dodgy rental guarantees) to ease the pain!
     
  7. Whitecat

    Whitecat Well-Known Member

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    I don't see this as applicable to Brisbane house prices within 15km of the cbd. They already offer very good value. Bne will remain the top spot for sydney investors due to yield. At least for a few years until bne gets back up to where it should be in relation to Sydney and Melbourne.
     
    Leo2413 likes this.
  8. Azazel

    Azazel Well-Known Member

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    Lovely spot, it will bounce back eventually.