Fraught as it is to make predictions, it’s that time of year, when taking a stab at what 2018 will hold is expected of business columnists.
Rather than forecast where the stock market will travel in 2018 – because that is way too dangerous – of even where commodities will go – which would be another perilous pursuit – I will confine my crystal-ball gazing to house prices and interest rates.
In 2017, we saw definitive signs of a change in direction on residential dwelling prices. After some false starts there is clear evidence that the property market is cooling.
We should expect this to continue in 2018 but at this stage there are no immediate signs of the property bubble bursting and a crash in prices.
Other than Perth and Darwin, which have both seen sizeable declines in property values over the past year, Sydney and Adelaide are the only cities where residential prices have started to actually decline and this should continue over the next 12 months.
In Melbourne, prices have essentially just held steady over the past few months. In the early stages of 2018, Melbourne should join its northern neighbour and prices should start to drift down.
The national property market declines will be driven by the falls in Melbourne and Sydney, which will be larger.
To the extent housing prices continue to experience a soft landing we should be grateful to the financial regulator, the Australian Prudential Regulation Authority (APRA).
It has essentially cleaned up the mess left by the Reserve Bank, which cut interest rates to the bone and in doing so created the preconditions for the massive price rises for housing.
APRA seems (to date) to have successfully employed “macroprudential” measures that essentially put checks on bank lending – curbing the rate of growth in interest-only loans and investor loans.
In response, banks started to increase the interest rates for these borrowers – which had the effect of cooling demand.
Meanwhile, over the past couple of months the clearing rate for housing sales has fallen significantly, which suggests seller expectations have not come down to match the market so many properties are simply not being sold.
Real estates agents may not be happy with this trend but it does indicate the property sellers are not especially financially distressed. In other words, they are not forced sellers.
This augurs well for a steady deflation in house prices in 2018.
This view is echoed by the group that monitors and collates property prices, CoreLogic. It expects to see a further slowdown in national housing market conditions and continued tightness on credit policies as “regulators keep a watchful eye out for a rebound in investment credit growth or, a reversal in the trend towards fewer mortgages with a loan to valuation ratio of more than 80 per cent”.
CoreLogic is also a member of the growing band of experts that don’t see an interest rate rise coming in 2018.
I agree with them but would go one step further and predict that we won’t see interest rates rises for at least the first half of 2019, given there is little prospect of inflation and wages growth in the short term.
(In December’s mid-year economic fiscal outlook, the government revised down its expectations for wages growth.)
Among economists there is little consensus. Financial markets point to a 50:50 chance of a rate rise to 1.75 per cent by the end of next year from the current rate of 1.5 per cent.
National Australia Bank economists are looking for two rate rises in 2018 – one in the middle and one towards the end.
At the other end of the spectrum, Westpac sees no rate movement in 2018.
Shane Oliver from AMP pitches his expectations somewhere in the middle and is looking for one rate rise in late 2018.
And Deutsche Bank economist Adam Boyton isn’t expecting a change in rates for quite some time.
“That view reflects not just an expectation that inflation is likely to remain low and wages growth stubbornly weak; but also that household incomes and spending will remain under pressure,” he says.
While the economy is expected to continue its gradual pick-up, it will be somewhat constrained until households begin to feel good again.
Queensland Construction Companies at ‘High Risk’ of Insolvency
Despite a steady period of growth and surging infrastructure activity, insolvency group SV Partners’ warned that more than 430 Queensland construction businesses are at high to severe risk of insolvency.
Smaller businesses related to the construction industry are being warned to keep an eye on their capital as activity faces a possible downturn.
The latest data from SV Partners’ Commercial Risk Outlook report said that while the construction industry has experienced steady growth so far in 2018 the benefits may not be shared among smaller construction service businesses.
Plumbers, electricians, carpenters and residential builders are most at risk of financial collapse in the next 12 months.
SV Partners managing director Terry van der Velde said smaller construction services are more prone to a predicted residential building downturn and the least likely to gain from the rise in commercial activity.
“Industry bodies are forecasting a downturn in residential construction in the coming year, particularly in the apartment market due to oversupply, and there has already been reports of weakening apartment and unit dwelling approvals” van der Velde said.
“Construction companies need to keep a close eye on their cash flow to ensure they have enough capital to weather short to medium term cash flow shortfalls.”
SV Partners report showed 1,967 construction businesses, or three per cent of the industry, were at risk of failure.
It also found that a total of 12,338 businesses, or 2.4 per cent of incorporated Australian businesses across all industries, were at high to severe risk of financial failure over the next 12 months.
Property is the country’s biggest industry contributing $200.9 billion (13 per cent) of GDP and is the nation’s largest employer with 1.4 million people.
“Construction businesses tend to be very interlinked, so when one business struggles to pay its creditors, it can have significant impacts on contractors in the chain,” van der Velde said
“Contractors in the finishing trades are often the first to be impacted by these struggles, as they are usually the last in the chain and hence the last to be paid, which creates cash flow strain.
Van der Velde says that despite these weaknesses, business can put in place strategies to cope with the changing conditions and make the most of opportunities.
“Implementing robust cash management strategies and well-thought- out capital structures can assist in future proofing a business.”
Originally Published: theurbandeveloper.com
Property price growth on Gold and Sunshine coasts outperforming Brisbane, REIQ report finds
Several of Brisbane’s more expensive suburbs are among the biggest losers in the property stakes, a Real Estate Institute of Queensland (REIQ) report rating performance in 2017 has found.
The Queensland market monitor showed Highgate Hill, Milton, Kelvin Grove and West End suffered the biggest sales price declines in the inner-city ring, followed by Wilston, New Farm and Taringa.
Highgate Hill in Brisbane’s inner-south suffered a median price plunge of 17.9 per cent year-on-year to $937,500.
Milton’s median price fell 11.4 per cent to $855,000, compared to 2016.
In Kelvin Grove, the median sale price was down 7.9 per cent to $764,750 and West End dropped 6.3 per cent to $1,030,500.
But some Brisbane suburbs enjoyed strong growth.
Teneriffe in the city’s inner-north became Brisbane’s first $2 million suburb in 2017 with a median sale price of $2.4 million — up 30 per cent on 2016.
At the same time, Kangaroo Point and Kalinga joined the $1 million club, with median sale prices soaring 28.4 per cent and 22.5 per cent respectively.
REIQ media manager Felicity Moore said inconsistences in price growth throughout the city could be attributed to “supply issues”.
“When you see a price soften significantly, it could be that there’s an additional level of stock developed, such as house and land packages that meets the level of demand,” Ms Moore said.
PHOTO: The Gold Coast recorded an overall increase in median sale price of 7.7 per cent. (Supplied: Tourism and Events Queensland)
Beach lifestyle proving attractive
Both the Gold Coast and the Sunshine Coast outperformed Brisbane in terms of house price growth.
The REIQ report showed the Gold Coast recorded an overall increase in median sale price of 7.7 per cent and the Sunshine Coast achieved 5.9 per cent, while Brisbane only managed an average of 2.6 per cent.
Ms Moore said the rediscovery of the beach “lifestyle markets” was somewhat overdue.
“When you look at what those markets have to offer, the Gold Coast and Sunshine Coast are just world class coastal beachfront living at its best,” she said.
“They’re not densely populated, they’ve both got world class beaches, great shopping and good schools and the amenities that go into those communities are of a very high standard.”
She said 2017 results positioned the Gold Coast as the strongest market in Queensland and among the top 10 nationally.
“It’s a similar story with the Sunshine Coast, although for years the level of supply going into that market has been a bit constrained,” she said.
“It’s struggled from a long-time lack of construction of new dwellings and when there’s demand building up it puts pressure on prices.”
Mining downturn impact
The report indicated the mining downturn continued to impact parts of central Queensland.
In Blackwater, the median sale price nosedived 70 per cent to just $36,000 last year, down from $120,000 in 2016.
Five years ago, the average sale price was $450,000.
“It’s a very sad situation but there is good news on the horizon,” Ms Moore said.
“The global body that monitors coal demand is forecasting that from 2022 there’s going to be a global uptick in demand, so in anticipation of that we’re seeing some coal miners pull some smaller mines out of mothballs.
“There’s a level of confidence coming back into the coal sector.”
Originally Published: www.abc.net.au
The property clock strikes big for hot spot areas
9 Lion St, Ipswich. Picture: realestate.com.auSource:Supplied
DESPITE last month’s previous lacklustre values, analyst Michael Matusik has identified the areas on the upswing.
While property values remained fairly stagnant during February, property analyst Michael Matusik has revealed where the housing market is on the upswing.
Mr Matusik’s latest property clock for houses, has Brisbane, Gold Coast, Logan, Redlands, Sunshine Coast and Gympie all in upswing.
He said a market’s position on the property clock was based on the strength and direction of key indicators including sales numbers, price and rent, demand and how much new supply there was.
His latest Matusik Missive also listed Ipswich, the Fraser Coast and Noosa markets as heading into upswing territory.
Ipswich has many beautiful homes, often at prices well below what something similar would cost in Brisbane’s suburbs. A four-bedroom home at 9 Lion St,Ipswich is listed for $879,000.
The land the home sits on was bought in 1904 from the family of the then Ipswich Mayor Mr Pettigrew. A home was built on it in 1907.
The period home has 3.5m high ceilings, VJ walls, period window, and timber floorboards which have all been restored.
The home has two new bathrooms, a large separate dining area and study. It is listed through Steve Athanates of NGU Real Estate Ipswich.
On the Gold Coast at Robina, 196 Easthill Drive is listed for more than $850,000.
The three-bedroom home is within the Glades Golf Community.
It has formal and informal living and dining areas, and an outdoor entertainment area with a swimming pool nearby.
It is listed through Ian and Linda Mills of McGrath – Palm Beach.
On the Sunshine Coast at Noosaville a home at 15 Bluebell Court is listed for offers of more than $740,000.
The three-bedroom home is in a cul-de-sac in a residential pocket bordered by the Lake Doonella Reserve.
The single-level home has open plan living and dining areas. An outdoor area overlooks the pool and reserve at the rear of the property.
It is listed through Tansy Grant and Justin Sykes of Ray White – Noosa.
Originally published: www.news.com.au
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