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Are we headed for a housing crash — or not?

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YOU can’t blame people for being confused.

One minute we are told there is an apartment glut and house prices could crash any minute. The next, our leaders are calling for negative gearing changes that will push prices down even further. So are we headed for housing armageddon or not?

PRICES ARE TOO HIGH …

Housing prices have been rising for over a decade and warnings about a property bubble have been brewing for years.

One of the latest warnings came last month from property analyst Louis Christopher, of SQM Research, who said the national property market was overvalued by 22 per cent.

This is being driven by prices in Melbourne, which hit its highest overvaluation level of 40 per cent and Sydney, which was at its second highest level of overvaluation at 40 per cent.

Mr Christopher warned that if changes weren’t made, such as lifting interest rates or tougher restrictions on home lending, prices in Sydney and Melbourne would continue to rise by up to 16 per cent in 2017.

“However it is likely 2017 will be the last year of price falls generated by the mining downturn for these cities,’’ he said.

Mr Christopher said if interest rates were cut again, prices would rise even further, paving the way for a possible correction in 2018.

BUT THERE’S AN APARTMENT GLUT COMING …

At the opposite end of the spectrum, there are fears that construction of new apartments will lead to an oversupply in the next few years.

The construction boom already seems to be impacting Melbourne apartment prices, where there’s been record levels of building in the last two years.

On Thursday, Corelogic’s November Hedonic Home Value Index showed Melbourne dwelling prices had fallen by 1.5 per cent.

Head of research Tim Lawless attributed this to new units coming on to the market. Prices for units fell by 3.2 per cent last month.

Overall, prices for Melbourne units have only grown by 3.9 per cent this year, compared to 12.2 per cent for houses.

But this is where things get really interesting for Sydney.

While Sydney unit prices are not increasing as fast as those for houses, they are still rising.

In November, unit prices increased by 0.9 per cent, which was actually slightly higher than 0.8 increase achieved by houses.

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Across the year, unit prices grew by 10.6 per cent compared to 15.3 per cent for houses.

Earlier this year BIS Shrapnel released a report that predicted Melbourne would have an oversupply of more than 20,000 homes by 2017, but managing director Robert Mellor said Sydney was still suffering from an undersupply of housing.

“It’s so severe we won’t see an oversupply in Sydney in the next four years,” Mr Mellor said at the time.

“A downturn in Sydney between 2004 and 2012 was so severe, basically only in the last 12 months we’ve started to see construction move above the level of demand.”

SYDNEY IS DIFFERENT

Prices in Sydney have outstripped those in other areas and it remains Australia’s most expensive city, with a median dwelling price of $845,000, according to the latest statistics released by Corelogic.

Since 2009 dwelling prices in Sydney have risen by a staggering 96 per cent, Corelogic head of research Tim Lawless told news.com.au.

Melbourne is not that far off, with growth of 78 per cent, but the next best performing market after that was Canberra, which has only seen growth of 33 per cent.

The difference was even more stark in Perth, which only grew by 6.5 per cent, and Hobart on 4.5 per cent.

Mr Lawless said Sydney’s astronomical growth had been achieved against the backdrop of record low wages growth of about 2 per cent.

“So the byproduct of strong capital gains (for housing) and relatively low income growth is that affordability is becoming stretched,” he said.

One way of measuring housing affordability is to look at the dwelling price to income ratio.

In Sydney this ratio is 8.4, which means it takes 8.4 times the typical household salary to buy the typical Sydney dwelling.

If you look at houses only, this ratio is closer to 10, while for apartments it is 7.1.

These figures are still higher than in other cities.

Melbourne has a ratio of 7.2 for dwellings, while Brisbane’s ratio is 5.7.

“It highlights that Sydney is becoming increasing unaffordable,” Mr Lawless said.

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However, Mr Lawless said there was some confusion in the market because the measure of “serviceability”, the proportion of household income that goes towards paying a mortgage, which has been really flat because of record low interest rates.

“This hides the fact that dwelling prices have risen at a substantially higher rate than incomes in Sydney and to a lesser extent, in Melbourne.”

A TARGET FOR INVESTORS

All the analysts seem to agree on one thing — the Sydney real estate market is different and property prices in other areas are not growing as strongly.

This may be why NSW Planning Minister Rob Stokes, called for reform of negative gearing this week.

His comments were later backed by NSW Premier Mike Baird, who said changes should be considered. But this is in direct conflict with Liberal Party policy.

During the election Prime Minister Malcolm Turnbull said the coalition would not change the measures, and warned Labor’s policy to reform negative gearing and the capital gains tax discount would lead to price falls. Estimates have ranged from between two per cent to as high as six per cent.

Mr Turnbull pointed to the need to increase housing supply to improve affordability.

But in his speech, Mr Stokes said supply alone wouldn’t solve Sydney’s housing affordability problem.

The state is currently building 185,000 homes over the next five years to try and address an undersupply of close to 100,000 homes in NSW.

But with interest rates at record lows and generous federal tax incentives, Mr Stokes said Sydney had become a prime target for investors.

Property investors can use negative gearing to reduce the tax they pay if they make a loss, for example if the rent they collect is less than their mortgage repayments.

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Once they sell the property, they only pay tax on half of the profit because of the capital gains tax discount.

Mr Lawless said statistics showed investors currently made up more than half the demand for mortgages in NSW.

States are now trying to wind back incentives for investors.

This year NSW introduced higher taxes on foreign investors buying residential property, following in the footsteps of Victoria and Queensland.

HOUSING MARKET IS STILL HOT

AMP chief economist Shane Oliver said NSW must think there’s still some extra capacity in the property market as the state planning minister probably wouldn’t be talking about negative gearing if the market was weaker.

“They are probably thinking there is still room in the market as it’s not altogether clear that the market has peaked,” he told news.com.au. “They are probably thinking there’s a long way to go.

“I would be more cautious, I think a supply glut could hit next year,” he said.

However, if prices did fall, Mr Oliver said the market could still be propped up by two types of buyers.

Firstly, first home buyers may re-enter the market, especially if prices fell by 20 per cent and interest rates remained low.

Ironically foreign investors could also be lured by lower prices and move to snap up a bargain. Prices in Sydney are still reasonable compared to those overseas, especially because the Australian dollar is quite low at the moment.

Population growth in Sydney also remains strong and this would also cushion the market against a big fall. Mr Oliver said he didn’t think any price falls would go beyond 15-20 per cent.

“You wouldn’t be looking at a fall like what happened in the US or eurozone.”

SO SHOULD THEY CHANGE NEGATIVE GEARING?

By restarting the debate on negative gearing, NSW is basically trying to push some of the responsibility for fixing housing affordability back on the Federal Government.

While Mr Oliver believes supply is more connected to affordability, this doesn’t mean some changes shouldn’t be looked at — especially the capital gains tax discount.

“This is a bit of a distortion and that’s what makes negative gearing so profitable,” Mr Oliver said.

But Treasurer Scott Morrison did not seem to be taking the bait, and said on Friday that abolishing negative gearing would hit mum-and-dad investors in rental properties, pushing rents up and putting immense pressure on the market.

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Another tricky thing about changing negative gearing and the capital gains tax discount, is that the measures would impact property markets around Australia, not just Sydney.

Meanwhile, Housing Industry Association chief executive Graham Wolfe pointed to the state taxes and levies charged on the sale of every new home.

“State-based stamp duty on the purchase of a typical new home alone adds a $91 per month burden on household mortgage repayments,” Mr Wolfe said.

Stamp duty is something the NSW Government could change to help first homebuyers but has left untouched.

In his speech, Mr Stokes said if states were to consider getting rid of inefficient state taxes, the Federal Government needed to outline how it would help states raise money for schools and hospitals to cater to a booming population.

Providing investors with generous tax breaks such as the capital gains tax discount, costs the Federal Government billions. In 2014/15, the CGT alone was estimated to have cost the federal Budget more than $6 billion.

And despite all the talk of housing bubbles, apartment gluts and falling rental prices, this hasn’t deterred investors.

ABS housing finance data has shown a consistent rise in finance commitments for investment purposes since May this year.

“Clearly investors are continuing to see housing as the preferred investment option, despite low yields and a mature growth cycle,” Mr Lawless said.

Mr Stokes believes it’s time for a real debate about policies and for the Federal Government to partner with states to address housing affordability.

“Why should you get a tax deduction on the ownership of a multi-million dollar holiday home that does nothing to improve supply where it’s needed?” he said.

“We should not be content to live in a society where it’s easy for one person to reduce their taxable contribution to schools, hospitals and other critical government services — through generous federal tax exemptions and the ownership of multiple properties — while a generation of working Australians find it increasingly difficult to buy one property to call home.”

 

Originally Published: http://www.goldcoastbulletin.com.au/

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Opinion

Why Brisbane property is set for great capital growth

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Why Brisbane property is set for great capital growth

Over the last 10 years, Brisbane has suffered the GFC and floods. As a result, prices are now extremely affordable for a capital city. The Brisbane market has some of the best growth prospects nationwide, so let’s explore why this market is set to take the gold medal for capital growth.

Increasing population

Since the GFC, net migration levels have been very poor for Queensland. However, net interstate migration to Queensland has tripled over the last three years. Interstate migration to Queensland fell to a low of 5,753 in 2014, increasing to 11,581 in 2016 and 15,716 in 2017.

The majority of these people are moving from Brisbane, the Sunshine Coast and the Gold Coast. This increase in migration levels is due to housing affordability compared to other states, improving employment markets and the lifestyle factors that come with those two factors.

Infrastructure

There is a surge of major development and infrastructure projects currently underway in Brisbane, to the sum of $12 billion.

Examples of these major projects are:

  • Queens Wharf ($3 billion) – Comprising of 1,000 hotel rooms across five hotels, a residential precinct of 2,000 units, a 100-metre sky deck, 50 bars and restaurants and a pedestrian bridge connection to Southbank. This will completely reshape the Brisbane’s river CBD precinct.
  • Cross River Rail ($5.4 billion) – The project will deliver a 10.2-kilometre rail link from Dutton Park to Bowen Hills, with 5.9 kilometres of tunnel under the Brisbane River and CBD, connecting to both northern and southern rail networks in and out of the CBD.
  • Brisbane Quarter ($1 billion) – This project is a mixed-use precinct incorporating office, retail, hotel and residential uses.
  • Brisbane Live ($2 billion) – A new entertainment precinct located on top of the Roma Street rail interchange hub. Facilities include a $450 million, 17,000-seat arena along with multiplex cinemas, an amphitheatre and proposed commercial, residential and hotel towers.

Jobs growth

Last year was one of the strongest years for job growth in Brisbane’s history. In the last 12 months, Brisbane’s jobs growth has increased by 7.6 per cent. As a result, unemployment has fallen across the board to 5.5 per cent.

Recent jobs growth has been driven by Queensland’s service industries. While the resources sector has cut 22,000 jobs over the past two years, four other industries each created more jobs than were lost in the resource sector over that period: health, education, professional services and accommodation and food services (which is closely related to tourism).

Affordability

The median dwelling across Brisbane cost 6.3 times higher than the median household income. As a comparison, Sydneywas ranked the second worst most unaffordable market in the world. House prices are a whopping 13 times higher than the median household income.

These factors are significant for Brisbane’s capital growth prospects over the coming years. Well-located houses (not units) are expected to be some of the best preforming sub-markets in Australian real estate.

Where else but Queensland!

Source: www.smartpropertyinvestment.com.au

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Opinion

Brisbane’s Ferny Grove Village sells for $16.2 million

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Brisbane's Ferny Grove Village sells for $16.2 million Read more: http://www.afr.com/real-estate/brisbanes-ferny-grove-village-sells-for-162-million-20180422-h0z3wp#ixzz5E7ke1wiD Follow us: @FinancialReview on Twitter | financialreview on Facebook

The Ferny Grove Village shopping centre in Brisbane’s western suburbs has changed hands for $16.2 million. Supplied

Village shopping centre in Brisbane’s western suburbs has changed hands for $16.2 million.
WA-based syndicator Kerching Capital secured the 4408sq m neighbourhood shopping centre at 51 Mcginn Road, Ferny Grove through CBRE’s Michael Hedger and Joe Tynan.

It is anchored by a 2539sq m Coles supermarket and also has 19 specialty retailers.

Rich church

A local Catholic Church group has snapped up former laboratory property on a substantial site of just over 3 hectares in south Canberra for $3.81 million.

The property at 150 Narrabundah Lane, in the semi-rural suburb of Symonston, initially accommodated the Therapeutic Goods Administration, before being refurbished for its most recent use as an IT data facility.

The purpose-built 1271sq m building is 10 kilometres from the Canberra CBD.

CBRE’s Adrian Woolgar and Michael Heather managed the sale.

Private investor deals

Private investors traded a retail investment leased to a restaurant and a karaoke lounge at 301 Clayton Road in Clayton, Melbourne, for $1.385 million.

Investors fought it out before it sold at a net yield of 4.4 per cent.

Allard Shelton’s James Gregson, Michael Ryan and Martin Huang handled inquiries.

Private investors also traded a service centre and retail property leased to Caltex Woolworths 122-134 Boundary Road in Melbourne’s Braeside for $4.15 million.

Colliers International’s Raphael Favas and Daniel Wolman negotiated the sale of the 2795sq m property.

A local investor paid just over $3 million for a shop at 321 La Trobe Street in the Melbourne CBD at a yield of 4.28 per cent.

The 108sq m property is leased to Japanese restaurant Ikkoryu Fukuoka Ramen.

CBRE’s Max Ruttner, Alex Brierley and JJ Heng marketed the property.

Investor deals continue in WA

Private owners have exchanged a newly completed medical centre at 373 Warnbro Sound Avenue, Port Kennedy in WA for $2.9 million at a 6.22 per cent yield.

Vend Property’s Jeff Klopper sold the architecturally designed, one-storey building for a private owner.

Industrial strata sell-off

Spanos Family Investments has offloaded a 280sq m industrial strata unit at 8/23-31 Bowden Street, Alexandria in Sydney’s south for $1.765 million.

Spectre Management NSW bought the property through JLL’s Tom Reesby, Charlie McKenzie and Edward Washer.

Chester Hill unit

An owner-occupier Dalou Pty Ltd has purchased a 2080sq m industrial facility at Unit 1, 171 Orchard Road, Chester Hill in Sydney’s west for $2.35 million.

Danalir Computer Services sold the property with vacant possession.

The front unit in a complex of five offers a 4.5m to 7m internal warehouse clearance, two roller doors, dual drive-through access, rear hardstand and truck manoeuvreability.

Knight Frank’s Nick Trencevski and John Swanson acted on the deal.

Small but big deal

The property partly leased to the Biggie Smalls eatery at 86 Smith Street, Collingwood, in Melbourne has sold for $3.58 million on a yield of 3.51 per cent.

The refurbished, three-level 267sq m building also has basement levels and a first-floor office.

Fitzroys’ Chris Kombi and Terence Yeh sold it to a foreign investor.

Student accommodation up for grabs

A block of 14 student accommodation studios opposite Deakin University’s Burwood Campus has sold for $3.105 million at auction.

A foreign investor bought the 216 Burwood Highway property at a yield of 4.2 per cent in a first foray into Australia.

CBRE Melbourne’s Mark Wizel, Nathan Mufale, Dylan Kilner and Leon Ma executed an international marketing campaign.

Developer flip

A Chinese developer has purchased a permit-approved 1337sq m development site in Doncaster in Melbourne’s east for $3.775 million.

The auction of 26 and 28 Bordeaux Street attracted 120 inquiries. It can yield 10 large townhouses close to the Westfield Doncaster Shopping Centre.

It was flipped by another developer and marketed by Savills’ Benson Zhou, Julian Heatherich and Dorothy He.

Source: www.afr.com

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Opinion

Property tax hikes will hit economy hard

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Property tax hikes will hit economy hard

The state government’s planned property tax increases risk wiping the state off the global investment map, warns Chris Mountford,
executive director of Property Council Queensland.Kevin Farmer

THE state government’s planned property tax increases, due to come into effect on July 1, risk wiping the state off the global investment map.
As the government begins work on the State Budget, the Property Council is ramping up efforts to highlight the hidden effects of the tax hikes.

These tax hikes will increase the cost of doing business, damage Queensland’s economic competitiveness and impact on every Queenslander.

With Queensland preparing to leverage the Commonwealth Games to attract new investment opportunities, these tax increases couldn’t come at a worse time.

Election campaign costings, released in the days prior to the November 2017 state election, revealed the government’s intention to introduce new land tax thresholds for aggregated land holdings with an unimproved value above $10 million.

Individuals, companies and trusts who are within this new threshold will be subjected to a 25% increase in the rate of land tax from July 1.

The government has also committed to increasing the stamp duty surcharge on foreign buyers of residential property from 3% to 7%.

The end result of this decision will be higher business rents, higher costs for new homes and damage to Queensland’s reputation as an investment destination.

Businesses who lease premises from larger landlords can expect additional rental and occupancy costs.

New homebuyers can expect an additional $800-$1000 added to the cost of purchasing a new home.

We once were able to lure investment from interstate and overseas with attractive tax rates, but we now find ourselves uncompetitive with our southern neighbours.

The Property Council is calling for the government to abandon the tax increases and commit to review and modernise Queensland’s property tax framework.

Our current land tax thresholds haven’t been changed in a decade, leading to significant bracket creep as property values have increased dramatically.

We need a simpler, fairer and more attractive property tax system to unlock investment and create jobs.

An all-encompassing review of Queensland’s outdated thresholds and property tax rates needs to be undertaken to put Queensland back on the investment map.

Chris Mountford is executive director of Property Council Queensland.

Source: www.sunshinecoastdaily.com.au

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