Weekend 3

Three swear words this weekend – interest rates, bloody oath and WTF.  You couldn’t get a better real estate read this Saturday.

It’s three minutes well spent!

1. Rates

Interest rates plummet!  Rates slashed!  Well, this assumes that most of the official cut is passed on.  A 0.5% cut in the cash rate really indicates two things – the economy is indeed a lot more sluggish that the RBA predicted and that the banks will only pass on some of the drop, not all of it.

Falling rates – see here again – are unlikely to have much impact on the overall residential market.

But where a 0.5% fall in the cash rate will have some impact is with those investors who have been content to leave their money in the bank (or in cash in their super funds).  They now face some choices.

Gross rental yields on well-positioned and well-credentialed new investment properties are often over 5%.  These returns have now become much more attractive and are on top of potential rental growth plus possible increases in capital values in coming years.

The vacancy rate across urban Australia is 1.7% and as low as 1.5% in Brisbane.  The vacancy rate is just 0.8% in Canberra; 0.6% in Darwin and 0.5% in Perth.

The ABS house price figures – out earlier this week – show that whilst residential values across the country continue to slide (down 1.1% during the March quarter), they are starting to rise in Darwin (up 4.4%); in Canberra (1.2%); in Perth (up 1.1%) and in Brisbane (0.4%).

There is no accident regarding the correlation between the last two paragraphs.

This residential property cycle will be driven by investors and investment property.  The owner-resident market – and especially those trading older second-hand stock – will struggle to find a half-decent upturn this time around.

Astute investors are already trolling for bargains.  The 0.5% cut will bring more investors into the market.  But they will be savvy.  They won’t buy anything.  They will take their time.

But the right new stock – with the right price tag/returns – will sell.

2. Oh mighty Brisbane

Biased – bloody oath!  But rightly so.

Brisbane is Australia’s third largest city and is the Queensland state capital and key business and financial centre for the state. Queensland (2.4%) and Western Australia (2.8%) are Australia’s two fastest growing Australian states with GDP growth well above the national average of 1.9%.

In a recent Jones Lang LaSalle report – A New World of Cities – Brisbane and Perth were identified as two of the fastest growing cities in the world in terms of GDP.  Brisbane tops the list of the world’s 20 fastest growing new cities in terms of GDP, with Perth ranked 7th.

The mining boom in coal and gas principally drives Queensland’s growth.  The Queensland Resources Council estimates there are $165 billion worth of resource projects in Queensland under consideration, committed or under construction.  This investment is a major stimulus to white-collar employment growth in Brisbane.

Jones Lang LaSalle estimates that resource-related demand, including service companies such as engineers, would warrant the building of five to ten new office buildings of about 64,000 square metres in the next ten years for the Brisbane CBD and fringe.  Savills have made similar predictions.  They estimate that direct mining-related employment would require between 52,000 and 80,000 square metres of CBD office space by 2020.

White-collar employment growth in Brisbane will drive new dwelling demand from professional and executive singles and couples.

Brisbane’s resident population has been increasing by around 15,000 per annum, according to the most recent growth statistics.  This growth is expected to continue.

As noted in recent weeks, Brisbane is at the bottom of the residential cycle.  The capital has been through some shite in recent years, but now is its time to shine.  The recent state and local government landslide victories will further help this recovery.

Viva la Brisbane!

3. WTF

Yes, WTF!

Given the recent hysterical media coverage about home loan delinquencies and property repossessions, one would think that most Aussies were being tossed out on the street.  Those nasty banks!  Filthy bastards.

But wait a minute, even if the figures most often used to measure delinquency and repossessions were correct (they aren’t by the way), on average just 1.6% of securitised home loans are in arrears (delinquency), and just 0.6% are three or more months behind, and a paltry 0.15% of residential property across the country is being repossessed by the banks.  So what is all the fuss about?  WTF is an appropriate response.  This chart illustrates the extent of the problem very clearly.

And if only the damn figures were right to start with.

The Fitch report – which is the usual media source for all of this nonsense – states that Australian home loan delinquencies had risen over the last six months, whilst the RBA’s Financial Stability Review finds quite the opposite.

The difference between the two reports is explained by what they cover.  The RBA’s analysis includes all home loans on bank balance-sheets plus securitised loans: more than $1.2 trillion worth in total.  In contrast, Fitch’s research only covers securitised loans, which amount to less than $100 billion.  To be clear, these loans are included in the RBA’s sample, but represent less than 10% of the total.

The RBA concludes that total home loan arrears in Australia declined.  The arrears rate for housing loans (on banks’ domestic books plus securitised housing loans) declined to 0.6% in December, from 0.7% in mid-2011.

The same downward trend applies to property repossessions.  In fact, Australian borrowers are repaying their home loans more quickly than what is actually required by their lenders.  The RBA’s research reveals that these so-called “excess repayments” increased significantly over the course of 2011, which implies that household stress was on the decline.

The 0.5% drop on Tuesday will further accelerate this trend!

Now look what you are missing out on every week!   We supply two new charts (with pithy remarks!) every Tuesday and Thursday.

To get these charts you need to follow us via twitter, connect via LinkedIn or set up an RSS feed.  For those who don’t get this – which is far more than you might think – click here to find out how to follow Matusik.

I promise it will be another spellbinding three minutes of your time!

And if that is all too hard – just visit the Think Matusik website – every week.

Simple!

Enjoy your weekend, and remember…. pass this Missive on to 3 others.

For those readers going to the Queensland Labour Day march on Monday, don’t blink as it might be over before you know it.  Now if only the majority of workers would actually work eight hours a day!

If you want to keep your comments private and confidential, contact me directly on michael@matusik.com.au

4 thoughts on “Weekend 3

  1. Anonymous says:

    Hi Michael , one of your best, loved the charts ,

    Keep it coming
    Lee Walker

  2. John Cuthbert says:

    Hi Michael,

    Fantastic story with some very interesting stats. I hate it when people use insufficent sample sizes to perform study and analysis. Thanks for setting the record straight with just the facts!

    Regards
    John Cuthbert

  3. Mark Bellingham says:

    Well done Michael, an honest assessment as always, keep up the good work, my followers and friends deserve professional comments.

  4. Loved the positive story for Brisbane!

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