Is the Australian property market destined for a blood bath?
Is the Australian property market destined for a blood bath?
The 1Group’s phones have been ringing hot since 60 Minutes ran a story on Sunday night about the Australian property market – Bricks & Slaughter. It sounds like a horror movie! 1Group would be scared too…. If we hadn’t answered the same questions over 2 years ago, when 60 Minutes ran a similar story.
In early 2016, 60 Minutes ran a VERY similar story. A story which centred around a hedge fund manager and an economist touring western Sydney suburbs. Based on that road trip, they concluded that Australia was in the middle of a housing bubble. By Wednesday, it was revealed that the hedge fund manager had ‘gone short’ on Australia’s banking stocks. Basically meaning that if Australia’s banking stocks went below a certain point, he and his hedge fund would financially benefit from their decline.
Now 1Group are not disputing the creditability of the people interviewed for Sunday’s shows; however, we’re concerned about 60 Minutes track record when it comes to presenting a balanced argument, or providing some context.
Default
60 Minutes reported that 52,000 homes will default over the next year. 1Group agree! Whilst Australia does have high household debt levels, its 90 day default rate on home loans is some of the lowest in the world, at well under 1%.
If you take the approximate 9,000,000 homes in Australia, which are owned by 67% population, 52,000 defaults on loans is in line with historical numbers. And whilst hardship is tough to hear about, it isn’t at American GFC levels, where 1 in 54 American homes received foreclosure letters.
Australia has many submarkets
Tim Lawless, from Corelogic, has recently reported that the upper end of the market has been hardest hit, with trophy homes in Sydney coming back 8.1% and premium homes in Melbourne coming back 5.2%. However, the broad middle quartile declined only 0.5%, and the most inexpensive quartile increased 0.6% in Australia’s capital cities.
If you look at some ‘on the ground’ examples from the auction results over the weekend, it further highlights that even our capital cities are made up of many markets. Domain reported that Camberwell had 11 auctions over the weekend, with 10 of those properties passing in. Whilst Belmont, Highton and Grovedale, areas of Geelong, reported over a 90% clearance rate.
To summarise
Whilst it is important to analysis the macro drivers when purchasing property, it is important to research the micro drivers of each individual property. Analyse the school zone, its floor-plan functionality and potential, establish the zoning of the land and the opportunity it brings (eg subdivision/development), and last, but of course not least, get the pricing right.
If you would like to discuss the Australian property market, feel free to get in touch with Highview’s good friends at 1Group Property Advisory www.1group.com.au or have an initial chat with your Highview Accountant today.
Article written by Callum Senior, Buyers Agent from our great friends at 1Group.