What goes up must come down

Real Estate

How much is too much?
 
Clearance rates are on the rise in Brisbane and Adelaide with both cities reporting steady increases in clearance rates over the past four weeks. Sydney and Melbourne auctions continue to see high prices and strong clearance rates. Construction levels are at their highest on record with experts now predicting the property boom may have run too far. However the slowdown in China could see foreign housing investment ease and the prospect of rising interest rates could paint a very different picture in a few years time. 
 
Real Estate news
 
The Reserve Bank of Australia released minutes from its July monetary policy meeting laying out the basis for the decision to leave rates on hold. Central to the judgment was a feeling that job prospects were improving, despite business investment having contracted. There was also discussion of slowing population growth in Australia which helps to explain a slowing in national output. Falling immigration has also been noted in Queensland and Western Australia with the fading of mining investment. The booming property prices in Sydney and Melbourne are still being closely watched as APRA measures yet to become evident. 
 
APRA will bring new requirements for average risk weighting on mortgages for the big four banks from July 1 next year, earlier than expected. The changes will see the average risk weighting rise from 16 per cent to at least 25 per cent with around $11 billion required to fund the changes. The big four banks will have to find the additional capital through organic generation and dividend reinvestment plans and will more than likely pass the costs on in the form of higher interest rates or lower deposit rates. Shareholders of the banks could also be affected by lower dividends. The measures are being put in place to lessening mortgage risks which are the banks biggest exposure. 
 
BIS Shrapnel has predicted a national oversupply of housing in three years time. In its Building in Australia 2015 – 2030 report the forecaster is saying that the current frenzy of building activity will result in a net glut of over 12,000 dwellings by June 2018 and that the biggest every housing construction boom has now peaked. The national undersupply peaked at 108,000 homes last year but BIS Shrapnel says even with a slowdown in new housing starts we will see oversupply rapidly become a problem over the next three years with apartments in Victoria and houses in WA expected to be some of the worst hit. Sydney and Brisbane are expected to do much better. 
 
Commentary
 
FNN spoke to Professor Steve Keen from Kingston University London about his thoughts on the BIS Shrapnel prediction and if Sydney can expect falling prices
 
“I think we will see a glut because there is just an enormous level of construction now. It reminds me of the 1973 boom in Sydney which when that fell over it was the beginning of the dark ages of capitalism which we have been in since 1973. But whether it will cause the price bubble to stop in Sydney, we can really potentially feed non-resident, particularly across Chinese demand indefinitely in Sydney so it comes down to what happens on the demand side as well. If China falls over, if people are forced to liquidate their properties here, to pay themselves out of being bankrupted in China then yes, the 2018 surplus plus the China demand disappearing, that could bring this thing a cropper.”  
 
Australian auction results
 
Looking at this week’s auction results across Australian capital cities - Sydney recorded an 83 per cent clearance rate from 476 properties for auction, Melbourne cleared 78 per cent from 650 properties, Brisbane had a 65 per cent clearance rate from 87 properties listed and Adelaide cleared 75 per cent from 53 listed auctions.
 
Commercial property sector
 
Echo Entertainment Group Limited (ASX:EGP) has beaten Crown Resorts Limited (ASX:CWN) in its bid to develop a new $2 billion casino and resort at Queens Wharf in Brisbane.  
 
Diversified property group GPT Group (ASX:GPT) says Bob Johnston, the current Managing Director of Frasers Australand, will replace the outgoing Michael Cameron who is leaving for the top role at Suncorp. 
 
Frank Lowy, Chairman of Westfield Corporation (ASX:WFD) and Scentre Group Limited (ASX:SCG), recently underwent surgery for a blot clot on the brain most likely caused by his fall during the A-League Grand Final earlier this year. 
 
Meanwhile Investa Office Fund (ASX:IOF) say they have sold 383 La Trobe Street in Melbourne for $70.7 million, a 31 per cent premium to book value.