Fears of a housing bubble being created by rising Australian house prices are ‘overblown’ according to financial services company Citi Research. In new modelling which assumes no further RBA rate cuts until the June quarter next year, Citi Research estimates a 3 per cent lift in house prices between now and March. After that, the group expects prices to be driven downwards by a slowing Chinese economy, weaker Australian dollar and lower volumes of Chinese migration.
Citi Research analysts describe this baseline scenario as anything but a housing bubble. They believe the initial 3 per cent increase will be borne of sustained low interest rates which will lead to increases in borrowing. After that though, the forecast downward pressures will suffocate any positivity from upbeat local economic data to enact a slight fall in prices. According to the scenario, the short term driver for the Australian housing market will be low interest rates, which they assume will likely remain at 2.75% until second quarter of 2014.
According to Citi Research:
“This implies that the variable lending rate will also stay at current levels over the same period, easing households’ concerns over mortgage pressures and consequently stimulating the demand for housing."
Real Estate figures
The growth of new dwellings in mining areas is expected to slow next year while lifestyle areas are poised for a pick up, according to BIS Shrapnel. The forecaster’s Regional Building 2013-2015 report says the top spot for new buildings next year will be the Coffs Harbour-Grafton area in the north coast of New South Wales with expected building growth of 52 per cent. On the opposite end of the scale, new buildings in Alice Springs are expected to fall by 43 per cent in the next financial year.
Commentary
Turning to commentary and FNN continues its discussion with Century 21’s CEO of Home Loans James Green about the major factors behind improved credit growth in the property sector:
“People have shied away from the stock market a bit because- if you look at 2007- the stock market and the all ords was trading at about 6,000, it’s now 5,000. So if you invested in 2007, it’s still a long way off from levels around the GFC. If you’re invested in property around the same time to now, you would’ve had a capital gain and you’d probably feel more secure in property as a leveraged investment than you would as a standalone investment in the share market, so investors have flocked in. In fact, 39 per cent of all mortgage applications (in a recent Century 21 survey) were for investment.”
Australian auction results
Looking at this week’s auction results across Australian capital cities - Sydney recorded a 74 per cent clearance rate from 351 properties for auction, Melbourne cleared 69 per cent from 278 properties, Brisbane had a 42 per cent clearance rate from 30 properties listed and Adelaide cleared 45 per cent from 28 reported auctions. [Slide 3]
Commercial property sector headlines
Goodman Group
(ASX:GMG) has reaffirmed its full year guidance and says it has more than 70 projects in the pipeline worth $2.2 billion. The property developer says it’s won $1.5 billion of new development commitments and completed over $1 billion worth of projects in the year to date.
Charter Hall Retail REIT
(ASX:CQR) expects to gain about $60 million from the sale of its Polish assets which it plans to reinvest into Australian acquisitions. The property investor has inked a conditional deal to divest five assets for about $250 million, down 4.6 per cent from its book value at the end of last year.
Property investor Abacus Property Group
(ASX:ABP) has acquired the sub-regional Bacchus Marsh Village Shopping Centre near Melbourne’s CBD for $31.6 million. Managing Director Dr Frank Wolf says the acquisition presents a great opportunity to increase net income with a renewed leasing and re-positioning strategy.
Stockland
(ASX:SGP) has appointed two new executives to the executive committee. Andrew Whitson will take up the role of group executive and CEO Residential and Stephen Bull will take up the role of CEO Retirement Living. Stockland CEO Mark Steinert says the company is focused on improving returns in its residential business and is well positioned for growth within its retirement living business.
