Some analysts are saying that Australia’s east coast is on the verge of a property boom and just doesn’t know it yet, as Sydney and Melbourne auction clearance rates register consistently vigorous levels. Sydney levels have hovered around the 80 per cent mark all year while Melbourne’s most recent clearance was 75 per cent. Clearances between 70 – 80 per cent indicate strength, and Bell Potter Securities analyst Charlie Aitken says the settings are right for a bona fide residential property boom as long as Australia’s low interest rates remain in place over the next few years. Low interest rates mean savers will begin to make negative returns on deposits and siphon money back into property and shares, enacting a ‘rotation’ of sorts. Analysts say such a rotation could gather more steam on the back of a decisive result in the federal election, given it will provide a shot in the arm to flagging confidence.
Economists are saying another property boom would lay bare wealth differences due to the myriad obstacles faced by first home buyers wanting to enter the market, and the fact those seeking to trade up on properties are still stuck paying down debt. Any boom that does eventuate will be driven by investors spending up on existing dwellings as opposed to new homes. According to Saul Eslake, the chief economist o Bank of America Merrill Lynch; "An investor-driven recovery is much more likely to put upward pressure on prices and is less likely to induce new dwelling supply, which is the opposite of what the Reserve Bank wants, and what the country needs."
FNN spoke to AMP Limited (ASX:AMP) Capital Chief Economist Shane Oliverand asked what he thinks about the risk of a property bubble forming:
“A lot of the factors that drove past surges in property prices are not here at the moment. Yes we’ve got low interest rates but people are a lot more sceptical about taking on a lot of debt, having seen the problems that has caused in countries like the UK, the US; with falling house prices combined with high debt levels, and I think there’s also a high degree of job insecurity around. So yes another bubble is a risk but I think the more likely scenario is that house prices will go up at a more modest pace.”
That was Shane Oliver from AMP Capital. To watch more of the interview click here:
Australian auction results
Looking at this week’s auction results across Australian capital cities - Sydney recorded a 82 per cent clearance rate from 244 properties for auction, Melbourne cleared 75 per cent from 215 properties, Brisbane had a 58 per cent clearance rate from 35 properties listed and Adelaide cleared 76 per cent from 17 reported auctions.
Commercial property sector profit results
Commonwealth Property Office Fund (ASX:CPA) saw its full year net profit in a tough market tumble by 43 per cent to $145.4 million, with the result affected by property revaluations in a tough markets. Funds from operations rose 3.1 per cent to $207 million and fund manager Charles Moore says CPA’s outlook is encouraged by positive indicators such as rising global stockmarkets, a lower dollar and stabilising business confidence.
Dexus Property Group (ASX:DXS) has generated a full year net profit of $514 million, up 280 per cent on last year. During the year Dexus engaged in $2.9 billion in transactions, divesting offshore holdings and investing $1.1 billion in the Australian market. Chief executive officer Darren Steinberg says the group has delivered on all of its strategic objectives in a tough operating environment.
AVJennings Limited (ASX:AVJ) has booked a full year net loss of $15.3 million, significantly narrowing last year’s $29.8 million loss. In the year to June 30, revenue was $158.5 million, compared to $188.8 million in the previous year. But second half revenue of $105.6 million almost doubled that of the six months to December 31, 2012, as market conditions improved. The residential developer flagged subdued lender appetite at the producer and consumer ends of some micro-markets but says market fundamentals remain positive going forward.
Lend Lease Group (ASX:LLC) has seen a 10 per cent increase in its full year net profit of $551.6 million, owing primarily to a revenue boost from the first two commercial towers at its Barangaroo project in Sydney. CEO Steve McCann says profits were also aided by winning major projects, such as a $2.5 billion redevelopment of the Sydney Entertainment Centre precinct. Mr McCann is confident the property developer expects growth to continue over the next three years despite uncertainty in the construction market, saying the depth of its pipeline provides significant earnings visibility and a strong growth trajectory.
Mirvac Group (ASX:MGR) says its full year net profit fell 66 per cent to $139.9 million, hit by $273.2 million of write downs on projects in Queensland and Western Australia. Despite the slide, CEO Susan Lloyd-Hurwitz says the real estate group is well positioned for the future with a strong outlook for its development division and is seeing recovery signs in the sector on the back of improving housing affordability, population growth and low rental vacancy. Mirvac is also looking for a new chairman following the abrupt resignation of James Mackenzie yesterday.