Property boom or bust

Real Estate

 
Property boom or bust?
 
The current struggle facing Australia of how to smoothly transition out of the now defunct mining boom is showing through in capital city house prices. While the Sydney and Melbourne markets continue to boom it’s more a case of bust for mining areas such as Perth and Darwin. Ongoing weakness is expected for the mining-dependent city home prices however gains in the east coast are now showing signs of slowing. In fact one trusted researcher is predicting the run will come to an end in 2017. Early signs of a slowing in the boom market are being picked up... but does it mean a bust?
 
Real Estate figures
 
CoreLogic RP Data is reporting that capital city house prices rose by 9.8 per cent in 2015 financial year. Sydney prices jumped the most, up 16.2 per cent to the end of June with Melbourne up 10.2 per cent. Adelaide was the third best performer, up 4.5 per cent. Home values in Brisbane rose 3.4 per cent, Canberra advanced 2.4 per cent and Hobart prices edged 0.9 per cent higher. Prices in Perth and Darwin both dropped. 
 
The Housing Industry Association has shown a dip in new home sales after a four month run of gains. Total new home sales were down 2.3 per cent in May despite sales of apartments rising by 7.6 per cent. There was a 5.1 per cent drop in detached house sales. 
 
A report by BIS Shrapnel is predicting the Sydney house prices are set to fall. After surging 45 per cent over the past three years, the researcher says that once interest rates rise in 2016 house prices will start to ease from 2017 onwards and are expected to weaken for about 2 years. BIS Shrapnel says that worsening affordability and higher supply of housing will couple with rising interest rates be the main drivers of the easing prices. 
 
Commentary
 
Adding to the capital city price pressure is commercial property. Turning to commentary and FNN spoke to Chris Blackmore, Manager of the GPT Metro Office Fund about what makes investing in metropolitan markets so attractive. 
 
“So research shows that the volatility returns from metropolitan markets are lower. So this is primarily coming from the fact that the majority of that return comes from income. So there’s less reliance on capital growth going forwards. We see that pricing is attractive, so cap rates have been compressing over the past couple of years. We’ve seen capital values improving. And that pricing differential between metro and CBD markets, is still sitting around that long-term average. So through the business cycle, we’d expect that to compress a little bit further going forwards, so there may be further capital value improvements to come, going forwards as well.”
 
Australian auction results
 
Looking at this week’s auction results across Australian capital cities - Sydney recorded an 82 per cent clearance rate from 672 properties for auction, Melbourne cleared 80 per cent from 868 properties, Brisbane had a 47 per cent clearance rate from 91 properties listed and Adelaide cleared 63 per cent from 50 listed auctions. 
 
Commercial property sector

Lend Lease (ASX:LLC) says it will open a new commercial wholesale property fund to invest in the near $2 billion commercial Tower 1 at its Barangaroo project in Sydney. 
 
Mirvac Goup (ASX:MGR) says it has completed a review of its operations and will cut 75 staff and streamline a number of processes to unlock $15 milllion in savings. 
 
360 Capital Industrial Fund (ASX:TIX) has extended its off-market takeover offer for Australian Industrial REIT (ASXÄNI) until the 28th September. The extension means the implied value of the offer now increases by 4.1 cents per ANI unit. 
 
And Cromwell Property Group (ASX:CMW) says that they are seeing substantial activity across its property portfolio in what is proving to be a ‘transformative’ year for the company.