Sunday, 21 December 2014
Full Employment...& Property Booms of Christmases Past
Investment Philosophies
We are all a product of our environment.
Being British by birth and later an adopted Aussie, I've formed a view over the long run that capital city property investment can "work" as an effective inflation hedge provided that you fully understand and resolve to stick to a a number of basic rules.
As the population of a capital city grows new dwellings must always be constructed at today's prices - today's land costs and construction costs - and over time this underpins the value of landlocked suburban housing.
Although I do own some regional properties, purchased particularly after severe corrections, my experience in Britain has shown that when an economy takes a serious downturn secondary markets can at times be brutally exposed and dwelling prices can fall sharply, or in some cases, crash.
Mining Construction Boom Ends
Of course we've been making this very same point for a long time now.
But as all readers must surely know, Australia has been cushioned from severe economic conditions by a decade-long mining construction boom (see the soaring green line below) and we haven't had a recession or a serious economic downturn for well over 20 years.
It has long been our contention that this has led to complacency over regional and outer-suburban property prices in Australia.
In 2015 Australia's economy finally looks set for a downturn which could genuinely hurt, with sub-trend economic growth forecast and mining construction and investment at long last set to fall...probably dramatically.
There may or may not be a full recession, but in any case interest rates do appear likely to be heading towards record lows.
Regional Unemployment Has Stalled
We have been making the point for a long time now that regional employment growth in Australia ex-Queensland has completely stalled, and this is likely to lead to problems.
The two largest states for example have added very few regional positions in aggregate for the past 7 years and none at all - zero - for well over 4 years now.
Regional Unemployment Rates Rising
Finally this trend is beginning to show up in regional unemployment rates.
This week the ABS Detailed Labour Force data for November 2014 revealed that while capital city unemployment fell in raw terms by 0.4 percent to 5.5 percent, regional unemployment has continued to rise to 6.8 percent.
The difference is most pronounced in New South Wales where the Greater Sydney economy is now firing on many of its cylinders.
Raw capital city unemployment rates declined in Greater Sydney, Greater Melbourne, Greater Brisbane, Greater Adelaide and Greater Perth.
However, unemployment rates once again increased in regional New South Wales, Western Australia, South Australia, Tasmania and the Northern Territory.
Full Employment
If you are looking for property markets which are actually going to BOOM - by which we mean here for dwelling price charts to turn fully parabolic - then one of the factors or catalysts that we can talk about is so-termed "full employment".
If you have followed our UK house price indices over time you may recall that while London is consistently the long term out-performer over time (as we obviously would expect), Northern Ireland's index ran from a base of 100.0 in 1993 to a preposterous 659.4 by 2007 - now that is an outrageous dwelling price boom.
The Northern Ireland index later "retraced" (i.e. it crashed) to ~300 and is now steadily recovering again at 346.
One of the conditions which helped to pump this self-perpetuating bubble-boom was full-employment.
Full employment is the macroeconomic condition where almost all persons are willing and able to work at the current pricing of wages and working conditions.
Everyone in Ireland who wanted a job had one and the feedback loop gradually accelerated.
When city unemployment rates fall to below 4 percent towards to ~3.5 percent this may be an indication that such a condition might exist.
Australian Capital Cities - Unemployment Rate History
When tracking back the Australian capital city unemployment figures over the last 15 years, it is small wonder that Darwin has been on such an extraordinary run, with the city experiencing effective full employment centred upon resources industries (plus financial services compliance) and the public sector for many years.
Indeed the respective property booms of Darwin (2004-2014), Perth (broadly 2003-2010) and Brisbane (a strong dwelling prices uptrend which continued in fits and starts through to around 2009) all look to be glaringly obvious when scrolling back through the data.
Charts are Harder to Read From Left to Right!
However, one thing we can say about this is that everyone is a mining construction boom expert now that the investment boom set to fade into the rear view mirror!
As a resident of Darwin for a decent part of the "Top End" real estate boom, my recollection is that the general view was more along the lines of "this thing surely can't keep going higher...can it?" rather than "hey, this is a once-in-a-century mining boom - this baby is just going to keep on running for years to come!".
Famously my former employers Deloitte have been calling the end of the mining investment boom annually since 2003.
Similarly when the iron ore price doubled to $90/tonne, I was working in the mining industry at that time, and as far as I recall few were predicting that the price would then relatively quickly double again (although actually thinking about it there were a few copper price forecasts from market analysts and brokers which appear to have been wildly bullish in retrospect!).
In any case a glut of commodity supply combined with weaker demand from China has seen most of Australia's key commodity prices clobbered over recent times, with the bulk commodities of iron ore and coal hit particularly severely.
The property boom certainly now at last seems set to end for Darwin as the mining construction boom tapers.
So where else can we look?
New South Wales Unemployment
The raw monthly unemployment numbers can be volatile and are prone to jumping around a bit.
But take a look, for example, at the rolling annual unemployment chart for New South Wales smoothed for volatility.
Greater Sydney's unemployment rate is down to 5 percent and is now in an established downtrend.
Low interest rates have pushed dwelling prices sharply higher, retail trade is booming at double-digit pace and monetary policy settings are generally all too easy for the harbour city.
However, in regional New South Wales unemployment is clearly trending up towards 7 percent and above. This is partly related to the collapse in coal prices.
The paradox of economic downturns is that despite the suffering felt in some regions, a national decline in economic activity can sometimes offer spectacular opportunities in certain property markets as borrowing rates decline.
Sydney clearly does not have anything approaching full employment yet - there is still quite some slack and underemployment in the market, with the Parramatta region, the south-west and outer-western regions dragging the averages up, for example - but some of the inner regions could yet get somewhere close in 2015 and beyond pending further interest rate cuts.
Candidates include parts of Sydney's northern beaches, the inner west, the eastern suburbs and the lower north shore where unemployment rates are already very low (although there are existing indicators of under-employment in some cases).
Looking at unemployment rates in just a few of the suburbs and regions we have invested in and suburbs that we like, it's little wonder that Sydney property prices in these areas have been booming.
To name but a few of them: Bondi Beach (2.4 percent unemployment), Bondi Junction (2.5), Coogee-Clovelly (2.6), Double Bay-Bellevue Hill (1.6), Erskineville (2.6), Woollahra (1.6), Dover Heights (1.7), Randwick (2.3), Paddington (2.3), North Sydney (2.8), Kensington (2.8) and Pyrmont (2.7).
Generally speaking we are less keen on outer suburbs such as Penrith (12.2 percent and rising) and St, Marys (12.7 and rising), or the south coast such as Nowra (10.7) where there is considerably more land available for release and development.
And at the present time regions of mining influence such as Cessnock (11.6 percent and rising) are struggling with ascending unemployment rates - not everyone works in mining or will directly be affected by redundancies, granted, but the multiplier effect is important.
Recessionary conditions do not tend to be kind to secondary locations with high unemployment, so tread with great care.
(That's our opinion, others do differ on this point we should note).
Queensland Unemployment
In Queensland the city versus regional trend has been far less pronounced to date, but a similar pattern is now just beginning to play out with Greater Brisbane's unemployment rate (down to 5.8 percent in November 2014) appearing to have peaked.
On the other hand, mining job losses in particular are set to send regional unemployment significantly higher in Queensland, with the regional unemployment rate already up to 6.7 percent and rising.
We note here that by "regional Queensland" we clearly do not refer to all regions.
The Gold Coast, for example, does not have a high rate of unemployment. Nor does Toowoomba.
But there are plenty of risk areas, particularly in the coal and other mining regions.
The Queensland unemployment rates chart by region presents some handy indicators of where property investors may be interested in looking and some of those which they might look to avoid at the present time.
In such cases it is often the trend which is important rather than the absolute rate of unemployment.
As for individual suburbs for investors to target in Brisbane
Struggling Regions
There's no need for us to overwhelm you with charts today, but the final chart below shows how unemployment risk has eased in some regions of Australia but remains far too high for comfort in a number of selected areas.
Outer Suburban Challenges
There are also issues facing some outer suburban capital city areas.
The latest data shows that the unemployment rates in parts of outer Adelaide are spiralling.
For example the Elizabeth now has the highest capital city unemployment in the country, increasing to an extraordinary 33.3 percent in Q3 2014, a figure which is expected to rise further in the years leading up to 2017 as GM Holden and the care manufacturing industry is shuttered.
The rate of unemployment in Davoren Park has leapt to more than 20 percent (20.1 percent and rising) as has the unemployment rate in Smithfield-Elizabeth North (24.0 and rising) and Christies Downs (20.1 and rising), while other suburbs such as Morphett Vale are well into double digit levels of unemployment.
Generally speaking such high and rising levels of unemployment are a poor and potentially risky dynamic for housing markets that are transitioning into an economic downturn.
The Wrap
Of course, unemployment rates are only one of many metrics which we look at across hundreds within our chart packs.
We do like to share a few of them here, but space does not permit a full analysis of every suburb in Australia, and in any event, general investment advice is something to be very wary of...generally speaking.
What our chart packs do show is that unemployment rates in a number of regions are far too high for comfort and increasing given that the economy is likely to slow further in 2015.
On the other hand, low (and possibly lower) interest rates may offer investors some enticing opportunities, particularly we feel, in Brisbane.
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LJ Gilland Real Estate strive to keep your investment properties achieving the best results, for sale and for rent, in any market. Continually reviewing rents achieved per property and minimising any downtime. Equally for tenanted properties for sale, we strive to tick all the boxes, keeping the rent coming in, negotiating sales. We have very high ethics and principles and practice what we preach.
We value your business. We strive to remove the hassle from sales and rentals and provide the most cost effective, creative, RESULT driven strategies possible.
We truly enjoy servicing your property investment needs assisting you in making confident decisions with regards to your valuable investment properties. We do this by providing Comprehensive Reporting of the Property Investment, = Focused Expertise + Happy Property Investors allowing us to gain a better understanding of our Client’s needs and requirements.
Thus, whereas every other property management company a property investor interview will be touting the benefits of hiring them, we are totally focused on the how we will deliver solutions to the areas you need.
Please see some links below for an overview of the general real estate market:-
http://wp.me/p1qS3N-7U2
http://ljgilland.blogspot.com/2014/12/bill-evans-re-institute-of-consumer.html
Whilst our Team is to enjoy a very deserved rest over the Festive Season, Carlos and I continue to handle all potential tenant and buyer inspections.
We wish you and your loved ones a very Special and Safe Festive Season 2014.
Kindest Regards
Linda & Carlos Debello (LREA)
Removing the hassle from Sales and Rentals.
L J Gilland Real Estate PTY LTD http://www.ljgrealestate.com.au/index.php?lan=ch
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Australian Real Estate Market.
The Australian real estate market has bounced back strongly since it bottomed after the global financial crisis and new information revealing the best performing regions.
According to Core Logic/RP Data figures Sydney house values led the recovery with values up by 24.6 per cent since its low in December 2012 while the cities unit market was also the strongest with figures up by 21.1 per cent.
In Victoria, Melbourne was the region to record the best bounce back with its house values up by 14.7 per cent since December 2012 and units up by 11.8 per cent since April 2013.
In Queensland, Brisbane house values rose 11 per cent since its previous trough in December 2012 while unit values increased 7.7 per cent.
Perth houses prices grew by 19.8 per cent since their low in December 2012 while units were up by 18.9 per cent since January 2013.
Adelaide house values came back by 8.2 per cent since April 2012 and units 10.1 per cent from November 2012.
In the greater Hobart region houses rose by 9.2 per cent since May 2013 and units 4.3 per cent since July 2013.
Darwin house values were up 9.8 per cent since May 2013 and units rose 15.1 per cent since December 2012.
Core Logic/RP Data research director Tim Lawless said that nationally the market had rebounded quite substantially.
“It is largely skewed by the very strong performance of the markets across Sydney and Melbourne,’’ he said.
Mr Lawless said the latest figures showed that all cities apart from Hobart had recovered to levels they were at before they bottomed out after 2009 following the GFC.
“It has been a very broad based recovery,’’ he said.
“Sydney and Melbourne have been the market leaders and are driving that recovery.
Melbourne's property market is finishing the year on a high after a year that saw some records tumble.
Monthly auction listing records were toppled in August, October, November and December.
Melbourne's real estate market also experienced a landmark event on October 25, when more than 1500 homes were put under the hammer.
This was the most auctions held on a single day since Melbourne's first public auction of Crown land in 1837.
Gold Coast Shows Strong Recovery.
According to Core Logic RP Data, new figures reveal the Gold Coast has seen the best recovery in Queensland in its housing sector, and industry experts expect he momentum to continue.
In December 2012, the previous lowest point in the cycle, the median value for houses was $460,700 and units $314,197.
As of August this year that value had increased by 13.1 per cent to $520,832 for houses and 10.4 per cent to $346,942 for units.
That compares favourably to other markets including Brisbane where the increase was 11 per cent for houses and the Sunshine Coast where it was 12.3 per cent.
Core Logic RP Data’s head of research Tim Lawless said it appeared lifestyle markets like the Gold Coast were back in favour with buyers as they perceived them to offer good value currently.
Villa World chief executive Craig Treasure said the Gold Coast was in the early stages of the property cycle with the market rebuilding over the past two years and growth coming off a low base.
Mr Treasure said he was seeing strong demand return to the market after years of lacklustre growth driven by increasing consumer confidence and low interest rates.
A positive sign for the market was the return of first-home buyers, which made up 20 to 25 per cent of Villa World’s customers Mr Treasure added.
He expected the momentum to continue over the next two years but at a "slow, steady rate".
"I think we'll see sensible, subdued growth" he said.
Investors Look to the North.
Investors who may be tiring of the booming Sydney and upbeat Melbourne markets are increasingly turning to Brisbane, where prices are cheaper and rental yields stronger.
Brisbane has been relatively flat for the past four years, and it has been reported that investors are starting to see that Brisbane is likely to see an upward level of activity.
Auction numbers are reported to have reached an all-time record in the last weekend of November.
Features of the Brisbane market that are attractive to investors is that the median rental yield for houses in Brisbane is currently 5 per cent, compared with 4.1 per cent in Sydney and 4.2 per cent in Melbourne.
Also, Brisbane's median house price is just over half of Sydney's while Melbourne's median house price is also well above Brisbane's.
The rental yield for units is also stronger in Brisbane, at 5.17 per cent, beating the 4.52 per cent in Sydney and 4.55 per cent in Melbourne.
The rate of growth in property values in south east Queensland is tipped to out-do the growth Sydney has already had, within the next three to five years.
First Home Buyers May Wait Longer.
New research has revealed on average it now takes first time buyers 4.1 years to save a 20 per cent deposit for a house, up from 3.9 years in 2013.
The annual Bankwest First Time Buyer Deposit report found that with the median value for houses increasing by 7.1 per to cent nationally in the past 12 months the deposit needed to obtain a loan to buy a home had increased by more than $6000.
In 2013, based on the median house price, the deposit was $87,600 but it has now increased to $93,800 so buying a home seems even further out of reach for many first home buyers.
First home buyers in New South Wales took longer to save a deposit than any other state. The report found it took them on average 4.8 years to save $112,700 for a deposit based on the median value.
In Victoria it took 4.4 years, Northern Territory 4.1 years, and the ACT 4 years while in South Australia it took 3.3 years, Queensland 3.8 years and in Western Australia 3.7 years.
Tasmanian first home buyers had to save for the shortest period of time — 2.7 years.
Bit More on BRISBANE:_
Parts of regional Queensland face significant challenges as the mining construction boom fades and following the crash in coal prices.
Unemployment has clearly been rising in regional Queensland, but to date Brisbane’s economy appears to be holding up relatively well.
Owner-occupier demand for housing finance has been rising solidly and investor demand has continued to increase to its highest level since 2007 after a significant dip in the intervening time.
Population growth in Queensland is notably slowing as interstate migration to the sunshine state tails back from very high levels.
While apartment completions have not yet been anything too remarkable (see below chart), the number of commencements and approvals have picked up sharply in Greater Brisbane.
Unit approvals now seem to be receding again which is good news for the Queensland capital.
Vacancy rates are a little elevated in certain parts and suburbs of Brisbane, so investors need to tread carefully and asset selection will be key.
But the housing finance data suggests that for Brisbane we can expect to see a solid year or three ahead, beginning with robust capital growth in 2015.
Brisbane 2015 forecast: +5 to +8 percent
You cannot discover new oceans unless you have the courage to lose sight of the shore. [Andre Gide]
LJ Gilland Real Estate have been member agents of the Real Estate Institute of Queensland since 1996 and are holders of all appropriate Real Estate Licenses. On all matter relating to Property Management advice, it's our dedication, experience and professionalism that counts.
LJ Gilland Real Estate was formed in 1996. The company is an independently owned family business based in Brisbane. Whilst the company functions in all sections of the market, LJ Gilland Real Estate has developed a specialty in the prestige investment market. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with Tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. We offer property investor's the confidence to sell and lease in any market.
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Linda & Carlos Debello
“Your Local Property Management Specialist”
LJ Gilland Real Estate Pty Ltd (http://www.ljgrealestate.com.au)
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