Australia Faces Its Demons

[Sancho Panza]

http://www.news.com.au/finance/real-estate/buying/australias-ghost-suburbs-a-national-scandal/news-story/7e74c62fc314f86a2c8b176f3358d13f

'TREASURER Scott Morrison has hit out at analysis from the University of New South Wales which suggested Australia’s “ghost house” crisis was being fuelled by investors intentionally leaving properties empty to take advantage of tax breaks.

The UNSW’s City Futures Research Centre yesterday claimed “perverse” tax incentives were encouraging investors to leave tens of thousands of homes empty in Australia’s most desirable suburbs, adding fuel to the housing affordability crisis.

“Housing supply is increasingly driven by a property investment market that is failing community expectations of affordable homes in places people might want to, let alone need to, live,” researchers Bill Randolph and Laurence Troy wrote in The Sydney Morning Herald.

“Losses against a rental investment can be offset by negative gearing and resulting capital gains taxed at a reduced rate when the property is eventually sold.

“Leaving housing empty is both profitable and subsidised by government. This is taxation lunacy and a national scandal.”

The UNSW analysis compared the 90,000 vacant dwellings across metropolitan Sydney — as of the 2011 census — with the rate of return investors made by renting out a property.

The researchers found homes in suburbs with lower rental yields and higher expected capital gains were more likely to be unoccupied, suggesting investors in those areas were focused on growing the value of their properties.'

Edited March 29, 2016 by Sancho Panza

[spyguy]

Quite - my parents live in Cambridge as I did until 2010 although I came to OZ via an 18 month stint in Saudi.

I keep a suitcase of clothes at my parents. Every time I come back to the UK I arrive with a near empty suitcase and return with it crammed with stuff bought in the UK at a fraction of the price in the UK (clothes, toiletries, pharmaceuticals, consumer goods)

This is something do not understand.

I remember hearing a program about someones parents visiting their kid in London.

They brought nothing over and bought and took back 2 suitcases crammed with stuff from SportsDirect.

I cannot remember if the parents were Oz or NZ.

Why is non-perishable stuff so expensive?

Surely its not beyond someone to stuff a container full of stuff and ship it over?

[TheCountOfNowhere]

This is something do not understand.

I remember hearing a program about someones parents visiting their kid in London.

They brought nothing over and bought and took back 2 suitcases crammed with stuff from SportsDirect.

I cannot remember if the parents were Oz or NZ.

Why is non-perishable stuff so expensive?

Surely its not beyond someone to stuff a container full of stuff and ship it over?

Start up a company, call it...sports in-direct

[quine]

This is something do not understand.

I remember hearing a program about someones parents visiting their kid in London.

They brought nothing over and bought and took back 2 suitcases crammed with stuff from SportsDirect.

I cannot remember if the parents were Oz or NZ.

Why is non-perishable stuff so expensive?

Surely its not beyond someone to stuff a container full of stuff and ship it over?

When I lived in Oz I used to buy lots of homewares from Marks and Spencer on line. It was cheaper to have it sent to Australia than to buy the overpriced tat locally. Same with bike parts. Wiggle was widely known and respected by all the cyclists. Stuff used to arrive promptly and cost much, much less than anything could be bought in the shops in Oz.

[spyguy]

When I lived in Oz I used to buy lots of homewares from Marks and Spencer on line. It was cheaper to have it sent to Australia than to buy the overpriced tat locally. Same with bike parts. Wiggle was widely known and respected by all the cyclists. Stuff used to arrive promptly and cost much, much less than anything could be bought in the shops in Oz.

But why????

Are Aussies some sort of glutton for punishment, or lack sense to set up an import business?

You could put a months worth stock of tracksuits into a container.

[Silverfinger]

Funny given the Baltic Dry Index is so low, isn't it? Is it import tax differences? I also noticed flights to the US being much cheaper from the UK as compared to Germany.

[wherebee]

Import differences.

Plus - and this is a big one - because immigration has been largely controlled (no hordes of minimum wage orcs here) retail has to pay higher wages (including all sorts of loading for weekends etc), which feeds through to the shopfloor prices. Quite right too.

[TheCountOfNowhere]

The demons are coming to get you

[quine]

Import differences.

Plus - and this is a big one - because immigration has been largely controlled (no hordes of minimum wage orcs here) retail has to pay higher wages (including all sorts of loading for weekends etc), which feeds through to the shopfloor prices. Quite right too.

Which is why there are so many cocky people working in the service industry in Australia. They get paid a lot therefore feel it's beneath them to serve the hoi poloi. Our time in Brisbane epitomised this.

[Silverfinger]

I was recently told that an Aldi worker in Switzerland can earn what a university professor in Germany makes. I guess that would explain some major shifts at the boarder.

[Kurt Barlow]

Article in the AFR today. Reports 30% falls in prices for high end apartments (>$1m) in Melbourne. In the more general market 4-8% falls.

[Kurt Barlow]

When I lived in Oz I used to buy lots of homewares from Marks and Spencer on line. It was cheaper to have it sent to Australia than to buy the overpriced tat locally. Same with bike parts. Wiggle was widely known and respected by all the cyclists. Stuff used to arrive promptly and cost much, much less than anything could be bought in the shops in Oz.

I had a business trip back to Europe and used the opportunity to take a short break in the UK. Brought back a load of decent pots and pans, kitchen stuff, energy efficeint light bulbs etc I had stored at my aunts.

[council dweller]

Kurt...

Have you heard that Cambridge Aldi has closed ? (for four months)

How we gonna live !?

Went by van today to stock up on chicken, beer and wine ...and beer. They`d run out of Foster`s so I had to make do with Hobgoblin. It`s tough down here...

[Kurt Barlow]

Kurt...

Have you heard that Cambridge Aldi has closed ? (for four months)

How we gonna live !?

Went by van today to stock up on chicken, beer and wine ...and beer. They`d run out of Foster`s so I had to make do with Hobgoblin. It`s tough down here...

When in Cambridge I don't venture over to the dark side so couldn't visit Aldi. Had to make do with Waitrose at Trumpington or Tesco at Fulbourn.

[mattyboy1973]

Import differences.

Plus - and this is a big one - because immigration has been largely controlled (no hordes of minimum wage orcs here) retail has to pay higher wages (including all sorts of loading for weekends etc), which feeds through to the shopfloor prices. Quite right too.

I don't think it's as simple as that. As far as I know, there are no punitive import tariffs going into Australia. I think it's a combination of a number of things, including the relatively high pay in the retail sector, the small size of the market & the geographical spread. I think also it's historical - Aussies are used to getting reamed and, until recently, didn't really know any different. With the advent of internet shopping their eyes were opened and - particularly during the high AUD era (arguably it is still quite high) - overseas internet shopping was rife. What I noticed whilst living down there at this time was that more and more brands became blocked for delivery to Aus (e.g. on Amazon) because the manufacturers wouldn't allow it, which brings me on to what I think the biggest factor is - the stitch up by the importers and wholesalers. The big mark ups are happening here, not at the retail level and companies exporting to Aus have had it very good (i.e. got away with murder) for too long to give it up easily. I had more than one conversation with Aussie retailers, in various markets, along the lines that they couldn't compete because they were paying more to the Australian distributor than I could buy it at retail overseas. One case in point; I purchased quite an expensive Yamaha outboard engine (115hp). Australian list price $17k, and couldn't be sourced any cheaper in the country. I had this engine shipped in from the US for a landed cost of $8k. That's the same engine, manufactured in Japan, shipped to the US and then shipped back to Aus. Of course I effectively lost any warranty on that, but these modern 4 strokes are incredibly reliable and I didn't end up needing it. Also didn't have any issues getting it serviced by Aus Yamaha dealers (although given the cost of servicing, I'm not surprised).

[council dweller]

Well, I`m very much closer to Trumpington than I am to the hell hole that it is the Arbury / histon rd.

I often go to waitrose to get free coffee. Poor ? Yep that`s me !

Apparently they are (Aldi) looking for a site south of Cambridge......Cambridge is their busiest shop in the whole of the UK !

[Kurt Barlow]

Well, I`m very much closer to Trumpington than I am to the hell hole that it is the Arbury / histon rd.

I often go to waitrose to get free coffee. Poor ? Yep that`s me !

Apparently they are (Aldi) looking for a site south of Cambridge......Cambridge is their busiest shop in the whole of the UK !

I have always thought Sawston would be a prime site for an Aldi- population of 9000 and a high ranking on the Chav Pound index.

[Kurt Barlow]

I don't think it's as simple as that. As far as I know, there are no punitive import tariffs going into Australia. I think it's a combination of a number of things, including the relatively high pay in the retail sector, the small size of the market & the geographical spread. I think also it's historical - Aussies are used to getting reamed and, until recently, didn't really know any different. With the advent of internet shopping their eyes were opened and - particularly during the high AUD era (arguably it is still quite high) - overseas internet shopping was rife. What I noticed whilst living down there at this time was that more and more brands became blocked for delivery to Aus (e.g. on Amazon) because the manufacturers wouldn't allow it, which brings me on to what I think the biggest factor is - the stitch up by the importers and wholesalers. The big mark ups are happening here, not at the retail level and companies exporting to Aus have had it very good (i.e. got away with murder) for too long to give it up easily. I had more than one conversation with Aussie retailers, in various markets, along the lines that they couldn't compete because they were paying more to the Australian distributor than I could buy it at retail overseas. One case in point; I purchased quite an expensive Yamaha outboard engine (115hp). Australian list price $17k, and couldn't be sourced any cheaper in the country. I had this engine shipped in from the US for a landed cost of $8k. That's the same engine, manufactured in Japan, shipped to the US and then shipped back to Aus. Of course I effectively lost any warranty on that, but these modern 4 strokes are incredibly reliable and I didn't end up needing it. Also didn't have any issues getting it serviced by Aus Yamaha dealers (although given the cost of servicing, I'm not surprised).

I can remember my aunt and uncle in the late 80's and 90's filling their suitcases with electrical goods kettles, toasters, lamps etc to take back to Oz.

[Sancho Panza]

http://www.theaustralian.com.au/business/property/house-price-growth-slowest-in-nearly-three-years/news-story/c4d46f3ba92b2d6d92d882dea0061863?nk=c2817f00162244bab75a69fb711397d5-1459530207

House price growth slowest in nearly three years

'Australia’s housing price growth has slumped to its slowest pace in nearly three years, with capital city prices rising 6.4 per cent over the past 12 months.

Going against the trend was the depressed mining-dependent Perth market, which showed a 1.2 per cent bounce in house prices for the month of March, according to researcher RP Data CoreLogic’s housing value index.'

[Sancho Panza]

http://www.news.com.au/finance/real-estate/buying/aussie-homes-40-per-cent-overvalued-leaving-young-buyers-praying-for-property-crash/news-story/1b1e75c355f6fa5778da82236aee4f1d

'AUSTRALIA’S housing market is 40 per cent overvalued based on price to income measures, with one expert warning an entire generation is now praying for a property crash.

In its latest round-up of global housing, The Economist found prices have risen in 20 out of 26 countries it tracks, with San Francisco, Vancouver, Sydney and Shaghai in particular singled out.

In those four cities, prices have increased by 12 per cent a year over the past three years, “twice the average national pace”.

To determine whether homes are fairly valued, The Economist measures the relationship between prices and disposable income, and between prices and rents.

“Thanks largely to their big cities, housing appears to be more than 40 per cent overvalued in Australia, Britain and Canada, according to the average of our two measures,” it says.

AMP Capital chief economist Dr Shane Oliver said the Australian house prices had been overvalued for more than a decade, but the long-predicted crash had never eventuated.

“The Economist magazine has been worried about this since 2002, and likewise the OECD’s measures of property prices relative to incomes and rents show significant overvaluation dating back to 2003 and 2004,” he said.

“The risk is certainly there. I would see the combination of very expensive property combined with very high household debt ratios as Australia’s Achille’s Heel.

“If something is going to go wrong that’s where we’re vulnerable. The counter to all that is it’s still hard to see what will go wrong.”

Dr Oliver puts the risk of a full-blown property crash — where prices fall by 40 to 50 per cent — at about 20 per cent chance.

“To get anything like that you’d have to have either much higher interest rates, a recession in the economy or a massive oversupply problem,” he said.

“There are pockets of oversupply, but we’re not staring down the barrel of a US or European-style oversupply problem at the beginning of the GFC.”

Dr Oliver says more likely is a fall-off of about 5-10 per cent in Sydney and Melbourne over the next two years, followed by around a decade of prices “treading water” as prices fluctuate up and down in that range.

That would give wages time to catch up and, at least partly, address the affordability crisis.

“This issue is more of a social one. People are having to borrow exorbitant amounts of money to buy a home and affordability is horrible,” he said.

“It’s screening out an entire generation of people from the property market, and some of them are hoping there will be a crash because they feel they’ve been disenfranchised.”'

[Sancho Panza]

http://www.cnbc.com/2016/04/05/australia-property-boom-shows-signs-of-tipping-point-as-prices-may-cool.html

Australia property boom shows signs of tipping point as prices may cool

'Australia's property prices appear set to come off the boil after a long run up, with analysts pointing to signs the market is turning.

Toh Shaowei, director for research and strategy for global real estate at UBS Asset Management, said Australia's property market is at a "tipping point."

"Investment demand in Australia is higher than domestic demand," with domestic buyers getting priced out, he said Monday.

But he noted that in many markets, particularly Melbourne and Sydney -- two key destinations for foreign investors -- the buyers aren't leasing out their units.

"They're just waiting and hoping that the music doesn't end and they just continue to bank on capital appreciation. It's not going to work," Toh said, citing expectations of more government restrictions aimed at dampening investment demand. "At some point in time, I think we will start to see that prices are going to contract."

Prices in some cities have become distinctly unaffordable. The most recent Demographia International Housing Affordability Survey showed that Australia was second only to Hong Kong on a list of the most unaffordable places to live, with dwelling prices playing a big part in the calculation. Demographia data for the third quarter of 2015 showed the median housing price in Sydney was 12.2 times more than the median annual household income, up from 9.8 in all of 2014. In Melbourne, the median home price was 9.7 times more than the median income, up from 8.2 in all of 2014.

The government has taken some steps to cool the market, such as limiting the growth in lending to property investors, which spurred banks to raise interest rates on mortgages for those borrowers. Efforts to crackdown on foreign buyers who breached ownership rules limiting them to only buying new properties, among other restrictions, have also helped to cool the market.'

12.2 times.....!!!

[wherebee]

For those who claim that foreign buyers do not impact house prices..

http://www.domain.com.au/news/tougher-lending-and-government-regulations-put-brakes-on-foreign-buying-20160415-go6cgo/

[Sancho Panza]

http://thenewdaily.com.au/money/2016/04/14/great-house-price-myth/

'Australia’s love affair with housing is said to be unquenchable. We have long been conditioned to believe houses are always a sound investment, prices always go up and those who warn of a bubble are doomsayers or fools.

However, what if I told you that outside of Sydney and Melbourne the bubble had already burst? Or at the very least, the slide was well under way?

Despite historically low interest rates and unprecedented investor demand, house prices outside of Australia’s two biggest cities have already fallen below their peak.

Saying the bubble has burst is perhaps a little pre-emptive but this weaker trend cannot easily be ignored. The main factors driving it, lacklustre wages and soft employment growth, are firmly entrenched and are likely to persist for a number of years.

The good news, though, is that most cities are taking this adjustment in their stride and in doing so are actively reducing the risks associated with Australia’s $5.9 billion property market. A gradual decline in house prices is more than manageable and vastly preferable to a decline driven by excessive leverage and speculation.'

[Sancho Panza]

http://www.afr.com/real-estate/residential/perth-home-auctions-rise-as-prices-fall-20160417-go86x1

'Perth real estate agents have pushed the rate of auctions to a near 15-year high in a counter-intuitive attempt to lower vendor price expectations and sell homes in a city awash with for sale signs.

Auctions are not typical in Perth and represent only 3 per cent represent of the market, but agent and auctioneer Rob Druitt said that was changing.

"I'm as busy as I've ever been," Mr Druitt said.

But unlike Sydney and Melbourne, where the number of homes being sold at auction was rising, along with home prices, Perth auction rates were rising as house prices fell.

"It's absolutely counter-intuitive," Domain Group senior economist Andrew Wilson said.

"You are allowing the market to set the price. It can be less fruitful [in a depressed market] because you can end up at square one after paying all the auction expenses," Mr Wilson said.

"When the market is rising you can optimise the price, which we are seeing in Sydney and Melbourne."

Speedy sale

In Perth, agents are using the auction as one mechanism to get vendors to be more realistic about the sale price and speeding up the transaction process.

Perth's median house price stabilised in March at $535,000 but has dropped 2.7 per cent since 2013. Average selling days have blown out to 72 days. The median house price was stable in March

"It is different [to the other states]," Mr Druitt said.

"There's something about Western Australia, what can I say? It does make sense because sellers are looking for a way to market their property and the driver is price."

He said the market was patchy, with some properties selling before auction, others selling for more than the reserve, others falling short of the reserve and some auctions attracting no bids at all.

The number of homes sold in Perth is at its lowest in 20 years with 36,586 transactions in the year to February, less than half the peak turnover set a decade ago of 78, 071.

Television influences

Figures from the Real Estate Industry of Western Australia show auction rates hit a 15-year high in December of 3.1 per cent and sat at 2.9 per cent in March.

"It's definitely changing," auctioneer Tom Esze said.

"There are all the programs on TV like Hot Property and all the auction shows and people are starting to say why don't we do auctions?"

But there are still not enough homes sold under auction to generate a meaningful clearance rate.

REIWA analysis shows a private treaty sale took 26 days longer than homes marketed for auction.

Julie and Branko Maretic turned to an action after failing to sell their three-bedroom family home in Karrinyup, about 15 kilometres north of Perth, which they put on the market in February.

After asking for offers between $729,000 and $769,000 the couple reduced the price to $699,000 in March before putting the home up for auction on Saturday.

No bids

Mr Druitt opened the bids at $550,000. Not a single bid was made.

"Most homes sell two weeks after auction and the seller meets the market," he said.

REIWA president Hayden Groves said although the percentage of Perth vendors choosing to sell by auction was small, it was gaining popularity.

"Auctions are becoming more familiar to West Australians, and Perth sellers are increasingly more open to this selling method," Mr Groves said.

Mr Wilson said there were signs the worse may be over for Perth's property market, with the pace of price decline moderating.

"We may be seeing the early signs of the price contraction moderating," Mr Wilson said.

"Whether it is a dead cat bounce is the question."'

[darkmarket]

This is unacceptable in a free market like Australia.

"It's absolutely counter-intuitive," Domain Group senior economist Andrew Wilson said.

"You are allowing the market to set the price.