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Reproduced with permission.
Spring is in full swing: the race that stops a nation is almost upon us and we’re in the midst of the busy property selling period. We’re also on the brink of beating our friends across the ditch in a sporting World Cup for a third time this year (with an imminent rugby rubbing to follow on from our cricket and netball victories), so it’s a busy time for sports followers as well as property-hunters!
This is the time of year when most people prefer to sell their properties. For those of you who appreciate the fundamentals of economics and supply and demand, this means (in our view) spring is the prime time for buying given property stock is hitting its peak.
Changing of the guard: Sydney passes the baton to Melbourne
RP Logic Data’s latest figures suggest Sydney’s property market is starting to slow down, with Melbourne overtaking our largest city as the nation’s market leader for the last quarter (recording 7.4% growth versus 4.6% in Sydney).
This result may reflect that Sydney investors are deciding not to keep going back to the bank for more cash. For those interstate investors in Australia, and overseas investors, it may be the cascade effect of turning the focus to Melbourne in the belief it shows greater value for money than Sydney. This is a conversation we’ve found ourselves having more frequently with our NSW clients who are open to the idea of interstate buying. I wonder if we’ll soon see a similar trend emerge amongst investors, in that they will turn to Brisbane or the Gold Coast given Melbourne is in the midst of its strongest run since 2010. This has been another common discussion point for some time.
Sydney is one of only three capital cities with higher listing numbers than 12 months ago – another indicator it is becoming more of a buyers’ market. Sydney still has the highest growth rate for the past 12 months. Rental yield is at a record low which is a further signifier that prices are at, or around, peak level.
Adelaide’s property values have been dragged backwards over the past 12 months, based on a drop of 1.6% in the last quarter, putting them just into negative (0.3%) territory for the past year.
Will my rates go up (see the banks) or down (see the Reserve Bank) on Cup Day?
Most of you will have noted that the big banks have increased interest rates, generating lots of media attention during the past few weeks. The reason given by our banking ‘friends’ is they are required to hold higher levels of capital relative to debt levels. Boosting cash reserves does costs money, even for banks! This ‘resilience measure’ was one of a suite adopted by the Australian Government in response to the Financial System Inquiry chaired by David Murray. The government’s ‘resilience measures’ are aimed at making our lending system stronger should we be struck by another major financial crisis. Considering the financial sector is the largest in our economy – employing over 400,000 Australians – and we all rely on it to some degree, the government’s actions generally make sense.
With many of the pundits predicting a further rate cut on Melbourne Cup Day to enhance punters’ moods, I’m sure the rate increases just dished out by the banks is no coincidence. All the banks’ interest rate increases have been less than the likely 25 basis points or 0.25% drop in rates that we’re likely to receive on Tuesday. What this means is no-one will actually feel higher interest payments through this move by the banks. Just as importantly, the ever-changing media cycle will allow them to report ‘all the major banks have passed on the full interest rate cut handed down by the Reserve Bank’: generating positive coverage very shortly after some negative media exposure. Oh, how shrewd! And the banks are able to make more profit for the new capital reserves they have acquired and keep shareholders happy. It doesn’t matter which way you move the water, it still keeps coming back to the same place…or is there a constant drip that’s making the water level higher?
Government response to the Financial System Inquiry (‘Murray Report’)
The government announced this month that it has accepted 43 of the 44 recommendations of the comprehensive Financial System Inquiry – a bold and positive step and one of the early action items of the new Turnbull government.
Interestingly, the only recommendation the government rejected was advice to discontinue the ability for borrowing from self-managed superannuation funds (SMSFs) to purchase investment property. The government has said they want three more years of data on this issue before making a decision.
As I have stated previously, I believe a tightening of the rules would be more appropriate for the consumer than an outright ban. A number of lenders have tightened their approval processes around SMSF loans in recent months. Perhaps the Murray Report’s recommendation was too strong in stating SMSF residential lending should stop altogether, leaving the government with no room to move. I imagine stating we ‘somewhat agree’ would be a little ambiguous. It appears that making regulatory changes around tightening the lending rules is in the too hard basket for now at least.
Enjoy the Melbourne Cup and all the best to the Wallabies. (My wife is a Kiwi, so I have more riding on this final! Couldn’t bear the ribbing I’d cop from her family if New Zealand wins.)
David Johnston, Managing Director
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