Moody’s, to investors: watch for a crash, please
Australia’s triple-A bond rating is secure, thanks to rising consumer sentiment, but house prices aren’t helping. Rising valuations in residential property “poses some medium-term risks as Australia's real estate market may be overheating,” Moody’s Investors Service said in a regular note, “with both price-to-income and price-to-rent ratios reaching levels well above historical averages". Moody’s noted the positive-wealth effect of rising home values, but fears that the income-to-price gap simply isn’t sustainable and that eventually something will give – a correction. Housing construction is merely keeping pace with demand at this point, limiting the price impact up or down. A bust would be localised to Australia, given low leverage ratios and well-capitalised banks, which face a greater risk from bad investments in mining than homes, Moody’s concluded. Read the full story here.
Melbourne apartment building sells in 12 hours on the market for $5.4 million
A China-based family purchased a six-tenant apartment building with ground-level retail in Melbourne’s CBD for $5.4 million, 12 hours after hitting the market. The property has $232,000 in short-term leases, implying a yield of 4.29 per cent. But the three-level, 880 square metre building on Exhibition Street opposite Carleton Gardens also sits on prime redevelopment land and might be worth a lot more with the right plan. The agents negotiating the sale described a land-rush attack by bidders. “The phone literally ran hot resulting in numerous potential purchasers making inspections within hours of hitting the market,” one said. It may be worth reminding folks that foreign purchases draw attention for flashy buys, but they’re apparently no more common than they used to be. Read the full story here.
Tighter rules continue to be debated for foreign investment
A Parliamentary inquiry continues into foreign purchases of Australian real estate. “There’s been a lot of anecdote, but what the committee is actually looking at is the facts around the purchase of real estate in Australia,” said Kelly O’Dwyer, chairman of Parliament’s economics committee. “The important thing is that markets are as open as they can be,” said Ed Husic, deputy chair of Parliament’s economics committee. “I’ve been supportive of foreign investment coming into Australia and I’d like Australians to have the opportunity to invest overseas as well.” But Husic has also been looking into the rise of shadow banking in China, to see how loans into the Australian market are being regulated offshore. The committee notes that no criminal prosecutions occurring right now, and they’re trying to determine if more significant fines should be applied. Watch the full story here.
There’s enough money out there to keep home prices rising for a few more years, says BIS Shrapnel
Property industry analysts from BIS Shrapnel expect residential property price growth to continue until at least next year, although growth will be regional and choppy. Rising construction impacts BIS’ forecast, as does the explosive increases in high-rise construction in some capital cities. But neither of these trends will land with any force until 2016 or 2017… except perhaps in Sydney and Melbourne, BIS said. Rising interest rates may halt growth there, while cyclical economic hits in Western Australia and the Northern Territory may slow price growth in Perth and Darwin. Current interest rates keep property sufficiently attractive to maintain further price growth for now, but first-time home buyer demand remains weak. The market has been relying on “next time buyers” and investors, with immigration supporting price growth in rental properties. Read the full story here.
Australian millionaires own twice as much property as other millionaires
It could be risk aversion, or simply Australian values, but Aussie millionaires keep twice as much of their wealth in real estate as the rest of the world on average, according to Cap Gemini’s recently-released World Wealth Report. The 218,700 Australian with $1.2 million or more in investment capital – not counting their family home – have kept 35 to 40 per cent of their wealth in property, a figure that has not changed much over the years. The number of Australian millionaires increased by 5.6 per cent this year, and rising real estate prices appear to be a factor, according to Cap Gemini. Read the full story here.
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