SSS – November 2014

RBA Cash Rate

Again left at 2.5%. I expect this to remain the case for a while yet. National unemployment is now 6.2% (11-year high) and the Aussie dollar is still ‘uncomfortably’ high. Most economists believe fair value lies around the $0.75US mark. We’re currently at around $0.85US.

Of note the US have ended their money printing program (QE) only to have Japan boost theirs. The BoJ (similar to our RBA) will now ‘print’ around $58 billion a month and add it to its money supply.

Because interest rates are practically 0% in Japan, we can expect some of that cheap money to find its way here in Australia chasing our higher 2.5% returns. This chase should keep our dollar high and therefore inflation and local interest rates low.

Europe (ECB) are now also talking about starting a money printing program.

Chinese money is also making its way here but is predominately being parked in CBD high-rise apartments in Sydney and Melbourne. We’re now starting to see an increased uptake of Brisbane CBD apartments from foreign buyers.

Macro-prudential Policy

You may have heard this term lately in the news. It’s mostly about stopping banks from lending to high-risk borrowers and at high loan ratios particularly in real-estate. Its broad aim is to prevent a large lo-doc or sub-prime mortgage market manifesting here in Australia as it did in the US back in 2008.

Nothing is in concrete yet but there is talk that banks may be forced to increase interest rates as any new ‘mac-p’ policy has the potential to impact their record banking profits.

If banks do increase rates independent of the RBA, then expect the second-tier and non-bank lenders to step up and become more competitive.

Bank Valuations

You might recall that it is typical for bank valuations to come back between 5-8% below contract price – particularly for un-tested markets where there are no established home sales in the area.

It’s being noticed that some valuations recently have been coming back between 10-20% below contract! This is obviously not feasible or acceptable and could be part of a ‘plan’ to reign in investor activity.

If you find yourself in this position there are a few options available from contesting the valuation (success unlikely though for new builds) to negotiating with the builder/developer for a reduced price. Sometimes the best option is to just walk away and find a better deal elsewhere. Each circumstance and deal is different and needs individual assessment.

At the end of the day it really is all about the numbers and building your asset base responsibly in amongst all the noise.

Our team are obviously here to assist you in that process.

Over-heated Market?

Below straight from RP Data:

Across the individual capital cities, real changes in home values between December 2008 and September 2014 have been recorded at: 31.6% in Sydney, 26.1% in Melbourne, -8.0% in Brisbane, -3.7% in Adelaide, -0.6% in Perth, -14.7% in Hobart, 11.0% in Canberra and 5.1% in Darwin.

The next time you hear someone talk of the booming national housing market remember these statistics.

Yes combined capital city home values are rising and this is due to the influence of the Sydney and Melbourne housing markets where values are rising.

Real home values in Brisbane, Adelaide, Perth and Hobart are still lower than they were before the financial crisis and have seen no real growth in more than six years.

Perhaps the recent growth seen in Sydney and Melbourne are about to spread to the other capitals, Brisbane and south-east QLD in particular.

Cairns Market

The Queensland Government is making available funding that will pave the way for the construction of 18,500 new homes at Mount Peter, south of Cairns.

The co-investment will enable the construction of trunk water and sewer infrastructure for residential development to begin on the first 1000 lots in the Mount Peter master-planned area. Covering more than 3300 hectares in total, Mount Peter will ultimately provide an estimated 18,500 homes for 40,000 residents.

This is all in preparation for the expected $8 billion Aquis Casino Development. Approval is still not confirmed but we’ll keep you posted.

Quote

There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.  – John Adams 1735-1826

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