Home price growth continues, but not because of supply shortage, say analysts
A widely-watched index shows home price inflation continued into April, with Sydney continuing to drive the national average higher.
The CoreLogic RP Data Home Value Index showed capital prices up 0.8 per cent last month to post a 2.5 per cent quarterly and 7.9 per cent annual rise.
Outside the capitals, prices remained fairly stable, with a 0.4 per cent fall last month and a 1.5 per cent gain over the past year that was only slightly ahead of consumer price inflation.
Amongst the capitals, the largest market of Sydney was driving all the gains, with a 1 per cent rise last month, 5.4 per cent quarterly jump and 14.5 per cent annual increase.
Sydney residential real estate prices were now up an average 65.4 per cent since the global financial crisis (GFC) of late 2008 and early 2009.
Melbourne continued to be a distant second, with a 0.8 per cent monthly gain and 6.9 per cent annual rise.
Melbourne prices were up 52.3 per cent since the GFC.
All other capital city markets were subdued over the past year, with Perth flat-lining and Darwin property losing value, even though Adelaide and Hobart posted strong monthly rises in April.
A glimmer of good news for aspiring buyers in Sydney and Melbourne was that unit values have failed to keep pace with house prices.
Sydney units were up 9.7 per cent over the past 12 months, versus a 15.5 per cent rise in house prices.
Melbourne apartments had very modest price growth of 1.9 per cent versus 7.6 per cent for houses.
Without a doubt I think we will see the regulators looking to curb some of that investor demand.Tim Lawless, CoreLogic RP Data research director
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CoreLogic RP Data head of research Tim Lawless said that trend was applying in most of the capitals, due to a relatively strong increase in unit supply compared to new houses.
“That additional supply we are seeing, particularly in Melbourne where apartment supply is substantial, is starting to put a cap on the rate of capital gains we are seeing,” he told ABC News Online.
Mr Lawless said it continued to be investors that were driving gains in property prices, despite regulator moves to slow lending to that sector.
“Historically, we’ve never seen investors outweighing owner-occupiers based on new mortgage originations, and that’s the case at the moment in Sydney,” he observed.
“Investors account for about 60 per cent of new mortgage origination, so very high and without a doubt I think we will see the regulators looking to curb some of that investor demand through the macroprudential levers via APRA [the Australian Prudential Regulation Authority].”
Supply matching demand: Fitch
Ratings agency Fitch weighed into the debate over whether Australia really has a shortage of housing supply.
Its interest in the topic was related to the ratings it gave for mortgage-backed securities, which could be hurt if an oversupply resulted in home price falls similar to Ireland and Spain.
Fitch’s conclusion was that the Australian housing market did not appear to be undersupplied, contrary to what housing industry groups and many independent analysts have argued.
If house prices were to fall, definitely we would not expect to experience a similar situation as it happened in Ireland or Spain.James Zanesi, Fitch Ratings director
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However, neither was Australia’s housing market oversupplied, like Ireland and Spain were ahead of the global financial crisis.
“Data indicates that housing supply alone is unlikely to be the root cause of the recent house price boom in Australia, neither is it likely to be the cause of future price correction,” the Fitch analysis found.
Fitch has issued a warning, similar to one made recently by Goldman Sachs analysts, that Australia was building more homes, especially apartments, at the same time as population growth appeared to be slowing.
“Changes in population growth rates or in construction volumes that significantly alter the ratio of new housing to new citizens would be a warning of potential looming oversupply,” the ratings agency noted in its report.
“The current rate of supply of 0.4 houses per new citizen suggests 2.5 people per house, which is in line with the Australian census figure of an average of 2.7 persons per dwelling.
“Given the importance of overseas migration, a significant slowdown in immigration to Australia, could be a catalyst for reduced demand and lower housing prices.”
However, one of the report’s authors, James Zanesi, said that Australia’s supply situation was more akin to Britain, making a 40 or 50 per cent home price crash highly unlikely.
“If house prices were to fall, definitely we would not expect to experience a similar situation as it happened in Ireland or Spain,” he said.
He said an oversupply situation, such as in Ireland or Spain, would likely take years to develop in Australia.
“It was like four to six years, so definitely not months, it usually takes years to develop such oversupply, and normally its driven by an expectation that overseas migration will increase over time,” Mr Zanesi added.
Foreign buyer surge adds to demand … and supply
Any shortage in demand from new immigrants appears to be currently being offset by demand from overseas investors.
Foreign Investment Review Board (FIRB) figures released yesterday show the number of foreign investor approvals for purchasing Australian real estate jumped 94 per cent last financial year to 23,428.
Moreover, the big increase in foreign investment took place in the sub-$1 million segment (from 10,458 to 19,696) indicating the surge in demand is for residential properties rather than big commercial developments.
The data from FIRB was virtually a year old upon being released … and it’s probable that foreign investment’s increased further from that point.Tim Lawless, CoreLogic RP Data research director
The FIRB figures show an almost 50 per cent increase in the value of foreign real estate investment to $74.6 billion for 2013-14.
There was a greater than 50 per cent rise in the number of approvals for existing residential dwellings to 7,915 with a total value of $7.17 billion, or an average purchase price of $906,000.
While purchases of newly built dwellings, a category that non-resident investors can legally buy into, more than doubled from 4,449 to 11,338 and totalled $7.72 billion, an average purchase price of $681,000.
Thos average purchase prices put the typical foreign investment well into the price range of many first home buyers, especially in the expensive markets of Sydney and Melbourne where the vast bulk of foreign investment took place.
China was the biggest source of foreign real estate investment in 2013-14 at $12.4 billion, more than double the next biggest source, the USA, while Singapore was third at $4.3 billion.
“We’re still seeing foreign buyers as a relatively large proportion of the market,” observed Tim Lawless, who added that this trend is only likely to have strengthened in the current financial year.
“The data from FIRB was virtually a year old upon being released … and it’s probable that foreign investment’s increased further from that point.”
Last year, a House of Representatives committee found that FIRB’s data collection was also likely to be deficient, as it relied almost entirely on the honesty of foreign buyers to declare their purchase with minimal penalties for failing to do so, meaning the real scale of overseas real estate investment is unknown.