The Week in Real Estate | 01 March 2018

Developer AVJennings expects east coast markets to stay strong for some time because of undersupply of new houses. Volumes are set to stay high although price rises will moderate, the developer says, after reporting a rise in revenue on the back of growth in average sale values.
“Strength in the traditional housing markets has continued because that’s where the most significant undersupply was,” CEO Peter Summers says. “Melbourne and Sydney we see as continuing to be quite strong. The Sydney market will be fairly prolonged, not so much in price growth but in volumes.”
Summers says he is not worried about the level of household debt, as interest rates are low and likely to increase only moderately.
Property giant Stockland delivered a $684 million first half statutory profit, reporting underlying earnings growth of 18%. The group, which builds housing estates, retirement villages and industrial parks, is Australia’s largest listed residential property company.

Housing in high-crime areas is outperforming the general property market, according to RiskWise Property Research.
It says high-crime areas, despite expectations, are trumping their safer neighbouring suburbs when comparing their five-year growth to the city’s overall median.
RiskWise CEO Doron Peleg says most investors believe high-crime rates have a detrimental effect on price growth and attribute too much weight to crime figures.
“Our nationwide research found gentrifying suburbs with high crime typically deliver strong price growth and outperform the local benchmark,” he says.
In Melbourne, some suburbs significantly outperformed the market, such as Frankston North which delivered growth of 102% over the past five years.
In Sydney, eight of the Top 10 high-crime areas outperformed the market due to very strong demand from owner-occupiers and investors for affordable properties.

High rates of population growth, strong construction activity and continued jobs growth are good news for Australia’s housing market outlook for 2018.
The HIA’s National Outlook predicts a strong year for housing despite lower investor and building activity. Principal economist Tim Reardon says the supply of new housing is closer to meeting demand than at any time since 2003.
“The enormous pent-up demand for housing in east-coast metropolitan areas is finally being met by a record supply of new apartments,” he says.
Reardon describes the withdrawal of some investors from the market and the rise of first-home buyers off the back of state government incentives as “a defining characteristic.”
Strong levels of population growth, particularly in Australia’s eastern states, has boosted housing markets. While Australia has strong population growth by world standards, an ageing population means natural increases are well below a growth figure and strong migration is needed to make up the shortfall.

Banks are likely to compete more fiercely to lend money to first-home buyers and investors as they seek growth in a loan market that is going “sideways”, Mortgage Choice says.
It says softer conditions in home lending are prompting banks, whose loan portfolios are dominated by residential mortgages, to target growth opportunities in particular customer segments, including among investors and first-home buyers.
Mortgage Choice CEO John Flavell says, with banks now well within regulatory caps on interest-only loans, competition is returning in this part of the market.
“If banks have got balance sheet capacity and they’re within the caps the prudential regulator has put in place, they’ll fiercely compete for business,” he said.
The interest rate premiums banks are charging for interest-only and investor loans have narrowed recently, he says.
“We saw the differences in price go out as much as 80 or 90 points, and now it’s come back a little and maybe it’s 40 or 50 points of difference.”

A record number of new units set to hit the market this year in capital cities is unlikely to trigger price decline, Bank of America-Merill Lynch economists say.
The moderating market in the biggest cities will instead lead to fewer housing starts which will mean there is a prospect of an undersupply by 2020.
“The stage is being set for the next property cycle,” BAML economists Tony Morriss and Alexandra Veroude say in a research note.
“Forget oversupply,” they write, urging their clients to look beyond this year’s headlines. There are “risks of undersupply brewing” with building approvals having peaked in 2015.
“With population growth expected to keep underlying housing demand robust, we see underlying demand outpacing supply in Australia’s largest housing markets, New South Wales, Victoria and Queensland, from 2020,” they say.

“If banks have got balance sheet capacity and they’re within the caps the prudential regulator has put in place, they’ll fiercely compete for business.”

Mortgage Choice CEO John Flavell who says banks are now well within APRA caps on interest-only loans and competition is returning to the market.